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Shining future for after-sales market
By Jin Jing |
June 20, 2011, Monday
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IN the early stages of China's ascendancy to the world's biggest car market, auto makers and dealers put their primary focus on selling cars.
But nowadays, with millions of cars on the road and many of them aging, after-sales service and maintenance have become equally important, according to industry analysts.
A recent report from automotive research firm AlixPartner estimated that 145 million cars will be on the roads by 2015, more than double the 60 million last year.
That increase will drive the after-sales segment to a value of 652 billion yuan (US$100 billion) in that period, AlixPartner said.
Ivo Naumann, managing director of AlixPartner's Shanghai office, said the after-sales market presents a golden opportunity for both car makers and dealers in China.
"Typically, the fourth year in the life of a car sees spending on spare parts and services reach its peak," Naumann said. "Previously, not a lot of attention was paid to the after-sales market because there were too few cars on the road and most of them were new. But this sector is about to experience enormous growth rates in the next few years."
The growing demand for after-sales services may help car makers and parts suppliers retain profitability as car sales start to slow after years of explosive growth.
China's vehicle sales in May fell 3.98 percent from a year earlier to 1.38 million units, according to the China Association of Automobile Manufacturers. It was the second straight month of decline.
Rising fuel costs and vehicle registration curbs in some big cities like Beijing have dented demand for new cars. At the same time, car makers also face more heated competition, putting their profit margins under pressure.
Profitable sector
Last year, after-sales services in the domestic market accounted for 14 percent of total auto parts revenue.
"Both our survey and data analysis show that the after-sales market is highly profitable and, in the case of auto dealers, already generates almost half of their gross margins," said Jinghui Wu, a director of Alix Partners in Shanghai.
According to the company's research, Chinese auto-parts suppliers continue to be the most profitable in the world, with average profit margins of around 10 percent last year. That was double their margins in 2008.
Revenue for parts supplies increased 44 percent last year to about 1.6 trillion yuan.
Beijing-based Zhongsheng Group, one of China's largest auto dealers, said service and spare parts contributed 45 percent of profit last year, up from 22 percent in 2006.
Company Chairman Huang Yi told reporters that after-sales services generated a bigger profit margin than new car sales.
"We plan to expand more in that business," said Huang.
International auto-parts supplier Continental AG recently opened a 75 million yuan production facility in Jinan, the capital of Shandong Province. It's the company's first factory of its kind in China manufacturing electronics parts aimed at commercial vehicles and the after-sales market, according to the company.
Wholly owned Continental Jinan Co Ltd will turn out 792,000 sets of combined instruments annually. From next year, car body and powertrain electronic devices will also be produced. Its employee numbers are expected to double in the next four years from the current 210.
The after-sales market, though full of potential, is still hampered by fragmentation. There are more than 280,000 passenger car-maintenance companies in China, according to market research firm Ipsos.
Of that total, 53 percent are comprehensive repair workshops and 5 percent are dealers. The remainder are independent, specialty repair shops and franchised fast maintenance chains. The problem with the "remainder" is that many offer substandard service or use counterfeit spare parts.
In the absence of any national guidelines, prices for servicing and spare parts can vary dramatically from place to place.
Service quality
The quality of after-sales services also tends to wane as you go down the population chain. In third- and fourth-tier cities, the quality of servicing is still inadequate. That can hurt brand image.
"The after-sales market is a seller's market," said Ye Sheng, associate research director at Ipsos. "Car makers need to improve services to keep up their image with consumers."
He said dealers need to develop better systems of maintenance and servicing that is offered on par with auto makers' standards.
Luxury car brand BMW recently launched a nationwide program to strengthen its after-sale services. Customers are offered comprehensive maintenance services, from checks to repair work, at its Shanghai Baocheng Zhonghuan Automotive Sales & Services Co Ltd.
The car maker also started offering nationwide emergency services for cars that break down on the roads.
United States-based Automatic Data Processing Inc is another company eyeing the growing demand for quality after-sales auto services.
Robert McBratney, chairman of the Asia-Pacific region at ADP Dealer Services, said his company sees the focus shifting from car sales in China.
"This year, China is entering a second phase of its automotive development, with competition turning to after-sale service," said McBratney.
"Customers don't want to patronize dealers that offer bad services," he said. "Chinese customers are becoming more demanding in the quality and services they expect."
As a provider of business and data solutions to dealers, ADP Dealer Service is now aiding the likes of Mercedes-Benz, General Motors, Chrysler and BMW in their efforts to address the after-sales market.
