IMPACT OF COVID-19 ON THE GCC AFTERMARKET
Movement restrictions drive e-commerce transactions and increase in preference for used cars
Movement restrictions and other health safety precautions caused by the COVID-19 pandemic have intensified online and e-commerce purchases across the automotive and transport mobility sector across the GCC.
The overall customer journey has been transformed by lockdown measures and changes in attitude and behaviour as consumers avoid service centres, and providers adapt to changing circumstances in the maintenance and aftermarket sectors.
With the rise in contactless services as well as a boom in e-commerce, new business models are likely to emerge as more companies evolve, and further development in this space will have a huge impact in the automotive sector in the region.
These trends were discussed recently in a webinar organised by Messe Frankfurt Middle East with the participation of market research and consulting firms Frost & Sullivan and Glasgow Consulting Group (GCG).
Messe Frankfurt Middle East organises Automechanika Dubai, the largest international automotive aftermarket trade show in the Middle East, which has been postponed this year from June to October 2020.
Subhash Joshi, Middle East director of mobility and regional head for Frost & Sullivan, said: “Customer preferences are changing. Vehicle maintenance trends are becoming more convenience oriented and customers are now more inclined to avail of services at their home or at their workplace, rather than invest time in a service centre. We expect on-demand and on-call mechanic services, which are being piloted in the UAE, Saudi Arabia and Oman, to become mainstream services.”
“Similarly, on the aftermarket, especially during the period between March and April, there has been a spike in online sales of brake parts and accessories. Penetration of e-retailing of spare parts, which was less than 3%, is already at 5-7% in 2020. We expect this trend to remain as online accessibility for accessories, spare parts, brakes and batteries are launched,” he added.
Vishal Pandey, director, Glasgow Consulting Group, echoed this sentiment as he commented: “The demand for online services is likely to see a huge surge as consumers will be more likely to stay indoors and have services come to them rather than expose themselves to the outside world.”
Due to increased financial pressures, a growing inclination towards used cars has spurred aftermarket maintenance spending both in terms of servicing and parts due to extended car life span, with sales of used cars also outpacing new vehicles.
“As people are being financially cautious and overall consumer confidence remains low, consumers will defer major purchases of new vehicles,” Pandey said. “An increased willingness of people trying to use old cars has also created an opportunity for the aftermarket component and sales to grow.”
The average life span of vehicles in the GCC has increased from 7.4 to 7.5 years to 8.1 to
8.2 years, meaning a rise on average spend on maintenance due to the average age of vehicle and mileage, offering a positive indicator for the automotive aftermarket.
“The ratio of used car sales in 2014 and 2015
in the GCC was about 0.8 for every new car. In 2019, the UAE was almost equal to the UK which averaged 3.5 used cars for every new car sold,” Subash added, highlighting how an increase in online platforms for used car sales will further strengthen the market.
“Penetration of e-retailing of new cars, which used to be 0.25%, has already increased to approximately 2-3%,” Subash explained. “Between January and March this year, used car transactions on online platforms have already recorded an 8.5 per cent increase. Therefore, how the customer journey is to be defined will greatly impact on the GCC region.”
The COVID-19 crisis has had a harsh impact on Saudi Arabia’s automotive and aftermarket. In the last three months alone, new car sales decreased by 60% and footfall in car showrooms fell by 80%. A simultaneous drop in vehicle utilisation and miles traveled saw the average spend per vehicle decrease by 25%, periodic maintenance decrease by 75% and spare parts sales fall by 70%, leading to aftermarket job losses in the range of 10-30%.
Vishal Pandey said: “Economic factors such as goverment spending cuts and taxes in response to the prolonged oil price slump will continue to affect the aftermarket, irrespective of the the COVID-19 crisis. That said,
Saudi Arabia is the largest market in GCC for automotive sales and auto parts, accounting for about 40% of all vehicles sold in the region. It’s encouraging that the government has announced a $31.9 billion financial stimulus package to mitigate the economic crisis. While the majority or vehicles and the parts sold in the country are imported currently, the goverment is working on the development of a domestic automotive industry. Such measures will help drive the recovery of the aftermarket.”
GCG estimates the passenger car market in Saudi Arabia to recover by 2022. The number of passenger cars sold in 2019 was 355,000 units. Initial forcasts for 2020 indicated sales of 387,000 units; however, this has been revised to 252,000 units due to the COVID-19 crisis. The new forecast indicates car sales to reach 340,000 units in 2021 and 442,000 units in 2022. Meanwhile, used car sales will continue to grow. During 2015-2016, the ratio between the sale of new cars to old cars stood at 4:3; in 2019, for every 4 new cars sold, 8 used cars were being sold.
The decline in the average vehicle miles travelled would have a mild or no impact on the demand for auto parts, according to the GCG market study. The passenger car components aftermarket including select maintenance parts, consumables, lubes, tyres and batteries was worth SAR17.8 million in 2019. This market is projected to contract to SAR14.1 million in 2020, recover to SAR17.2 million in 2021 and continue to expand to SAR18.5 million in 2022.
The speed of recovery is based on several positive indicators. Unlike other countries where the dependence on public transport is high, commuters depend largely on personal cars in Saudi Arabia.
GCG estimates that almost 75% of commuters in Saudi Arabia travel nearly 2 hours or more per day; those in riyadh travel more than 2 hours. Furthermore, a substantial number of women drivers on the roads has created the need for more private driving licenses, an increase in motor insurance, growth in driving schools, a sharp rise in car sales and leasing, thus benefitting the after market segment.
According to another study conducted by GCG, about 83% of vehicle owners in Saudi Arabia seek external aftermarket services. Furthermore, about 94% vehicle owners consider third party aftermarket services, which implies that a significant number of customers are willing to avail the services of an outside workshop for car maintenance. Services such as car washing, filter check and tyre change are opted by vehicle owners within city workshops, whereas battery services and brake pads are popular in outside city workshops. The factors influencing such customer decisions are availability of workshops, overall service, product range, competitive prices, discounts, and after sales support.
Considering the changing customer demands, the GCG market study indicates that the Saudi automotive market is now more geared towards a ‘service oriented’ business model with more players focusing on customer experience and after sales service.
As customers have become more conscious about hygience, the safety and hygiene of physical customer touch points will be more important than ever. As a result, dealers, retailers, garages will need to take precautions to ensure the health and hygiene of their workforce, and the adoption of mobile service and contactless servicing will increase. The market will see demand for services like disinfection, cleaning and car wash increase substantially.
With regard to sales channels, e-commerce will continue to grow. Online sales of parts and services is likely to account for >5% of the total aftermarket demand by 2025. Fast moving parts on e-commerce platforms will include tyres, batteries, lubricants, and wiper plates.
Vishal Pandey, director, Glasgow Consulting Group.