Spare parts dealers and distributors must tap the potential of vehicle electronics, says McKinsey.
The evolving features in cars include navigation device for directions, internet connectivity, traffic control system, collision alert and emergency calls. Electronics are also used to enhance fuel efficiency in internal combustion engines and in alternative fuel technologies such as CNG and electric cars.
There is huge scope for players in the automotive aftermarket for additional money and volumes at attractive margins, said Ananth Narayanan, Partner, McKinsey & Co, releasing a report on the automotive aftermarket at the CII Auto Serve Conference.
Auto electronics market
Electronics will account for 40 per cent of the vehicle costs globally in about four years (from 20 per cent today). As the demand for safety, navigation, entertainment and multimedia features increases, the global vehicle electronics market is set to grow at 22 per cent each year to touch $4.5 billion by 2016. This will drive consolidation in the vehicle service market, as small un-organised workshops cannot meet the need for advanced diagnostic equipment, technical expertise and high upfront capex.
Organised retailers have already taken the lead in tapping this opportunity, said the report.
For example, Reliance Autozone has a network of 13 retail stores selling vehicle electronic gadgets and accessories. The automotive aftermarket in the country, which has been fairly recession-proof till date, is likely to decline 10-15 per cent this year. Profitability is a huge concern. But the long-term growth story looks good. The Rs 28,000-crore parts aftermarket is expected to grow to Rs 37,000 crore in three years.
For sustained growth, players must concentrate on the top 100 districts, said the report.
Independent distributors must get into retail and multi-brand service. OEMs and distributors can also tap the potential of branded generics. The branded parts market is already worth Rs 3,000-4,000 crore and set to grow significantly in five years.
“Globally, distributors such as Trost and Walmart have successfully built a reliable brand of generics. Recently, Toyota and Ford introduced lower priced brands to capture some of this market,” the report said.