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Automotive aftermarket in Australia to grow at 8.1% until 2023

Australia’s automotive aftermarket industry is mature, with modest growth expected. However, the digital-driven products and services are setting a new trend and will be the major growth drivers for the market growth with online revenue of $516 million at a CAGR of 8.1% in 2019.

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Definition / Scope

The automotive aftermarket is the auto industry’s after-sale market. It is is a secondary market in the automotive industry which involves the manufacture and supply of parts for motor vehicles fitted after the vehicle is sold as new. The aftermarket includes companies in manufacturing, remanufacturing, distribution, retailing, and installation of replacement vehicle parts, equipment, service repair, collision repair, replacement tires, and accessories.

The aftermarket parts are divided into two segments such as spare parts and accessories.

  • The spare parts are automotive parts remanufactured to replace original equipment parts of an automobile as they become worn out or get damaged after a period of time.
  • The accessories are certain parts made for comfort, performance, safety, or customization after the original sale of the motor vehicle.

The spare parts and accessories are not necessarily manufactured by the original equipment manufacturer.

Market Overview

Australia’s automotive aftermarket is mature, with modest growth expected. Australia’s automotive servicing, maintenance, and accessories sectors are growing steadily despite the downturn in new-vehicle sales and cessation of vehicle manufacturing in the country [1].

The industry value reached US$ 24.9 billion in 2018 and it is expected to grow at +0.13% CAGR to reach US$ 25.03 billion by 2019. The average age of vehicles in Australia is expected to be at 10.7 years by 2019. As in developed countries, the Australian automotive aftermarket will experience a boom once average vehicle age exceeds 5 years. Repair and maintenance, as one of the most mature segments in the aftermarket, is seeing high revenue and profits due to its large customer base. Leading value chain players, especially spare parts manufacturers and repair service providers, will obtain lucrative business opportunities.

The rising trends of e-commerce platforms are perceived as ‘game changers’ in the traditional supply chain. With auto parts eRetailing gaining penetration, there will be a major shift in focus from local retailers to online shopping for parts. In addition to digitization, the country is also expected to experience the impact of global trends such as autonomous vehicles and electrification, which will eventually engage consumer parts retail in the aftermarket. Auto parts manufacturers need to develop new strategies to capture growth opportunities in the independent aftermarket channel.

The aftermarket industry is highly competitive, with several big as well as emerging market players present in the market which include Amazon, Autobarn, AutoCrew, Bapcor Group, Burson Auto Parts, and Supercheap Auto.

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Key Metrics

Metrics Value Explanation
Base Year 2018 Researched through internet


Market Risks

  • Reduced profit margins: The Australian automotive aftermarket industry has steadily grown over the past five years. Industry operators have become more price-competitive due to the depreciating Australian dollar. Competition from motor vehicle dealers and mechanics is forecast to reduce industry profit margins. The profit margins for competitors are on a sharp decline with a net profit of about 4% - 8% margin. The profit has fallen also due to higher input costs and falling demand from car manufacturers.
  • Growth of Mobile Mechanical Services: The growth of mobile mechanics operating from utility and conducting vehicle servicing and repairs at customers’ homes, workplaces, and other locations has raised the concern within the industry regarding personal safety, accountability and disposal of environmentally hazardous wastes as there is no such compliance for mobile operators.
  • Parallel Importing: Parallel importing occurs when business and/or individuals sell products directly to consumers or businesses in Australia outside of the formal manufacturer distribution channels. Parallel imports of motor vehicles, parts and accessories represent a risk for all sectors of the automotive industry, disrupting commercial relationships between established businesses and impacting negatively on business profits and employment.
  • Franchise Code of Conduct: There are significant risks for many automotive businesses operating under franchise agreements, and particularly for motorcycle retailers. These businesses are required to operate under the Franchising Code of Conduct, introduced to the industry in 1998 and designed to regulate the conduct of participants in franchising. Key examples include non-negotiable terms contained in franchise agreements that limit the return on investment and create an unsustainable business model for franchisees; requirements for high-cost business investment even for short term franchise agreements and the lack of franchise protection often leading to the loss of a long-term franchise.

