Government support and technology investments are helping drive the industry forward despite pandemic challenges.
While much of our focus this past year has centered around the impact of COVID-19 on the aftermarket industry in North America, the opportunity to attend Automechanika Shanghai’s AMS virtual platform provided with an opportunity to assess the current situation in Asian markets.
An interesting session focused on the impact of COVID-19 on Asia’s automotive markets.
Hosted and moderated by Ricky Wang, Vice President and General Manager of the Asia Pacific region for Raybestos and Executive Committee Vice Chairman for the China Aftermarket Forum; it featured Dr. Marco Hecker, Chief Strategy Officer for Deloitte China, Lang Xuehong, Deputy Secretary-General; China Automobile Dealers Association and Alan Xu Director of International Market Center, Launch Tech.
The presentation included both individual Q&A with the guest speakers as well as a group panel discussion. Topics centered around not only the performance, challenges and opportunities facing OEMs and dealers, but also the aftermarket, and in this regard, there were some very interesting observations.
Dr. Marco Hecker said that, despite declines of around 20 percent in global vehicle sales during 2020, there were reasons to be optimistic as we move into 2021 and beyond.
As far as Asian markets were concerned the way in which the pandemic spread had different impacts on vehicle production and sales. For example, the Republic of Korea was one of the first to bounce back, with sales showing a strong resurgence as early as April 2020. Other markets such as India, felt the impact of COVID-19 later, which in turn impacted economic growth and activity more acutely during the course of last year.
Hecker said that Deloitte has been tracking consumer sentiment on a bi-weekly basis since the pandemic really started impacting the global economy last March and noted that by Q4 of 2020, consumer sentiment was relatively positive in most markets with people adjusting to the new environment and thinking about purchasing vehicles again.
Hecker noted how the automotive sector has contended with COVID-19 can be grouped into distinct phases. Phase one is really a response to the pandemic and crisis management, such as focusing on employee/worker/customer safety and cost containment, while phase two, focuses on recovery and centers around supply chain resilience and financial management—putting the foundations in place to ensure solid business growth post-pandemic.
Beyond that, Hecker said that business restructuring, as well as the integration of certain functions and processes, along with marketing initiatives, will help not only drive transformation but position companies favorably for the road ahead.
There’s no question that the global pandemic has accelerated e-commerce activity, as well as the need to further enhance the customer experience. What’s interesting, is that while vehicle sales are expected to grow in 2021 (especially in China) as more and more people not only desire to purchase vehicles but are able to do so (aided by government stimulus and tax reforms), the used car market is expected to see very significant growth in the short and medium-term, which will provide good opportunities for the aftermarket.
Lang Xuehong said that while new vehicle sales dropped significantly in the first quarter of 2020 (by 37 percent), this decline had already started to slow by Q2, even as the rest of the world was starting to battle the COVID-19 pandemic.
Although Chinese vehicle sales peaked in 2017 at 28.8 million units and were falling even before the pandemic hit, government policies designed to stimulate growth, such as issuing new vehicle licenses in cities where sales were controlled to mitigate pollution and congestion, plus providing favorable financial policies to stimulate new car sales, including the adoption of electric vehicles have helped overall demand.
Xuehong noted that a tax reduction for used car dealers—a policy that is expected to remain in force until 2023, will also help stimulate overall growth in vehicle purchases, which means good prospects for China’s aftermarket industry.
Sticking with that topic Alan Xu, Director of International Market Center for Launch Tech, said that as far as the aftermarket is concerned, there are some significant trends playing out. Although aftermarket product and service demand in Europe and North America declined significantly during the Q2 of 2020 at the same time, Asian markets business was starting to recover. One significant trend has been a widespread shift toward e-commerce and in Asia, many governments have applied incentives to help small medium-sized businesses, such as low financing and loan deferral programs. Direct subsidies are also available to help businesses like small, independent service repair shops stay open and retain staff.
Yet, as Xu acknowledged, some issues still remain. In China, for example, the automotive aftermarket remains highly fragmented, particularly on the service repair side, with many shops lacking the resources to train their technicians and staff adequately to service modern vehicles. As a result, companies like Launch Tech—which offer diagnostic solutions and tools for service providers—have worked to bring online training solutions to market, such as web-based tutorials and providing feeds through social medial channels to ensure shops across China can access them.
New repair opportunities
Additionally, introducing cloud-based diagnostics, which enables the collection of vehicle dynamic data and storing it in the cloud, allows repair shops to access and simulate repairs, allowing them to provide their customers with accurate estimates for servicing and repair work. The system also enables forecasting of future repair work, which in theory at least, enables shops to schedule for future jobs and earn additional business.
Also, another benefit of cloud-based diagnostics, according to Xu, is the ability for repair shops across China to have access to expert repair information virtually, allowing them to solve more complex problems. “Some workshops may find the problem using scan tools, but they don’t know how to repair it,” said Xu. “And you can’t lose any business after the pandemic. So, I think it is very important that we [at Launch Tech] can help our customers do a repair step-by-step and solve the problem.” Xu said this is critically important as it allows shops to repair vehicles they might not otherwise have been able to, while at the same time increasing their chances for earning future business, which during a pandemic is critical.
Although solutions like this are helping to solve significant problems within the aftermarket sector in China and other Asian markets, there are additional issues that still need to be tackled. A key one is the lack of standardization across Asia when it comes to repair standards and also vehicle inspections, though Xu notes that companies like Launch Tech, are actively looking to change that via their cloud-based data solutions which provide standardized inspection procedures. Additionally, this technology allows shops to generate easy to understand inspection reports for vehicle owners, improving transparency between the customer and the shop, while providing a greater opportunity for further business.
Although Xu said that 2020 proved to be a challenging year for the aftermarket in Asia, with business down by 10 to 15 percent and many shops still cautious about investing in new technology and equipment, incentives to boost used car sales in markets such as China are likely to have a positive effect, with Xu saying that some in the aftermarket expected their business to increase by 20 percent as we move further into 2021 and beyond.
Following their individual sessions, Dr. Marco Hecker, Lang Xuehong and Alan Xu joined Ricky Wang in a group panel discussion that brought together their observations from different sectors of the automotive industry in Asia. Collectively, the panelists concurred that despite ongoing challenges regarding parts supplies and distribution, overall, future prospects for vehicle and parts sales, as well as servicing opportunities, looks promising based on current market projections.