Demographic shifts and trends reshaping the automotive aftermarket

21 April 2022 Consultancy-me.com 7 min. read
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The rising number of women driving across the GCC is one of five key trends reshaping the region’s automotive aftermarket. Vishal Pandey, Partner at Glasgow Consulting Group, told ConsultancyME that due to these shifts, the market is bouncing back faster than expected after the last two years of the pandemic.

The automotive aftermarket is the secondary market of the automotive industry. After the sale of the vehicle by the original equipment manufacturer (OEM) to the consumer, the aftermarket is concerned with the manufacturing, distribution, retailing, and installation of all vehicle parts and equipment needed to maintain or enhance those vehicles.

The construction of these parts and accessories for sale is not always connected to the OEM, and instead centres on a burgeoning economy of independent suppliers.

Vishal Pandey, Founder, Glasgow Consulting Group

Historically, the automotive aftermarket has been the most recession-resistant part of the automotive industry. This is because its size does not depend on new vehicle sales. When economic pressure causes drivers to delay purchasing new cars, repairs on their current (and older) vehicles become even more vital – thus improving sales in the aftermarket.

While the Covid-19 pandemic was different from previous recessions – as it meant many drivers were completely off the road for large periods of time, so less maintenance was needed – Vishal Pandey is seeing signs that the aftermarket is back, and set for a stronger than ever return in 2022.

The partner at Glasgow Consulting Group noted, “The temporary dip in average kilometres covered by cars during the pandemic has not affected the demand for parts negatively; instead, the steady number of vehicles in operation and the growth in the used car market have only ensured the resilience of the aftermarket.”

“This development is so strong that even though public transport utilisation is increasing, it is not likely to affect car sales in the near future.”

Another factor driving up demand is the fact that a growing number of consumers are falling out of authorized dealership once the warranty period is over – this percentage is estimated to currently sit at 80%. “This is mainly due to long waiting period and high cost of service at dealer outlets,” explained Pandey.

Looking at the GCC (Gulf Cooperation Council) region, Pandey noted that the aftermarket development is particularly strong in the United Arab Emirates (UAE) and Saudi Arabia. Combined the two markets account for 60% of all vehicles sold in the GCC, and as a result they are also the largest markets automotive aftersales and auto parts.

According to Pandey, the passenger car markets of the UAE and Saudi Arabia are expected to maintain an upward growth trajectory for the next five years – driven by five key trends.

Changing demographics

Most notably, the gradual modernisation of the conservative oil-states means that new markets are opening up for car sales and aftermarket custom. To this end, Pandey pointed to the automotive aftermarket in Saudi Arabia – which is witnessing a new phase of growth and development on the back of recent trends, such as the removal of the ban on female drivers.

He continued, “A mid-year 2020 report from the General Authority for Statistics in Saudi Arabia indicated the population to be 35 million, among which the number of females were 14.7 million. The International Trade Administration of the US Department of Commerce estimates that Saudi Arabia’s 2.5 million female drivers will lead to an increase in car sales by 9% per annum through 2025. This will further augment the demand for aftermarket spares parts and services in the country.”

These shifts are contributing to two further trends. While new car sales have still not fully recovered, used car sales are a potential alternative to provide transport to women looking for their first vehicles. These vehicles are more likely to need spare parts – driving demand for that aspect of the aftermarket.

Used auto spare parts are primarily sourced from “damaged cars sold by insurance companies at throwaway prices or from police auctions”, according to Pandey – but changing this could offer a big opportunity for the region.

As governments across the GCC look to wean their economies from their dependence on oil production, they are boosting manufacturing in the region. This third key trend will come with jobs, boosted consumer spending power, and opportunities for the automotive aftermarket to grow operations – meeting the growing demand from new drivers taking to the roads.

“Most vehicles and parts sold in Saudi Arabia are imported, and local manufacturing is limited to small auto parts and truck assembly,” Pandey added. “The government is keen on creating a domestic automotive industry and has encouraged global vehicle manufacturers to establish local operations. This would both lead to local job creation, transfer of technologies and skills and enhance the auto parts manufacturing supply chain in the country.”

Another trend which the automotive aftermarket will need to use this expansion to help meet, is growing demand for vehicle customisation. This, Pandey argued, is especially popular among Saudi car owners; with the demand for vehicle modifications in the Kingdom having “increased exponentially” during the last decade. This is something he anticipates to continue, heightening purchases of auto components in the aftermarket.

Finally, as digital technology continues to roll out across the region, the fifth trend driving aftermarket growth involves companies leveraging this change to take advantage of new sales and service channels. This is both helping customers source parts and services linked to the running of their car – and services which can help them deal with ongoing concerns regarding the pandemic, and public health.

Pandey expanded, “The increasing adoption of mobile servicing, workforce hygiene, shared mobility, contactless services, e-commerce and vehicle pick-up has boosted demand for disinfection, cleaning and car wash services. Customer preference for auto servicing is shifting towards mobile platforms, which has resulted in the emergence of mobile app aggregators that connect users with service providers of roadside assistance, car wash and parts replacement.”

Looking ahead

“All these trends have driven aftermarket suppliers in the UAE and Saudi Arabia to adopting a service-oriented business model that prioritises customer service,” Pandey stated. “This has seen the successful growth of new channels for customer engagement and sales of spare parts, and many suppliers have boosted their sales through online channels in the last few years.”

Meanwhile, shifts are also expected to occur between the OEM’s and alternative suppliers. With so many more cars coming on the road, OEMs will “not be able to accommodate all demand for maintenance and spare parts”, meaning that third party suppliers will be able to grow their footprint.

“According to a recent survey we conducted, 94% of vehicle drivers consider third-party aftermarket services, implying a significant number of customers are willing to use services from an outside workshop for car maintenance.”

Pointing to this mounting opportunity for alternative players, Pandey concluded, “The majority of respondents opted for workshops within their cities for car washing, filter check and tyre change, and workshops outside their cities for servicing of batteries and brake pads. The choice of workshops outside cities was attributed to lower cost and higher speed and quality of servicing.”