Top Market Opportunities

Some of the key growth opportunities include:

  • Aftermarket development: The market has grown due to consumers seeking cost-effective parts for major repairs. The continuing growth of automotive aftermarket means that parts manufacturers may slightly change their business focus from cooperating with OEMs for new car sales to optimizing their supply chains and reach in the aftermarket repair and maintenance segment. The car of the future will be Connected, Automated, Shared and Electrified ('CASE') creating profit opportunities for those suppliers and distributors able to respond to change. The subsequent wear-and-tear on vehicles in operation is positive.
  • Evolving Service Providers: The rise of e-commerce across the industry means that parts manufacturers must keep up with advancements in distribution or risk being left behind. Strong consumer uptake of online shopping has benefited online automotive parts retailers. Online parts sales' high volumes can offset lower profit margins. The optimal channels (B2B or B2C) and exact platform/distribution partners to cooperate with will depend on individual parts manufacturers’ goals and appetite.
  • Innovative Private Insurance Models: Auto parts manufacturers can provide quality control and other standardized, value-adding services such as product training and technical support to complement and leverage on the reach of independent / chain stores. Synergy in this area will also create a win-win situation for all stakeholders [2].

Market Drivers

The automotive aftermarket is traditionally driven by four primary dynamics:

  • The number of vehicles on the road: The population of vehicles outside of warranty (3+ years) drives aftermarket demand. Vehicles in Operation (VIO) grew consistently over the seven years, driven by 1) an improving economy that has bolstered new vehicle sales and 2) reduced scrappage rates due to better-manufactured vehicles that last longer. The number of vehicles on Australian roads is forecast to rise, lifting industry demand in 2019. Australia, with 24 million people, add up to more than 7.6 million new cars in just seven years. ABS data released in 2018 found that there are 775 motor vehicles per 1000 people in Australia. [3].
  • Vehicle Age Drives Aftermarket Growth: Vehicular quality has improved, keeping vehicles on the road longer and increasing the average age to 10.7 years. As owners are able to drive vehicles longer, they are more willing to invest in repair and replacement of parts. This has effectively expanded the age range of the aftermarket’s sweet spot population (those vehicles aged 6-10.7 years of age in which the owner sees value in repairs. An older vehicle parc has bolstered the sale of alternators, starters, brake calipers, and brake master cylinders, as these parts are generally only replaced later in a vehicle’s life. Higher numbers of replacement jobs generate more auxiliary business for installers, jobbers and retailers as service providers get a chance to diagnose ancillary problems in these older vehicles as well.
  • Miles Driven at Record Levels: Miles driven may be the greatest measure of broader vehicle wear and tear. Longer-distance motorists are concentrated among the Light Commercial and Larger SUV vehicle segments, clocking up annual averages of 24,030km and 18,350km respectively. Drivers of Light or Small Passenger vehicles and Small SUVs tend to cover the least distance per annum, all traveling less than 14,000 km on average. However, Gas prices of $2.69 per gallon are up to $0.22 from a year ago and $0.38 from 2 years ago. These price increases may hamper some demand, especially in the price sensitive DIY consumer.

Further, on top of lower unemployment and wage growth should improve consumers’ ability to spend on vehicle repairs.

Industry Challenges

The industry is facing many challenges beyond the transition from car and component manufacturing. Growing skill shortages, the emergence of electric and autonomous vehicles, education and training issues, access to OEM technical repair information and insurance company power are key areas that require policy attention.

