If you are a car owner, at some point one of the car’s springs may have fallen out of place or some parts of the turbocharger suddenly went haywire. You might be wondering then where to buy replacement parts or where to get the car repaired; it would turn out that it is not so simple as you cannot find the parts for your model anywhere near you. You would decide to go online; chances are you will likely find what you were looking for. You might also ask if you could buy all of them online and get them delivered straight to your door. With today’s automobile ecommerce startups, you can. At Fast Forward Advisors, our work has led us to interesting corners of the global startup ecosystem – automobile ecommerce is one of such corners that are changing the most fundamental aspects of our lives. This article discusses our research findings on the automobile aftermarket ecommerce and the opportunities in this sector.
The overall automobile aftermarket
The automobile aftermarket is where all the vehicle parts, chemicals, equipment, and accessories are manufactured, distributed, retailed and installed after the sale of the automobile by the original equipment manufacturers (OEMs) to the consumers. Thus the automobile aftermarket comprises of two components: the spare parts market and the aftermarket service market.
The total global aftermarket was valued at approximately $643.10 billion in 2016 and is projected to reach $850 billion in 2022 with a 4.7% compound annual growth rate. The automotive services accounts for 45% of this total revenue or $290 billion in 2016, and the spare parts market accounts for the other 55% or $353 billion in 2016.
This also suggests the “sweet spot” for the aftermarket will reflect changes as well. Vehicles new to five years old will grow 24 percent by 2020, while vehicles 6-11 years of age will decline 11 percent and vehicles 12-plus years old will grow 15 percent, according to IHS estimates. The fact that these oldest vehicles are growing in number is a great trend for the aftermarket repair business. In fact, by 2020, there will be approximately 76 million vehicles in operation (VIO) that are 16 years old or older, up from just 35 million in 2002. Global light vehicle population, or vehicles in operation (VIO), will experience substantial growth – 27 percent by 2021 – to 1.4 billion vehicles, according to IHS; and rise to two billion by 2040. For example, VIO in the United States will experience nice growth increasing in size by just more than 9 percent over the same time period. This is driven by both the huge gains in new vehicle sales – expected to hit 17.3 million units in 2015 – and the fact that vehicles are simply lasting longer than ever before.
The aftermarket automotive e-commerce market and its trends
The global e-commerce automotive aftermarket was worth $32.7bn in 2016 and is expected to rise at a phenomenon pace of 24.2% CAGR for the forecast period between 2017 and 2025. The rise of the digital world has been transforming the ways products and services are consumed in the global automotive aftermarket. Nowadays, consumers have more channels to shop around. As buyers continue to be more demanding, seeking different region-specific features as well as an element of uniqueness to emphasize differentiation and individual taste and status, E-commerce as a direct venue to customers becomes a dominant channel for manufacturers, shop owners and dealers to reach out to the market across borders. About 14% of buyers in the automotive aftermarket make purchases online, according to global information company The NPD Group 2017. Even though compared to other industries tracked by NPD the automotive aftermarket is among the lowest for online penetration industries, as it is relatively new to this space, consumer engagement is positive; e-commerce’s share of aftermarket sales has increased significantly within the last few years (The NPD Group / Car Care Track, January-December 2017).
E-commerce also aids the rising trend of DIY automotive consumers who assemble spare parts themselves with varied requirements. Customers keeping their vehicles roadworthy turn to online vendors who can offer a wider range of product types with attractive price. The increasing average length of automobiles staying in service seems to make ownership be an investment rather than an expense.
In sum, three prevailing trends predicted to shape the automotive aftermarket for the next 20 years are (1) diverging markets; (2) digital demand; and (3) DIY maintenance.
- The divergence of market growth across borders
The changing of regional and segment-pattern of supply and demand poses challenges to OEMs with respect to their production and distribution base footprints, especially OEMs in developed countries. Many automakers in fast-growing emerging markets are now responding to the prevailing trend in demand for unique features and superior performance from end users by increasing the number of “derivatives” subject to markups compared with standard models, with competitive price and high turnover. More dominantly is the emerging Chinese aftermarket markets that is expected to be the driver of the whole Asian market in the next decade. OEMs need to balance global scale, complexity, local and segment-specific customer demand in order to capture profits from different market niches.
