IM­PACT OF COVID-19 ON THE GCC AFTER­MAR­KET

Move­ment re­stric­tions drive e-com­merce trans­ac­tions and in­crease in pref­er­ence for used cars

PMV Middle East - - AFTERMARKE­T -

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.”

SAUDI ARA­BIA

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.

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