  • Growing skill shortages: The lack of supply of suitably skilled labor is impacting upon almost half of all automotive businesses, holding back both business investment and growth. Skill shortages are widespread across the industry, however, occupations within the Automotive Repair and Maintenance sector are in highest demand. Shortages of light vehicle mechanics are critically high, with a national shortage of 12,943 in 2016/17, rising to 16,656 positions in 2017/18, before declining to 14,799 in 2018/19.
  • The emergence of electric and autonomous vehicles: It appears that Australia is in the midst of a policy vacuum in regards to electric, connected and autonomous vehicles. The uptake of electric vehicles in Australia lags well behind that of other OECD countries, and a key factor in this regard is the lack of incentives towards the purchase of electric vehicles in Australia.
  • Vocational education and training issues: The evidence compiled in this report indicates that just under half of all automotive businesses (48.4%) engage in the VET system through the hiring of apprentices. Responses received from these businesses indicate good to average experiences for most users across a range of measures including the teaching of theory and basics; technology training; course content; assessment processes and the reporting of apprentice progress.
  • Insurance Company Power: The Vehicle Body Repair sub-sector has endured considerable challenges in recent years and continues to be affected by processes that are seemingly beyond the control of many business operators. These have included the vertical integration of vehicle body repair work into the business models of insurance companies and on-going acquisitions and consolidation of body repair businesses within the industry.
  • Access to OEM vehicle repair information: Access to technical repair information ranks as one of the biggest challenges facing independent automotive repairers. It is claimed that there is a general reluctance on the part of vehicle manufacturers and their affiliated dealerships to make available technical repair information to independent repairers. This limits the ability of independent repairers to conduct or complete servicing and repair works, particularly to late model vehicles.

Technology Trends

Digital influence has become a significant factor in online parts sales, as well as on sales through chain retail stores, automobile dealers, big box retailers, and local independent retailer. By definition, 100% of online sales count under 'digital influence'. It is estimated that about nine out of 10 consumers now do research online before they purchase an auto part or accessory.

The increasing integration of CASE technology (Connected, Automated, Shared and Electrified) has created profit opportunities for the aftermarket. The new technologies should result in increased numbers of newly designed parts, the redesign of existing replacement parts, more complex repairs at higher prices and should drive miles driven. However, those that cannot invest will most likely lose share.

Online platforms have gained popularity among the automotive aftermarket industry players to launch their auto-parts portfolio. The manufacturers are increasingly launching their products on online platforms through third-party retailers such as Amazon, and eBay or via their own online portals, positively impacting the industry growth. However, lack of efficient standardization for e-commerce businesses may lead to easy counterfeiting of products, posing a threat to the industry growth during 2019.

Pricing Trends

Australian aftermarket growth has remained relatively steady over the past ten years from 2009-2018. However, it might be interrupted by periods of excessive fuel price inflation or overwhelming economic uncertainty, as during the period of 2008 and 2009. Australia has strong capabilities in design, management, safety, reliability, sophisticated IP protection, and research and development. The utilisation of these capabilities can position companies for international operations with high-quality value-add at a competitive price.

Regulatory Trends

The Motor Vehicle Standards Act 1989 mean that from 2018 Australian citizens (individuals) will be able to personally import a new passenger car from a country that has comparable standards to Australia limited to one vehicle in any 24 month period. The Department of Infrastructure and Regional Development (DIRD) has estimated that around 30,000 vehicles per year will be imported under this scheme.

While the DIRD has estimated that 30,000 vehicles per year are likely to be imported it has failed to acknowledge license syndication risk which is readily susceptible to manipulation by import consolidators and opportunistic rent seekers. This suggests that the actual annual impact on franchised new car dealers would exceed the estimated 30,000 units. This could trigger the creation of a theoretic pool of at least several hundred thousand individual import licences, will be difficult to monitor, affect the sustainability of dealership operations and will be open to price manipulation to reduce Government charges and taxes.

Other Key Market Trends

The cessation of motor vehicle manufacturing in Australia at the end of 2017 have caused significant unemployment consequences in the automotive value chain and increases the importance of a vital and profitable franchised new retail industry for regional employment and economic growth. The most affected are the third-party suppliers, also known as supply chains who manufacture parts, spare parts of the automobile and its components. The component makers faced serious job losses because more than half of the top-tier car component manufacturers closed business.

