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Sunday, January 17, 2021
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A region facing up to going digital

Dr Julia Saini, VP - Mobility Practice at Frost & Sullivan, looks at the digitisation of the GCC’s aftermarket during Automechanika Dubai's latest webinar

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We’ve been doing a lot of analysis around the general forces that are shaping the automotive industry. These are the forces that really over the past half year have become defined as The New Normal.

Those are in our personal but also in all our professional lives. So there are some common themes and lifestyle changes that we’re seeing across different markets worldwide and in the past year have  brought all sorts of new dynamics for the automotive industry.

Governments have released stimulus packages or they have intervened very quickly and come in hot with new regulations. And like it or not, all know our Mobility habits have changed.

They’re definitely different factors influencing our lives and the way we do business – and that has brought us on a trajectory that probably about 12 months ago we would not have anticipated.

Taking a step back to where we all were in Q1 and Q2 of 2020, we basically, had extreme strict restrictions that we faced here in the region – but also around the world. This had a massive impact on the automotive industry.

Here in the region we have seen car sales plummeting by about 50 to 60 percent, for instance.  Average daily footfalls in the local showrooms have fallen from 10 to 12 visits the day down two to three customers per day. Obviously servicing and maintainence of our vehicles in the aftermarket have been deferred as much as possible.

We are all trying to recover from this curve, but that’s still at the end of the year, this will have translated in about 24 25 percent drop in new car sales and a drop of up to 16% in revenues coming from vehicle servicing and the sales of parts in the aftermarket. That is not to mention the impact that the lockdown and travel restrictions had on mobility as a whole: through the way we move. We still see a hangover today in public transport, the usage of taxis, of Ubers and of car sharing and more.

Now we did see an impact on driving behavior during lockdown – or let’s call it the non-driving behaviour but what does that mean for the aftermarket? Less vehicles driven had a negative impact on the requirement for maintenance, parts and lubricants, plus a lower demand for breakdown parts. And, of course, there was a drop overall in the number of accidents and a lower demand for collision parts.

This has a created a problem and challenges not just in the region but worldwide for garages within the aftermarket because in order to make money and be profitable bays need to be utilised at about 80 to 90 percent of capacity – and this is where access digitalisation comes in.

It has already pushed the industry to experiment with new business models and new ways of bringing the customer back both into the service operation and injecting back money into the aftermarket sales.

We have seen collaboration between service aggregators and new business model that have proven to be vital for the survival of the industry and especially for those who are without an established online presence.

Looking carefully at digitalization, as we settle into The New Normal or more hopefully find a cure for Covid-19, which elements are here to stay and not just a stopgap solution? We ran through some of the key trends and opportunities that actually might be in the market post-COVID and although it has turned out to be a catalyst for digitalization in the aftermarket we have seen a further push of business models that were present before but did not have the necessary focus

With focus comes investment and this is a slight positive out of the entire situation. If we look at the parts and accessory business, we expect global revenues to reach up to $75 billion. That’s the value of the parts transacted online B2C but this is not just limited to parts selling, we see the facilitation of the service side of businesses: That includes the online service aggregators; the marketplaces; and what customers actually identify in garages and booked online. In the UK, we have who can fix my car? and here in the region we have with Open Bonnet.

That is the first aftersales aggregator in the UAE, and it was actually only founded last year. It already has a network of service garages of 60 garages, but there are numerous players emerging in this space and, based on our research, we believe that by the end of 2025 we will have close to $6 billion worth of service jobs that will be booked on these platforms online.

Another opportunity that we picked up at the beginning of the year and has been increasing since lockdown is the demand  for on-demand vehicle service models. These include services like the fuel delivery offered by CAFU, but also repair services and some of companies are now offering sanitisation washing services – everything at your beck and call, either at home or at your offices.

With the increasing reluctance to visit workshops and the fears of contamination, we expect more and more customers to opt for those solutions and look into it as an alternative.

Lastly, we’ve also seen more demand in the hygiene and car care markets. And we are seeing improved cabin air filters. These are are actually one of the most popular categories in the aftermarket right now without even mentioning companies that push first virus filtration technology. So there are opportunities in the aftermarket for diversification within your garage: looking at air purification solutions and sanitisation options.

We are really seeing this increased focus around what we call health wellness and well-being within the car – and we expect this trend to grow and to generate over $2 billion by 2025.

The aftermarket is – through digitalisation – using new business models and has definite potential to emerge and show resilience. We can shift the way we are used to doing business by engaging and investing more and more into digital elements.

Looking at a long-term perspective, we will see four big disruptive things that will affect and change the aftermarket. One of them is the chase to shared, connected, automated and electrified vehicles. This is a change and disruption that will happen within the vehicle – the data itself is changing.

From the outside of the vehicle, the second trend are the new entrants coming into the value chain, and they have changed the way we are used to doing business in the aftermarket. They are coming in offering new service models and their own branded Amazon solutions.

We also have a third area of disruption being how vehicle ownership is changing and therefore the approach to the end user in the aftermarket is going to change.

All of these changes in this sort of those has the servers are linked to digitization and digitalization and this is an approach that generates data. Data obviously can eventually be monetized. So in the future, the aftermarket should be looking at solutions that do not just focus on repairing the car but also on solutions that help to manage the car, and the customer, and the data and the wealth of experience around it.

Dr Julia Saini was speaking during Automechanika Dubai’s Digitalisation of the Middle East’s Automotive Industry webinar. You can hear the full recording here.

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