Aftermarket Industry in ASEAN Will Experience High Growth

In a new report published by Frost & Sullivan, the three largest automotive markets in ASEAN, namely Indonesia, Thailand and Malaysia, will see high growth in the aftermarket segment in the near future. Well, we already knew that (read Consumer Sentiments During Challenging Times). The report foresees a compound annual growth rate of 12.9% for automotive parts from 2010 to 2018.

Perhaps the most surprising piece of statistic in the report is that the part expected to gross the highest revenue is…the wiper blade. While it is a rather cheap part (you can replace a set in Malaysia for less than MYR100), wipers tend to have a very short lifespan, especially in one-moment-sunshine-next-moment-downpour ASEAN countries. Frost & Sullivan estimates that the wiper blade industry can reach an astounding US$243.5 million by 2018; not bad for a simple mechanism made of plastic and rubber. Other parts that are expected to garner high revenues are clutches, compressors, filters and brakes, all prone to wear-and-tear. On the other hand, parts that will see less robust growth are the starters, alternators, radiators and fan, with longer usage cycles and only require replacements after the vehicle has been in service for more than eight years.

According to Silka Yosa, Consulting Analyst, Automotive Practice, Asia Pacific at Frost & Sullivan, most vehicle owners rely on dealers or service centres to recommend replacement of vehicle parts and components, and that car owners often bring their cars to unauthorised service workshops after the warranty period has ended. As we have often espoused on this site, the aftersales service could be more important than selling new vehicles.

The aftermarket growth predicted by the report is based on the expected increase by the millions in the number of vehicles in the above mentioned countries. However, latest developments in these countries make us wonder if vehicle growth will be kept in check.

In Thailand, political instability continues with no signs of ceasing soon, and February saw car sales experienced a sharp year-on-year decline of 45.2%. Despite having the highest car sales of 2013, equivalent to 1,330,672 units sold, as we have written earlier the sales were driven by “an occurance of false demand generated by the first-car and eco-car programmes” (read also: Thailand’s Production Exceeds 2 Million).

To the south of the Kingdom, in Malaysia, the implementation of the Goods and Service Tax has been recently hotly debated in Parliament. If the GST is implemented, not only will the price of cars increase, cost of living in general will go up, pushing car ownership down on the average Malaysian’s wish list. Furthermore, car ownership in Malaysia is the most saturated in the region (361 cars to every 1000 citizens, according to World Bank 2010 data).

So, you would think that the automakers in Indonesia would be chuckling at their counterparts in the neighbouring countries. Well, they shouldn’t. The Indonesian presidential elections will be held in July 2014, and Joko Widodo is tipped to win. Widodo has never been shy to voice out his displeasure at government policies that encourage car ownership in the country’s traffic-ridden cities (Read Joko Jumps Up And Down), ie the LCGC programme, which played a significant role in contributing to the Indonesian automotive sales growth since last year. In all likelihood, if elected, Widodo would implement policies that encourage mass transportation and discourage personal vehicle ownership.

So, does this mean that the aftermarket sales will suffer? Not at all! When car ownership numbers shrink (or grow slower), it would mean greater opportunity for car sharing and rental programmes, and public transportation like taxis and buses. The vehicles involved and others on the road would be utilised more often and for longer, requiring more service and upkeep that the service centres will then be able to offer. As the vehicle sales pie shrink, automakers will have to be extra diligent in differentiating themselves, and one of the ways would be through value-adding aftermarket services.

It is also an opportunity for the secondhand car market to expand, as we have seen happen in India last year during the economic slowdown and weakened Rupees. And we all know used cars tend to require more replacement parts and maintenance, hence, more opportunity for service centres to generate revenue.

It is about time that Asian countries begin to realise the value of post-sales customer service, and that the potential revenue that can be generated from returning customers may surpass those of new customers.

PS: The Frost & Sullivan report also mentioned that engine lubricants and fuel additives are also part of the aftermarket segment. We foresee high growth for our sponsor, X-1R, leading global manufacturer of engine and fuel additives. See how we added this advertising plug so subtly.


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