Australian automotive aftermarket sector is expecting less revenue in 2019 due to the shutdown of the car industry. The continuing need of the automotive aftermarket in Australia will drive the market but may not witness a sharp growth due to a massive downtrend in the car industry.

Market Size and Forecast

The Australian automotive aftermarket industry is valued to be a $24.9 billion market in 2018. The industry is growing steadily despite the decline in new-vehicle sales and discontinuity of vehicle manufacturing in the country. Alongside the auto parts eRetailing gaining momentum, there will be a change in focus from local retailers to online shopping for parts. In addition to digitization, Australia is also anticipated to experience the impact of trends such as autonomous vehicles and electrification, which will eventually push the consumer parts retail in the aftermarket. The market is expected to keep growing at about 0.136% CAGR to reach US$ 25.03 billion in 2019.

Australia Automotive Aftermarket Market Segmentation

By After Market Products and Services Type:

  • Engine and Parts Repair and Maintenance
  • Dismantling and Used Parts Wholesaling
  • Body, Paint, and Interior Repair
  • Electrical Service
  • Parts and Accessories Manufacturing

Based on the after-market products and services, Engine and Parts Repair and Maintenance parts accounted for the largest revenue share of US $12 Billion in the automotive aftermarket industry. It is also the fastest growing segment which is likely to expand at a CAGR of +2.3% in 2019.

  • Engine and Parts Repair and Maintenance: A decline in the number of new passenger vehicle purchases has boosted industry revenue. The average age of the overall vehicle fleet has remained largely stable over the past five years, reducing potential fluctuations in revenue. The Engine and Parts Repair and Maintenance market as a whole was worth US$ 12 billion in 2018 and will reach $12.2 billion in 2019, growing at 2.3%, an accelerated pace compared to other segment’s growth in 2019 [4].
  • Dismantling and Used Parts Wholesaling: The Motor Vehicle Dismantling and Used Parts Wholesaling industry has faced challenging conditions over the years. The falling cost of new imported parts has limited demand for used parts over the past five years. The Engine and Parts Repair and Maintenance market was valued at US$ 996 million in 2018 and will reach $995 million in 2019, declining at -0.1%. The growth in the number of vehicles fitted with advanced crash-avoidance technology has made vehicles safer and reduced the likelihood of serious accidents. As a result, demand from smash repairers for used parts is anticipated to exhibit weak growth in 2019 [5].
  • Body, Paint, and Interior Repair: A consistent rise in motor vehicle numbers has assisted the industry revenue growth however the better safety features of vehicles have reduced the frequency and severity of road accidents. The industry exhibits low capital intensity. For every dollar spent on capital, an estimated $10.21 will be spent on labor in 2019. The industry revenue was valued at US$ 7 billion in 2018 and will reach $7.04 billion in 2019, growing at CAGR of +0.7% [6].
  • Electrical Service: Hybrid vehicles have more electrical components, which has boosted demand for the industry. The strong sales of new cars with advanced electrical and electronic components have supported robust demand for auto electricians. The industry revenue is expected to grow at a CAGR of 1.3% in 2019, to $2.02 billion [7].
  • Parts and Accessories Manufacturing: The Motor Vehicle Parts and Accessories Manufacturing industry has struggled as consumer demand has shifted from locally manufactured cars to imported cars. Automotive parts dealers have replaced local motor vehicle manufacturers as the largest source of industry demand, as key brands such as Toyota and Holden have wound down and closed their manufacturing operations. The industry revenue is expected to decline at a CAGR of 9.8% in 2019, to $2.9 billion [8].
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Market Outlook

The Online Automotive Parts and Accessories Sales industry has grown significantly over the period of 2014-2018. Shifting preference of customers towards online purchase of these Automotive Parts and Accessories will primarily support the industry dominance. The increasing popularity of online shopping has driven industry growth, with revenue of $516m which is expected to rise at a CAGR of 8.1% over the five years through 2019. The digital-driven products and services are setting a new trend and will be the major growth drivers for the market growth in 2019 [9].

