The automobile aftermarket comprises services and parts businesses. Together, the two businesses in China deliver revenue of around USD 100 billion in 2017, playing an important part in the overall automobile industry.
The Chinese automotive components aftermarket sector generated an estimated revenue of USD 78.7 billion in 2017, representing a compound annual growth rate (CAGR) of 17.5% between 2013 and 2017. During the period, the car parc grew from 137 million units to 217 million units. The average warranty period for vehicles in China is typically 3 years. By 2017 the average age of cars is estimated to increase from 3 years to 4.5 years, the age when spending on aftermarket parts and services typically peaks, according to L.E.K. This aging of the fleet is expected to result in the number of “out of warranty” vehicles dramatically increasing. The anticipated aftermarkets boom will allow independent dealers and franchises to gain traction as channels for auto aftermarkets in China diversify. The 4S mode has been replaced by businesses modes like B2C (business to customer), B2R (business to retailer) and B2B online platform.
When it comes to stakeholders, the aftermarket is made up of five stakeholder groups and two supplier models (OEM network and the independent aftermarket). Five players are Parts manufacturers (OEMs, automotive suppliers, etc.), parts distributors, workshops (OEM workshop networks, auto centers, system chains, etc.), intermediaries (insurances, automobile clubs, leasing companies, etc.), end-customers. IAM is highly fragmented, and no single player is capable to serve the entire market. B2C players, also known as DIY (do it yourself), target at well-informed customers with advanced technical knowledge. There is less or even no DIY culture in China compared to mature markets such as the US and Europe. China’s car owners rely on workshops, 4S stores and regional services stores that provide simple and regular services such as car wash.
B2B e-commerce platforms are ‘game-changers’
Key players along the value chain are collaborating, both vertically and horizontally, in order to strengthen their market influence and share resources (see chart on next page). EqualOcean has seen one type of disruptor emerging in the market and represents how the Internet is changing the auto parts supply chain landscape – consolidators. The consolidating players along the value chain and compete through a digital distribution platform.
Optimizing parts distribution efficiency
These players aim to develop into the go-to place for auto parts, covering the full transaction lifecycle, including marketplace, warehousing, and logistics. That requires a series of system to support information flow, merchandise flow, and logistics. Take AutocloudPro for example. Its display page uses a SaaS system to streamline the parts searching and matching process. It provides ERP tools to enable upstream OE suppliers (distributors or auto parts makers) to take quality assurance initiatives and track supplies effectively. In addition, leveraged by WMS, TMS and other fleet management software, the B2B platform offers low-cost and efficient parts delivery services.
Each B2B auto parts consolidator has a niche to be diversified
Most of the consolidators team up with a wide portfolio of international auto parts suppliers but they have a different product mix. Wear-and-tear parts usually have high turnover/transaction frequency and fewer SKUs compared to crash-relevant parts. AutocloudPro, a cloud-based auto parts supply chain firm, specializes in selling crash-relevant parts. Its product portfolio has tens of millions of SKUs (2018) covering 130 OEMs brands. New Carzone focusing on wear-and-tear parts has 80,000 SKUs (2017).
CassTime is an online player for auto parts with a broad portfolio and focuses on auto parts of premium car brands. By focusing on premium brands, it has 20 million SKUs, which is a highly standardized and trustworthy foundation compared to leftovers. The strategy makes it easier to build industry standards.
Baturu, offering a broad portfolio of auto parts, has built 4 central warehouses in North China, South China, East China, and Central China. It looks to expand into seven at the end of 2019. Its newly established North China central warehouse located in Tianjin comprises 950,000 SKUs and services 100,000 partners. Cooperation, merger or self-expansion are all expected to happen in the foreseeable future.
Areas that create value add for customers
Major players are supposed to cooperate with financing institutions to provide financing solutions for workshops or suppliers (sometimes both) to ease cash flow pressures. In this case, credits can be given based on transactions via the platform.
B2C evolves towards both parts and workshops
It is widely accepted that DIY/B2C modes may not work out in China as mentioned before, Tuhu has though proved its virtuous business cycle: end customers can find retailers/workshops and their offers (parts and services) nearby. Customers are able to compare price and service offerings on its platform.
The B2C platforms are either opening services stores or cooperating with offline workshops to provide O2O services. Tuhu, for instance, allows car owners to directly purchase auto parts online and have them installed in the designated offline service shops. It established a match-making portal for end customers and proved its success as a B2C platform valued at CNY 7.7 billion (USD 107 million). It started its business from tires (low margins and low purchasing frequency). Tuhu later expanded its B2C product portfolio from tires to wear-and-tear parts and insurance.