Beyond acknowledging that the automotive aftermarket was impacted by the pandemic in 2020 (revenues from parts and accessories sales fell by an estimated 8.8% last year) there are more long-term considerations, such as what important trends and opportunities will emerge in 2021 and how will they shape growth in the aftersales business. In attempting to answer these questions, the Mobility team at Frost & Sullivan has determined that five key trends – online-to-offline integration, the mainstreaming of EV service opportunities, digitalization of the customer’s journey, the popularity of SUVs and sub-compacts, and the rise of new products and services triggered by the pandemic, will drive the automotive aftermarket in 2021 and the years ahead. Buoyed by these trends, Frost & Sullivan projects aftermarket revenues to increase to 7.1% in 2021.
Looking at 2021 and Beyond: Five Key Trends
According to our latest research, Global Aftermarket Outlook, 2021, global revenues for replacement parts and accessories sold online during 2020 grew by 24%. This resonates with our first prediction that e-retailing will pick up pace over the next 3-4 years, and do-it-yourself (DIY)-related purchases fueled online sales during the pandemic last year. We expect this momentum to carry forward in 2021 with solutions that target do-it-for-me (DIFM) customers with seamlessly integrated online-to-offline (O2O) channels.
Accordingly, we anticipate investments in aftermarket digitalization to surge. Today, an online presence has become crucial to winning over customer minds and, ultimately, opening up their wallets – whether online or offline. We also expect online sellers to develop private label brands with the increasing awareness about and appetite for brands and value line products.
Our second prediction is that the rapid growth in EV sales, particularly among fleets, will create consolidated business opportunities for the aftermarket in the early stages of the vehicle’s lifetime. Dedicated digital platforms providing standardized services for a range of vehicle types, especially in company and retail fleets, will become a focal point.
In addition to dedicated online platforms for parts retail, other EV fleet aftersales opportunities will include fleet management systems for vehicle monitoring, refueling, and charging solutions; connected services and repair through over-the-air updates and remote diagnostics such as those provided by Tesla; and end-of-life solutions covering alternative markets for battery suppliers and collaborations with pre-owned sellers.
The third trend that will affect automotive aftermarket participants will be the demand for sub-compact and compact SUVs. This is likely to result in higher per-vehicle spending on maintenance services and ‘accessorization’ and, by extension, motivate suppliers and channel partners to redesign their portfolios to address the specific needs of this segment.
As online adoption gains impetus, the fourth trend we will see is the digitalization of the customer’s journey. Investments here will be aimed at creating a seamless continuum spanning search, acquisition to fulfillment. From investments in physical stores (JD.com’s expanded store count) to online websites (PSA’s e-store for accessories), from physical workshops (the expansion of Tuhu’s affiliated workshop network) to mobile servicing providers and service aggregators, digitalization will integrate the various aspects of customer engagement with the aftersales market, simultaneously boosting the prospects of independent aftermarket (IAM) participants.
If accelerated digitalization in automotive aftersales is poised to be a major outcome of the pandemic, so will the fifth defining trend: new product and service categories. Among these include vehicle sanitization services – like those provided by GetSpiffy and Shell – for personal, shared, and commercial fleet vehicles, contactless servicing and payments, click (online) and collect (from a store) services such as those offered by major retail chains, and online-to-offline services like those provided by Amazon and tire e-retailers where consumers order online and get parts delivered at the workshop.
New practices will also flow in the aftermath of the pandemic. Circular economy concepts, in particular, will gain more adherents, reinforcing remanufactured/used parts programs.
New Opportunities Highlight the Need for Targeted Strategies and Innovative Business Models
As rapid change unfolds, challenges and opportunities will emerge in equal measure. Stakeholders will need to identify these growth opportunities and design targeted strategies that fully leverage their potential. For instance, as the online replacement parts and accessories marketplace takes off, stakeholders need to develop robust delivery and fulfillment mechanisms while leveraging online resources and offline infrastructure. Investments in digitalization across the value chain, beyond parts retail and workshop services, will also create exciting new channels of revenue growth.
The widening uptake of EVs will result in the creation of new parts and services aftermarket categories while highlighting the need for newer business models. In addition to the EV market, aftermarket service providers will also need to devise new business models – such as innovative, subscription-based tire replacement programs – targeting customers in the lucrative fleet segment.
As more vehicles become equipped with advanced driver assistance systems (ADAS), we predict a flood of new revenue opportunities to emerge. Among them will be collision repair, tire replacement, wheel alignment, vehicle customizations, and new product servicing categories in sensors, cameras, and radars.
Although OE dealerships have cornered most of the market for such services, our research shows that IAMs have the potential to capture share in the medium-to-long term. For this to happen, investments in related tools and equipment and, importantly, upskilling of workforces will be a prerequisite.
The pandemic has left an indelible mark in terms of emphasizing health, wellbeing, and wellness agendas. Accordingly, we expect new product and service categories like cabin filtration solutions and UV-disinfection for vehicles to open up significant multi-million-dollar revenue opportunities in the aftermarket over the next 3 to 4 years.