In 2015, North America captured almost 35% of total automotive aftermarket market value, Europe came as the second player with 31%. Asia, represented by the emerging Chinese aftermarket market, took more than 10%. Yet, in its report about changing aftermarket game, McKinsey forecasted a modest 1.5% in growth p.a. in North America and in EU, 6.5% growth p.a. in Asia while a dominant 8.1% in China alone.
Overall, the automotive industry growth has already shifted profoundly from Europe, America, Japan and Korea to China since 2012. In China, aftermarket automotive parts revenues amounted to US$118 billion in 2015 and is expected to increase with 12.7% CAGR to US$214 billion by 2020. In 2012, China sold 19 million new cars and by 2015, this number has already risen to 21.1 millions, more than any other countries in the world. These rising numbers of new car sales will soon lead to a growth surge in the aftermarket sectors, as the vehicle age in China is soon approaching the peak age for aftermarket maintenance demand. The regional automotive industry profit is anticipated to be driven largely by this dynamic aftermarket market.
The 4S model in China – the sales, services, spare parts and survey four-in-one store – is slowly getting replaced by E-commerce businesses with the aid of the thriving online business ecosystem in China. And not only in China, automotive aftermarket E-commerces are taking over the traditional distribution channels globally, following customers’ digital demand.
- Digital Demand
The rise of e-commerce as a platform helps directly connect between end users and suppliers in response to the shrinking number of physical retail shops and auto-bodies and the more sophisticated and mobile oriented purchasing behavior of the new millennials. Consumers are now expecting an instant, connected and transparent buying experience spanning various channels including websites, mobile apps, and so on. More channels require traditional aftermarket suppliers to develop a well thought-out strategy of incorporating new business and sales model, the channel relationships and supply chain.
The rise of mobile shopping found its way into the automotive industry with online business market shares expected to reach 20% by 2025. Millennials are becoming an ever important customer segment, accounting for 40% of the automotive market, and of which 88% regularly do their shopping online.
Digital channels are drastically influencing how the customers research and purchase their goods. Online communities and reviews are sources that will effectively support customers’ purchasing decision. Furthermore, price transparency and greater diversity of supply are also expected by customers. Online platforms give customers instant access to prices of parts, evaluation of different workshops and hence assist customers which car parts to buy. For instance, about 25-30% of end customers in Germany, France, and the UK using online channels to research and evaluate different suppliers before making the next moves; another 20-30% of end customers use online forums and peer perspectives to decide which suppliers to contact to.
- DIY maintenance
The DIY market segment remains strong growth despite vehicle complexity. Price is the key reason explaining the rise of auto repair DIYers. A 2013 DIY study by AutoMD shows that 37 percent of those surveyed reported that their financial situation has improved year over year, and 90% of car owners who undertake DIY repairs are doing the same amount—or more—of their own auto repairs and maintenance this year versus one year ago. In the study, 96 percent of respondents report saving more than $100 annually, while nearly 60 percent say they save more than $500, and 30 percent reported saving $1,000 or more. Additionally, the average automobile age is getting longer, making it an investment rather than an expense. The next generation of automotive DIY is transitioning away from the ‘disposable vehicle’ mindset of the early 2000s and relying on DY maintenance to keep their vehicles roadworthy and cost-efficient.
The second and third top needs for DIYers are quality and availability. Customers utilize online forums and social media for peers’ review and recommendations before deciding where to buy parts. Recent NPD automotive aftermarket research found that only 37 percent of consumers rely on the same retailer for all of their automotive product needs. Almost half of DIY consumers compare quality review from at least two different retailers. The availability of a wide product range also a crucial factor as customers expect different region-specific features as well as uniqueness in performance for their own vehicle design. The dynamics around DIY build on the customer loyalty. Online auto parts providers need to gain a holistic awareness of customers’ project goals and experience levels, and evolves into a support structure for the customers.
