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Market insight: Aftermarket industry's positive outlook
Report finds auto aftermarket sector optimistic but facing widespread challenges
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9 Aug 2013
By TERRY MARTIN
THE Australian automotive aftermarket industry is optimistic about its future but faces a variety of challenges including rapidly advancing vehicle technology and comparatively low levels of government support, according to the peak body representing the sector.
While Australian car and original equipment product manufacturers continue to struggle with the decline in locally built vehicle sales, the Australian Automotive Aftermarket Association (AAAA) has released findings from an industry survey report it commissioned that shows 76 per cent of respondents expect ongoing business growth over the next five years.
AAAA executive director Stuart Charity said growth across the industry’s main segments – manufacturing, product reselling, and service and repair – had averaged 3.5 per cent over the past two years, which underlined the current optimism across the industry.
Unlike those businesses tied to Australian-made cars, many companies in the aftermarket sector appear to be benefiting directly from booming new-vehicle sales, fuelled largely by imported models.
Most of these are franchises or company stores, though, with less than 30 per cent of independent resellers/retailers forecasting growth, compared to 76 per cent for all survey respondents.
Furthermore, the AAAA survey results indicate that local aftermarket manufacturers – primarily covering 4WD accessories, performance parts, and steering and suspension systems – are also presenting a generally positive picture.
“Given the rapid decline in Australian new-car production, a significant part of the estimated $5.4 billion parts manufacturing segment in Australia would be aftermarket production, although it is difficult to determine exact figures,” Mr Charity said.
Left: Executive director of the Australian Automotive Aftermarket Association Stuart Charity.
“Respondents reported more than 60 per cent of production and 70 per cent of research and development are completed in Australia. Some 77 per cent of aftermarket manufacturers believe their businesses will be more profitable over the coming three years.
“This is in spite of the high Australian dollar, labour and material costs.”
Among the major industry trends indentified in the AAAA survey report were: increased technical complexity of vehicles as a result of the broad model range and changing consumer tastes growth in online sales and marketing and the rise of ‘house’ brands.
The jury is still out regarding online sales, with many respondents adopting a “wait and see” approach and questioning the viability of this form of trading.
While 69 per cent of respondents had a company website, only 18 per cent were set up for sales online.
But there was optimism, too, among many respondents that “online sales could generate double or even triple-digit growth over the next five years once their platforms are completely integrated into their business”.
Other significant changes include industry consolidation, particularly at the distribution and reseller level, which is being driven by major acquisitions including GPC (Repco), Metcash (Automotive Brands), Quadrant (Burson) and AHG (Coventry).
The report also found that “smaller independent resellers and workshops are joining supported major groups in larger numbers”, and that there is “a move to a two-step distribution model and rationalisation of the supply chain”.
Mr Charity said the product categories which retailers are predicting will grow over the coming years include 4WD and camping, accessories, electrical, brakes, suspension and steering.
Interestingly, when the research was last conducted in 2009, 4WD products and accessories did not make the top five for anticipated growth, whereas it has now climbed to number one.
Those product segments forecast to have the greatest decline include engine, exhaust, audio and communication, body and trim and, perhaps surprisingly, performance parts and accessories.
The AAAA says the use of new advanced materials, product durability and technology is “definitely having an impact on the areas that businesses forecast will decline”.
Future opportunities for the aftermarket industry identified in the report include: Australia’s proximity to Asian growth markets the ability to achieve productivity gains through new systems, processes and technology the forecast growth in the economy, car parc and consumer spending and leveraging multi-channel routes to market.
“Moving the aftermarket forward demands increased productivity and new business models from the industry – as well as vision from government,” Mr Charity said.
“In spite of its strength, contribution to the community and future prospects, the manufacturing sector of the Australian automotive aftermarket is often overlooked by policy-makers.
“Establishing a level playing field for the Australian automotive aftermarket sector in a global market is a major challenge.”
Mr Charity pointed to the fact that less than 12 per cent of local manufacturers had access to any federal government support last year.
“Many respondents said government must support exports and ensure copyright laws are effective and actively enforced,” he said.
“Others stated that input costs and employment laws put pressure on business viability, forcing the industry to consider greater offshore production.”
As GoAuto has reported, the latest motor vehicle census figures show that registered vehicles in Australia has grown to 17.2 million, although the average age of vehicles has remained steady at 10 years.
According to the AAAA, 13,000 independent aftermarket businesses are servicing and/or repairing around 9.2 million vehicles a year in Australia, generating $7.7 billion, which compares to 3500 dealership workshops which service about 7.5 million vehicles.
A further 5500 specialist companies are also operating in areas such as brakes, cooling and suspension.
Aftermarket sales of parts and accessories are estimated by the AAAA to be $5.6 billion a year from around 1758 resellers, with 70 per cent of these turning over $1-5 million and 19 per cent turning over less than $1m.
“Booming vehicle sales mean growth for our industry, even if independent aftermarket businesses wait up to four-and-a-half years before they see these customers in their stores and workshops,” Mr Charity said.
Note: Data provided in the AAAA survey report was gained and aggregated from various sources including, but not limited to, IBISWorld Data, Deloitte Motor Industry Services, ABS data, Motor Vehicle Census, VFACTS, Citibank, interviews with industry stakeholders and the AAAA Online Member Survey (January 2013).
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