By 2020, online B2C automotive parts and accessories sales are expected to become a US$ 1.3 billion business in Australia. Emerging markets like Brazil and China are predicted to experience huge growth in the purchase of online parts [10].

More key players are expected to enter into aftermarket by building directly- managed workshops. Branded workshops and independent workshop chains are expanding services to win the aftermarket. Workshop chains are expected do well, owing to the trends of market consolidation. OEMs may establish parts in purchasing centers and workshop chains to enhance customer engagement.

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Technology Roadmap

The Australian automotive industry has strong capabilities in advanced and future vehicle technologies for hybrids. It is also estimated that digital services segment such as telematics, vehicle diagnosis, and fleet management will increase exponentially from currently 6% to 20% within the next 10 years.

Amazon will continue to grow as a source for auto parts and accessories. Amazon auto parts sales, accessories, and car care product in 2019 at $6.3 billion. Most of Amazon auto parts sales growth comes from direct Fulfillment by Amazon (FBA) sales, known as 'first-party sales' or '1P'. 1P sales typically include Amazon Prime offers. Most of Amazon’s 1P sales come either from manufacturers supplying Amazon directly or from warehouse distributors. Amazon is on a mission in 2019 to move more important high-volume automotive products to 1P. They want to shift more of the smaller automotive brands and low volume auto part numbers to 3P.

Distribution Chain Analysis

Due to an evolving distribution channel, auto parts manufacturers will need to develop new strategies to capture opportunities. Aftermarket is also linked to the rest of the automotive industry in Australia. The linkages are shown in the following diagram.

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Competitive Landscape

The market share of key OEMs continues to marginally decline each year as newer participants enter the market and consumers are spoilt for choice. Auto parts aftermarket is highly fragmented; distributors set up a partnership with e-commerce platforms to strengthen competitiveness in the short term:

1.Independent Parts Distributors: a. Car-type distributors: Large-scale variants can be OE-brands’ first tier distributors, whose brands correspond to the car types that they serve

b. Professional product groups distributors: i. Large-scale variants usually represent 10-20 parts brands, with no more than five OE-brands (the rest being will-fit or counterfeit brands) ii. Small-scale variants usually represent 1-2 will-fit or counterfeit brands

c. Brand distributors: Usually large-scale and often represent 1-2 OE-brands

2. Comprehensive Distributor Chains: They usually develop a strong distribution network in some cities, mainly located in auto spare parts centers. They cooperate with well-known OE-brands and carry various types of parts and consumable products.

Competitive Factors

Australia has some of the leading Original Equipment Suppliers (OES) who are continuously on the lookout for establishing their mark in the region's aftermarket space with mergers and acquisitions in the region. Amazon, E-bay, Auto Zone, and Advance Auto Parts are among the prominent participants in e-commerce automotive aftermarket. Partnerships and collaborations with online aftermarket players are among the strategies adopted by the industry players to enhance their visibility.

On the distribution end, online channels are emerging as the most attractive business strategy and are attracting major aftermarket players to provide innovative products and services through online channels. The local distributors are facing fierce competition from emerging channels, and strong market consolidation will be the likely result.

