Developing Regions of Eastern Europe to Drive EU Aftermarket Growth, Says Frost & Sullivan

LONDON--March 13, 2014: While a major distribution group in France collects data to support a planned expansion in Poland and neighbouring countries, an established Tier-one supplier of mechanical engine parts in Belgium explores the potential launch of electrical components to customers in southern Europe. A major automaker at the same time commissions a study to analyse pricing and recommended inventory levels for spare parts in the former Russian territories. These are just a few examples taken from Frost & Sullivan research enquiries, that exemplify how in 2013, interest in the European automotive aftermarket was significantly higher than recent years.

The European automotive aftermarket is a €100 billion industry for parts suppliers from Ireland to Russia, according to latest research from Frost & Sullivan (Frost Automotive), with total revenue increasing by approximately 2.4 percent annually. It has fully recovered from its dip in 2009-2010, when economic recession caused motorists to defer normal vehicle maintenance.

"In the coming years, growth across the region will be driven by expanding vehicle ownership in Eastern Europe - led by Russia and Poland - with increased maintenance and life-of-vehicle repairs for aging automobiles supporting opportunities in Western Europe," reports Frost & Sullivan Automotive and Transportation Aftermarket Program Manager, Stephen Spivey.

Growth for routine maintenance parts such as tires and lighting will outpace the market as a whole. For electronic parts, including position and pressure sensors, year-over-year growth will be as high as ten percent. There is also a growing demand for remanufactured products, as successful cross-border core collection programs pave the way for lower priced starters/alternators and clutch parts, among others.

Growth projections for the region are based on two key metrics - vehicles in operation and average vehicle age. There are approximately 290 million passenger cars and light trucks across Europe that will need ongoing parts and service to remain operational. The average age of these vehicles is 8.2 years - with those in Western Europe tending to be a little bit older due to higher new car sales in Russia and Poland.

The mature Western European markets - the United Kingdom, Germany, France, Italy and Spain - are home to the highest share of these vehicles (about 166 million). However, vehicles in operation are only increasing in those countries by one percent annually. Low economic growth has suppressed new vehicle sales, resulting in fewer cars and light trucks added to the car park.

"In Eastern Europe, growth rates are significantly higher," Spivey continues. "Russia's vehicles in operation are forecast to increase more than three times faster (3.3 percent) than the rest of Europe. In Poland, new vehicle sales grew 6.4 percent for 2013 - the highest in three years - boosting the automobile population there. Overall, Eastern Europe's car park will grow by 2.6 percent annually - more than twice as fast as the rest of the continent."

Europe also has the most diverse mix of vehicle brands in the world - a potential challenge for suppliers trying to meet the aftermarket's all-makes-and-models benchmark - and the shares of various OEMs can change dramatically from country to country. For example, Volkswagen brands represent 20 to 21 percent all passenger vehicles in Western Europe, but just 12 to 13 percent in Eastern Europe. Renault-Nissan dominates Eastern Europe with about 28 percent of registered vehicles, but holds only about 11 percent in the west.

North American brands Ford and GM-Opel make up 15 to 20 percent of registered vehicles in operation across the continent, but Asian OEMs are growing the fastest.

About 40 percent of vehicles are older than nine years of age, putting them in the prime replacement age for expensive repairs. New vehicle sales will take several years to recover to pre-recession levels in the large Western European countries, increasing the likelihood that their owners will pay for the repairs instead of trading in the car.

However, product selection and distribution channels also vary significantly from country to country - presenting another potential obstacle to growth in the region.

Internet retailers are expected to enjoy the highest growth, with tire companies leading the migration to online sales. Sales through major online marketplaces such as Amazon.com and eBay, as well as more specialized e-retailers Rakuten and Oscaro, will more than quadruple over the next decade - accounting for more than ten percent of industry revenue.

On the whole, the European automotive aftermarket has been opening up to outside competition since 2002, when the initial "Block Exemption" regulation allowed vehicle owners to use aftermarket parts and service without voiding their warranty for the first time. Since then, "Right-to-Repair" type legislation requiring automakers to share electronic data, allowing independent repairers to identify part numbers by make and model, has fuelled the growth of "fast-fit" centres, mass merchants and retailers carrying parts that were typically available to vehicle owners only through dealerships.

The OES channel has been losing approximately one market share point annually since these regulations took effect.

Going forward, increased liberalisation of the European automotive aftermarket will create opportunities for independent parts and service providers to grow. Traditional distribution channels are somewhat more insulated from the pricing and margin pressures of North America's industry because of the presence of so many international borders. Despite the political and economic union of European countries, there are too many differences between them for a mega-distributor, such as NAPA or AutoZone, to consolidate buying power throughout the region. However, this also requires manufacturers, distributors and service providers to develop a more targeted approach to this part of the world.