Chennai: India’s automotive aftermarket, which comprises the manufacturing and sale of spare parts and accessories for vehicles that are already on the roads, is expected to touch Rs.37,000 crore by 2015, growing at a compounded annual growth rate of 9-11%, according to a report released by the Confederation of Indian Industry (CII) and McKinsey and Co.
The aftermarket, which stands at Rs.28,000 crore, will see robust growth mainly because of increase in population of vehicles and shift of vehicle mix towards high-end variants, said the report.
Even though the sector is less cyclical in nature, it is now witnessing a drop in growth. “For the first time, the sector is facing uncertainty due to the slowdown and it is a matter for concern. In the last three to four months, the industry has seen a de-growth of 10-15% in the sector,” said R. Dinesh, chairman of CII, and joint managing director at TVS Iyengar and Sons Ltd.
“However, I believe, by the end of this year there will be a small negative growth or no growth situation in the aftermarket space this year,” Dinesh said at the CII Auto Serve 2012 conference.
The main challenges for the stakeholders—dealership service centres, spare parts retailers and independent service workshops—has been the tightening of margins due to rising operating costs, employee and real estate costs. Only large independent national distributors have managed to increase their return on capital because of operational efficiency.
The report notes that the parts and services markets are highly fragmented. But there are indications of consolidation among various entities to obtain better returns through scale. Without scale, the returns from the aftermarket business will continue to remain under pressure.
The report says that companies can significantly optimize their resources by focusing on certain geographical markets and product segments and by forward integration by which independent parts distributors become retailers and service centres.
Also, for original equipment manufacturers (OEMs), the aftermarket business is highly profitable as it contributes 24% in revenue and 55% in profit. With independent entities expanding rapidly, OEMs should have tighter control over parts distribution by aggressively expanding their service networks, structure exclusivity contracts for manufacturing and distribution with suppliers and distributors, and counter the threat of generic parts by launching cheaper brands that can be used across models, the report adds.