The woes that have befallen the automotive industry since the global economic crisis have courted much press attention over the last four to five years. As recently as the Paris Motor Show, the general mood was not one of optimism. The sentiment has not been helped in recent weeks by increasing numbers of manufacturers announcing production cuts and lowered sales forecasts.
The turmoil in new vehicle sales has ramifications for the aftermarket. Firstly, the drop in new vehicle sales is a symptom of the overarching austerity that has swept Europe. Slower growth of the vehicle parc affects the aftermarket. In addition, motorists themselves are refraining from spending on anything but the most vital maintenance, and are prolonging component life by reducing or adapting vehicle usage. Secondly, the manufacturer dealer networks have been placed under tremendous pressure to fill the revenue void left by falling new vehicle sales. This is not an easy task, and it will require radical steps to truly compete with the independent aftermarket (IAM).
There is a “silver lining” in that, with declining new vehicle sales, comes a general increase in average age of the parc. With older vehicles in operation, more parts should be required to repair and maintain the fleets of aging vehicles, especially those parts which can be termed “captive” (any parts which upon failure have to be replaced otherwise the vehicle is rendered inoperable).
Unfortunately, while this phenomenon helps staunch the exodus of customers from the aftermarket, this isn’t a panacea for the whole European aftermarket. Datamonitor’s 2012 European Aftermarket Database shows clear signs are emerging across Europe that – before inflation – not only is the volume and value of market in decline for the mature Western Economies, it is also showing worrying trends for items considered “non-captive”.
Breaking down figures from the four largest European aftermarkets in our database (Germany, United Kingdom, France and Italy), into seven key product families (service parts, wear & tear, mechanical, tires, crash repair, consumables and accessories), we see a clear indication that motorists’ austerity measures are impacting growth of “non-captive” items such as consumables, accessories and, to a lesser extent, crash repair parts. All of these items register significant revenue declines of between -1.2% and -2.4%, whilst captive parts register declines between -0.4% and -0.7%. Items that are “nice to have” are increasingly overlooked in favor of those that ensure vehicles remain functional.
This results in our characterization of the aftermarket for these four countries being valued at circa €120-bn. This value is set to decline at a rate of -0.7% pa between 2012 and 2016 and will be faster for dealer networks (-1.1%) than the independent aftermarket (-0.6%).
In the emerging Central and Eastern European areas growth in vehicle use is ensuring that the likes of GDP and economic activity are even closer linked to the use and maintenance of vehicles than in the more stable mature Western countries. However, this on its own is not enough, as these areas all too easily catch a cold if Western Europe sneezes. In addition, the attitude of Eastern European motorists to repair and maintenance is wildly different to that of their Western cousins. Elements of this can be seen by the worrying increase in black market maintenance products being sold. This saves the motorist money, but both removes economic support for the industry and can bring the vehicle’s reliability and safety in to question.
So how can the market respond in order to ensure its survival?
In the most basic forms discounts and sales offers have been proliferating throughout Europe, offering significant discounts on components (such as tires). Many garage networks (including main dealers) are now offering price-match guarantees, and there is also an upswing in radio “infomercials” where a number of the larger service providers are advising motorists to have their vehicles inspected for “safety reasons”.
Unfortunately, one does get the feeling that the inexorable slide of the European auto industry, and with it the aftermarket, will not be reversed using marketing gimmicks. Ultimately the consumer is king, and if they perceive the purchase of any item to be profligate they will loathe parting with their cash. We can be sure that the aftermarket will eventually halt its decline and return to growth in both volume and value terms. However at present we cannot realistically expect rebound in 2013 or 2014 if the current economic situation continues to flat line – which results in stabilization and growth returning by 2015 at the earliest for the mature markets.
What is certain is that captive components present the safest waters to be in at present, and any companies operating in the European environment would be well advised to assess and modify their retail portfolio to suit. To coin a well-used political phrase: “never let a good crisis go to waste”, and indeed there is evidence to suggest that many are doing just that.