Apart from price comparison, quality review, and increasing availability of stock inventory with customised features and superior performance, additional assistance by providing explanatory videos and guides can inspire DIYers of different skill levels. In AutoMD’s study, 91 percent of ‘do-it-for-me’ (DFM) auto owners reported that they were open to performing their own repairs if they had easy access to ‘how-to’ information. A knowledgeable partner can transform a challenging task into an easy, money- and time-saving task, thereby improve customer engagement and remain competitive in the market.
Companies in automobile aftermarket ecommerce
Caroobi is an integrated marketplace for automotive aftersales – you go to Caroobi if you do not know where to book repair services or purchase spare parts for your car. The main problem Caroobi aims to solve is the high fragmentation of the aftersales market for automotive – there are many car models that require different spare parts and aftersale services while the workshops that can offer such services/spare parts have limited means in sourcing customers; those workshops also have trouble sourcing the appropriate part suppliers. Caroobi solves this problem by bringing everything online with its integrated network. Caroobi is an integrated network in the sense that its model requires 3 stakeholders of the market to participate simultaneously to work – private customers, repair workshops, and part suppliers. Private customers can book different repair services such as engine replacement or purchase spare parts such as turbocharger replacement. Workshops can exchange spare parts with each other as well as OEM online while Caroobi takes care of the shipping. The model has proven to be viable indeed – in June, Caroobi raised $20million from NGP Capital, a fund backed by Nokia. The nature of a platform model gives Caroobi a very strong competitive advantage – the network effect, which means the more private customers, repair workshops or part suppliers join Caroobi’s network, the more options existing stakeholders have and the more popular Caroobi becomes. This in turn attracts even more stakeholders to join, reinforcing Caroobi’s network effect.
Tuhu is a Chinese ecommerce platform for automobile aftersales products and services. Tuhu offers same-day or next-day product delivery and installation services in more than 260 cities in mainland China. The company provides its services through its website, mobile app, call centers and third-party ecommerce platforms. Tuhu is undoubtedly an attractive venture for investors – it has raised cumulatively over $120 million in 5 funding rounds from various investors such as Joy Capital.
AutoScout24 is the largest online car and motorcycle market in Europe. Consumers can purchase new vehicles, used vehicles, accessories and spare parts on AutoScout24’s platform. In addition, consumers can also book aftersale services through AutoScout24’s portal. AutoScout is a rather established player – it was founded in 1998 and has now garnered approximately 10 million monthly active users and 2.4 million new and used cars with 55,000 dealers across Europe and 100,000 motorcycles sold. Unlike Caroobi, AutoScout24 is not as focused on aftersales services – the main business is automobile ecommerce, which includes motorcycles.
Founded in 2015, Boodmo is thriving as a No 1 online marketplace to sell or buy genuine car parts in India. Boodmo is operating in a rather unique market: India has experienced rising innovations across different industries and the large population has generated increasing car demand. Customers can search for their needed automotive spare parts and accessories via website and mobile application on iOS and Google play. It provides 10 days assured returns. Boodmo has had publications across various channels such as Entrepreneur and Autocarpro
Autodoc is an online original spare parts retailer. Autodoc specializes in car accessories and spare parts from all over Europe. Autodoc currently has more than 1 million spare parts in stock for close to 6000 models and 45 car brands. Unlike the companies mentioned above, Autodoc focuses solely on car spare parts, all of which have not been used and are sold by Original Equipment Manufacturers.
The automobile aftermarket eCommerce market is experiencing new innovations in recent years with the rise of many startups in the last few years.. There are three main trends that drive the development for this market: divergent growth across borders, digital demand and DIY maintenance. Increased usage time for vehicles and the Internet have been particularly strong drivers for the auto spare parts ecommerce market. Startups that have gained traction in this market have applied the marketplace model to solve many pressing issues for consumers and repair workshops: where to book a repair, where to find the appropriate spare parts for their models, which suppliers to source from, etc. This market has promising potential and recent innovations have only begun to scratch the surface.
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