"We are also targeting some big domestic auto dealer groups in China and downsizing our product offerings to fit their needs with more competitive price," said McBratney.
But nowadays, with millions of cars on the road and many of them aging, after-sales service and maintenance have become equally important, according to industry analysts.
A recent report from automotive research firm AlixPartner estimated that 145 million cars will be on the roads by 2015, more than double the 60 million last year.
That increase will drive the after-sales segment to a value of 652 billion yuan (US$100 billion) in that period, AlixPartner said.
Ivo Naumann, managing director of AlixPartner's Shanghai office, said the after-sales market presents a golden opportunity for both car makers and dealers in China.
"Typically, the fourth year in the life of a car sees spending on spare parts and services reach its peak," Naumann said. "Previously, not a lot of attention was paid to the after-sales market because there were too few cars on the road and most of them were new. But this sector is about to experience enormous growth rates in the next few years."
The growing demand for after-sales services may help car makers and parts suppliers retain profitability as car sales start to slow after years of explosive growth.
China's vehicle sales in May fell 3.98 percent from a year earlier to 1.38 million units, according to the China Association of Automobile Manufacturers. It was the second straight month of decline.
Rising fuel costs and vehicle registration curbs in some big cities like Beijing have dented demand for new cars. At the same time, car makers also face more heated competition, putting their profit margins under pressure.
Profitable sector
Last year, after-sales services in the domestic market accounted for 14 percent of total auto parts revenue.
"Both our survey and data analysis show that the after-sales market is highly profitable and, in the case of auto dealers, already generates almost half of their gross margins," said Jinghui Wu, a director of Alix Partners in Shanghai.
According to the company's research, Chinese auto-parts suppliers continue to be the most profitable in the world, with average profit margins of around 10 percent last year. That was double their margins in 2008.
Revenue for parts supplies increased 44 percent last year to about 1.6 trillion yuan.
Beijing-based Zhongsheng Group, one of China's largest auto dealers, said service and spare parts contributed 45 percent of profit last year, up from 22 percent in 2006.
Company Chairman Huang Yi told reporters that after-sales services generated a bigger profit margin than new car sales.
"We plan to expand more in that business," said Huang.
International auto-parts supplier Continental AG recently opened a 75 million yuan production facility in Jinan, the capital of Shandong Province. It's the company's first factory of its kind in China manufacturing electronics parts aimed at commercial vehicles and the after-sales market, according to the company.
Wholly owned Continental Jinan Co Ltd will turn out 792,000 sets of combined instruments annually. From next year, car body and powertrain electronic devices will also be produced. Its employee numbers are expected to double in the next four years from the current 210.
The after-sales market, though full of potential, is still hampered by fragmentation. There are more than 280,000 passenger car-maintenance companies in China, according to market research firm Ipsos.
Of that total, 53 percent are comprehensive repair workshops and 5 percent are dealers. The remainder are independent, specialty repair shops and franchised fast maintenance chains. The problem with the "remainder" is that many offer substandard service or use counterfeit spare parts.
In the absence of any national guidelines, prices for servicing and spare parts can vary dramatically from place to place.
Service quality
The quality of after-sales services also tends to wane as you go down the population chain. In third- and fourth-tier cities, the quality of servicing is still inadequate. That can hurt brand image.
"The after-sales market is a seller's market," said Ye Sheng, associate research director at Ipsos. "Car makers need to improve services to keep up their image with consumers."
He said dealers need to develop better systems of maintenance and servicing that is offered on par with auto makers' standards.
Luxury car brand BMW recently launched a nationwide program to strengthen its after-sale services. Customers are offered comprehensive maintenance services, from checks to repair work, at its Shanghai Baocheng Zhonghuan Automotive Sales & Services Co Ltd.
The car maker also started offering nationwide emergency services for cars that break down on the roads.
United States-based Automatic Data Processing Inc is another company eyeing the growing demand for quality after-sales auto services.
Robert McBratney, chairman of the Asia-Pacific region at ADP Dealer Services, said his company sees the focus shifting from car sales in China.
"This year, China is entering a second phase of its automotive development, with competition turning to after-sale service," said McBratney.
"Customers don't want to patronize dealers that offer bad services," he said. "Chinese customers are becoming more demanding in the quality and services they expect."
As a provider of business and data solutions to dealers, ADP Dealer Service is now aiding the likes of Mercedes-Benz, General Motors, Chrysler and BMW in their efforts to address the after-sales market.
"We are also targeting some big domestic auto dealer groups in China and downsizing our product offerings to fit their needs with more competitive price," said McBratney.
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