Key Market Players

A brief company profile of key market players is given below:

  • Amazon: Amazon.com, Inc. engages in the retail sale of consumer products and subscriptions in Australia and internationally. Amazon.com, Inc. is an online retailer that offers a wide range of products. Amazon offers personalized shopping services, Web-based credit card payment, and direct shipping to customers. [11].
  • Autobarn: Autobarn Pty. Ltd. operates as a franchise retailer of automotive aftermarket accessories, spare parts, and car audio and security systems. It provides electrical products, car care products, DIY products, mobile electronics, batteries, oils, performance products, protection products, seat covers, and tools. The company was founded in 1985 and is based in Nunawading, Australia [12].
  • AutoCrew: AutoCrew GmbH operates a chain of automobile repair shops. The company also provides vehicle checking and inspection services. The company is based in Schweinfurt, Germany. As of April 9, 2009, AutoCrew GmbH operates as a subsidiary of Robert Bosch GmbH [13].
  • Bapcor Group: Bapcor Limited sells and distributes automotive aftermarket parts, accessories, equipment, and services in Australasia. The company operates in four segments: Trade, Bapcor NZ, Specialist Wholesale, and Retail & Service. The Trade segment offers automotive aftermarket parts and consumables to trade workshops; automotive workshop equipment, such as vehicle hoists and scanning equipment; and automotive accessories and maintenance products to do-it-yourself vehicle owners [14].
  • Burson Auto Parts: Burson Automotive Pty Ltd. supplies automotive aftermarket/replacement parts, accessories, workshop equipment, car care products, electrical products, tools, and chemicals and oils to automotive aftermarket trade and retail customers in Australia. It serves customers through its network of auto parts stores.
  • Supercheap Auto: Super Cheap Auto Pty. Ltd. distributes motor vehicle spare parts and accessories. The Company offers tires, batteries, paint and bodywork, lubricants, mats, floor mat, sunshades, lights, and wipers. Super Cheap Auto serves customers throughout Asia [15].

Strategic Conclusion

Australia’s automotive aftermarket industry is mature, with modest growth expected. The online channels are emerging as business strategy and are attracting major aftermarket players to provide innovative products and services through online channels. Moreover, digital-driven products and services are setting a new trend and will be the major growth drivers. In one of the most important automotive aftermarket industry trends, digital influence is driving billions of dollars in parts and accessory sales.

That’s through all retail channels by 2019. This includes offline retail through chain stores like AutoZone or Advance Auto, automobile dealers, local independent brick & mortar retailers. Much of this is occurring on mobile phones. The growing trend of manufacturers selling direct is another aftermarket trend to follow in the aftermarket.

References

  1. https://www.goauto.com.au/news/industry-news/aftermarket-sector-in-demand/2019-03-29/78190.html
  2. https://www.ibisworld.com.au/industry-trends/market-research-reports/retail-trade/motor-vehicle-parts-retailing/motor-vehicle-parts-retailing.html
  3. https://www.carsguide.com.au/car-advice/australian-car-market-car-sales-statistics-and-figures-70982
  4. https://www.ibisworld.com.au/industry-trends/market-research-reports/personal-services/motor-vehicle-engine-parts-repair-maintenance.html
  5. https://www.ibisworld.com.au/industry-trends/market-research-reports/wholesale-trade/motor-vehicle-parts-wholesaling/motor-vehicle-dismantling-used-parts-wholesaling.html
  6. https://www.ibisworld.com.au/industry-trends/market-research-reports/personal-services/motor-vehicle-body-paint-interior-repair.html
  7. https://www.ibisworld.com.au/industry-trends/market-research-reports/personal-services/motor-vehicle-electrical-services.html
  8. https://www.ibisworld.com.au/industry-trends/market-research-reports/manufacturing/transport-equipment/motor-vehicle-parts-accessories-manufacturing.html
  9. https://www.ibisworld.com.au/industry-trends/specialised-market-research-reports/online-retail/online-automotive-parts-accessories-sales.html
  10. https://partsdb.com.au/press/blog/race-for-auto-aftermarket-ecommerce-dominance/
  11. https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=18749
  12. https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapid=130699778
  13. https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=53156929
  14. https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=261393013
  15. https://www.bloomberg.com/profiles/companies/0365659D:AU-super-cheap-auto-pty-ltd

Appendix

  • CAGR: Compound Annual Growth Rate
  • OES: Original Equipment Suppliers
  • US$: United States Dollar


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