What is happening in the Automotive Aftermarket Industry? | Part 1 – Trends driving the automotive aftermarket
Trends driving the automotive aftermarket
The global automotive aftermarket industry is a huge market segment. It is currently estimated to be worth approximately 800 billion euros, and is expected to continue to grow at 3 percent annually to become a 1200 billion euro market by 2030.
At SAP Automotive Industry Business Unit we have been accompanying this growth that brought so many ‘firsts’ for the global automotive Industry in the recent years: The first mass manufacturing of electric cars, first major number of miles driven by autonomous cars, and most recently the entire industry has been shaken by the first global pandemic without precedents.
This is the first of a multi-part series looking into the Automotive Aftermarket. In these blog post series we will address:
1) The main trends driving the growth of the automotive aftermarket
2) What are core digital skills can enable the aftermarket participants to partake in the market growth?
3) How SAP can support in the enablement process for the aftermarket industry?
Trends, commonly known as CASE Connected, Autonomous, Shared and Electric have been impacting the automotive industry for some time. In the SAP Automotive Industry White Paper it is described how these trends are impacting the automotive industry.
What has that meant specifically for the aftermarket industry?
A modern car has the computing power of 20 personal computers, features about 100 million lines of programming code, and processes up to 25 gigabytes of data an hour.
For the aftermarket, this means a shift on the equipment and skills needed, think diagnostic equipment. Car owners and fleet owners will be able to have more visibility on the status of their cars and respective parts and what services are required. All this vehicle data is an opportunity to shift from periodic maintenance to more of “as – a- service” approach, where data can drive insights to recommended services when needed.
If aftermarket players have the ability and the right technology to leverage this data, it will provide deeper customer insight, predictive maintenance opportunities and the ability to deliver new digital services. Having a closed feedback loop on car usage information and other data will directly help product design and life-cycle analysis. However, it will be important to remember that vehicle data belongs to the car owners. So the ability to deliver tangible benefits to the driver and to car manufacturers, will be dependent on the customers willingness to share the data with automotive ecosystem.
Around 50 percent of passenger vehicles sold in 2030 could be highly autonomous and around 15 percent could even be fully autonomous. The driver is that an autonomous vehicle, will mean less traffic accidents (as a big majority of road accidents are caused by human behavior) and importantly less fatalities. However, for automotive aftermarket this could also mean less demand for repair and parts. On the flip side, more autonomous vehicles would provide mobility options for customers that are not able to drive. This would make vehicles as a mobility option more inclusive and the opportunity to interact and sell to drivers while they are in the car. From an aftermarket service perspective, the need to ensure security and safety in autonomous systems would necessitate more regular maintenance. Autonomous cars is expected to drive higher traffic efficiency and less road density, which will increase moving time and wear and tear, driving the need for more maintenance. Finally, autonomous systems use high value components, so even if there is a reduction in the number of parts to be replaced, there value will still create an opportunity to the aftermarket players.
Although ride sharing has been directly impacted by the pandemic, the model is still expected to recover with shared fleets becoming a reality, especially within corporate world. Before the pandemic it was predicted that one out of ten cars sold in 2030 could be a shared vehicle. For the aftermarket Industry the increase in shared fleets, opens up the possibility of new business models, such as outcome and as-a service models. In these models, the efficiency of the service value chain directly influences the operating model and revenue stream. This trend will impact insurance models, there are key questions of responsibility to be ironed out in the case of claims in a shared business model. Connected vehicle data will become even more important, .as ultimately customers could pay a subscription to have access to many different cars, owned centrally or through individuals making their cars available so usage data becomes critical. This trend emphasizes again the need for aftermarket players to reinvent themselves, shifting focus to services. They are uniquely placed to help maintain and manage these shared fleets. As these shared mobility models would increase the usage and wear and tear of vehicles, which will increase the demand for service and future parts replacement.
Sales of electric cars continues to increase, driving a reinvention of the aftermarket. On one-hand electric vehicles usually have less parts than conventional cars decreasing the number of moving parts needed to be maintained and replaced. But as this shift is part of a larger pattern, where consumers expect a more sustainable approach to both their mobility options and the manufacturing and maintenance of cars, on the other hand this creates an opportunity for players in the aftermarket area to differentiate themselves. For example, the high integration between energy supply and electric vehicles can open up new aftermarket revenue streams for OEMs and suppliers. In some regions providing battery swapping services is becoming important. But suppliers that can provide more visibility and transparency of their supply chains in an environmental context will be at an advantage.
Summarizing: Are changes and disruptions the new ‘normal’ in the Industry?
To conclude, and in the way we see it, as mobility and the vehicles change, so must the aftermarket players. The unique selling point for aftermarket players needs to move beyond maintaining, repairing or replacement specific parts or engines into providing value added services. They have the opportunity to use the car as a platform to provide a unique experience for their customers. We must not lose sight that these trends have been compounded by other factors such as trading policies, local regulations and most recently the pandemic. During the pandemic sales have been impacted, some buyers postponing sales yet others buying cars for the first time as they move away from ride- sharing. As disruptions, either effected by innovation and technology trends or forced due to environmental, health or geopolitical trends, seem to be more and more the new normal, being able to react to them quickly will be the difference between success and failure. Changes bring with them an opportunity to build resilience that needs to start at the core of the supply chain. A resilient and healthy supply chain will enable aftermarket to address new trends and adjust to new business models.
In the next blog we will talk about the core enterprise-wide digital capabilities that, according with SAP, the aftermarket players will need to be able to respond to these and other disruptions. In a third blog post we will address how SAP solutions support the aftermarket focusing specifically in the SAP next generation service parts management. In the meanwhile, do let us know your thoughts on how the current challenges impacting the automotive industry reflect in the aftermarket in the comment section below.
Authors: Sara Mendes, Guada Joseph, Sebastian Scharfenberger, Uli Pfeffer, SAP Automotive Industry Business Unit (IBU). The Automotive IBU is a global team that represents SAP in the Industry and is responsible for driving sustainable business growth, customer satisfaction and solution completeness. The IBU Automotive team ensures the delivery of end-to-end solutions for the Automotive industry addressing current and future customer needs, and it enables the sales and consulting organization.