High profit margins for Middle East s automotive aftermarket

Transcription

1 7 9 May 2017 Dubai World Trade Centre High profit margins for Middle East s automotive aftermarket

2 High profit margins for Middle East s automotive aftermarket Introduction As part of a series of reports on the automotive aftermarket, the team at Automechanika Dubai has compiled data and insights on the Middle East s automotive market. The report takes a look at factors both positively and negatively impacting growth in the region, examines how the automotive spare parts market is performing and identifies key areas of opportunity within the sector. The report draws on market research provided by Automechanika Dubai Knowledge Partner, Frost & Sullivan.

3 Middle East automotive market overview Volatile oil prices and limited government spending have lead to a drop in vehicle sales in the GCC in Market potential in Yemen, Syria and Iraq also continues to drop and has reduced to half. However, with the easing of sanctions in Iran and the January 2016 implementation of the Joint Comprehensive Plan of Action, vehicles sales in Iran are forecast to grow nearly three-fold to reach an incredible 2.3 million units by All things considered, Frost & Sullivan estimates point towards an optimistic outlook for vehicle sales in the region in A compound annual growth rate (CAGR) of 9.1 per cent for light vehicle sales in the Middle East is likely between 2015 and 2020 and this will result in double digit growth for the industry. As the GCC does not allow imports of cars five years or older, the overall share of used vehicle imports in the GCC is negligible. However, countries such as Iraq, Syria and Yemen have a large share of used vehicle imports. The average age of vehicles in the Middle East is 7.8 years, but this stretches to ten years plus in Yemen and it is estimated that at least 10 per cent of vehicles in operation (VIO) across the Middle East are 15 years or older, providing a ready volume for the aftermarket. While this figure is expected to drop to 8.8 per cent by 2020 with Iran, for example, expected to scrap three to four million vehicles by 2020, prospects remain positive for the aftermarket, particularly in the GCC countries.

4 Middle East spare parts market Frost & Sullivan estimate that total spare parts demand in the Middle East was USD billion in 2015 and that is expected to increase by 33 per cent to USD billion by 2020 driven by an overall CAGR of 5.9 per cent. During this period, the CAGR in GCC is expected to be the highest at 6.5 per cent, with Iran coming in at 4.9 per cent and the countries of Iraq, Lebanon, Syria, Yemen and Jordan, combined, at six per cent. Parts per vehicles (PPV) are estimated at circa USD 493 in the GCC, USD 277 in Iran and USD 333 in the countries of Iraq, Lebanon, Syria, Yemen and Jordan, combined. The region is largely dominated by Japanese applications, but Korean applications are also quickly picking up. Other brands have the opportunity to gain market share if they can offer price competitiveness and build brand image. High maintenance costs for European OEMs hinders growth, but with more moves towards fuel-efficiency across the region, a potential market is opening for fuel-efficient technologies for which European manufacturers are known for their expertise in. Genuine and branded aftermarket parts make up about 58 per cent of supply with another 14 per cent attributed to counterfeit products. The rest is made up of other aftermarket parts, imports, and system suppliers.

5 Counterfeit products Frost & Sullivan research estimates that counterfeit spare parts in the Middle East, excluding Iran, could make up a USD 8.3 billion market. Much of this is attributed to the fact that 60 per cent of spare parts products are imported to the region from China and it is unknown how many of these are low quality, fake parts. Messe Frankfurt against copying a side note on counterfeiting and product piracy Automechanika Dubai is organised by Messe Frankfurt, one of the world s largest trade fair companies with over 1,800 active employees. The group has a global network of 28 subsidiaries, five branch offices, and 52 international sales partners. In 2006, Messe Frankfurt became the first trade fair organiser worldwide to launch an initiative against brand and product piracy: Messe Frankfurt against Copying. This initiative aims to ensure that exhibitors and visitors are fully informed and advised about the registration and assertion of intellectual property rights. Following these steps, Automechanika Dubai takes an active stand against brand and product piracy in an effort to create a fair business environment.

6 Areas of opportunity It is estimated that profit from vehicle sales in the US and Europe comes in at under four per cent and it is under five per cent across India and Asia Pacific. In the Middle East however, profit margins are much higher ranging from anything between 10 and 20 per cent. The parts and services market is much more lucrative across all markets, with the US and Europe enjoying 20 to 30 per cent profit margins and Asia Pacific and India anything between 20 and 40 per cent. Once again, the Middle East seems to surpass this, enjoying average profits of 40 per cent or higher. These figures clearly show that the Middle East enjoys higher profit margins than the rest of the world in the automotive segments in which it operates. That is why Frost & Sullivan sees Accessories as a major market opportunity for the Middle East automotive aftermarket. The vehicle accessories market across the US, Europe, India and Asia Pacific enjoy 30 per cent plus profit margins. However, it remains a relatively untapped market in the Middle East and thus could be an area of discovery for a regional dealer or original equipment manufacturer (OEM). Tyres and batteries are in high demand across the region due to the harsh weather conditions. Although it is a well serviced area, potential does still exist as it continues to be a growth area within the automotive aftermarket. Conclusion The automotive aftermarket, particularly in the GCC, is becoming more competitive and challenges from counterfeit products throughout the region remains a real problem. For genuine players, profitability margins are favourable and those that can offer a combination of value for money and quality, are likely to perform well. All in all, medium to long term prospects in the Middle East s automotive aftermarket remain positive and it represents a high growth market.