SHANGHAI -- China’s new-vehicle market is set to contract for the second straight year, but there was no trace of a chill at Automechanika Shanghai, the country’s largest annual trade fair for spare auto parts.
The event this month attracted nearly 6,600 exhibitors and 160,000 visitors, a 5 percent to 6 percent increase from a year earlier, organizer Messe Frankfurt said.
Behind the record-breaking turnout are more business opportunities in the aftermarket space for parts and service providers willing to explore.
Private car ownership in China was not common until the turn of the latest century, and the country’s vehicle fleet is young compared with those in mature markets such as the United States. In 2018, the average age of vehicles in China was 4.9 years vs. more than ten years in the U.S., according to Deloitte, a consultancy.
But the situation is changing.
Behind nearly two decades of robust new-vehicle sales, the number of vehicles driving on Chinese roads is expected to top 270 million by the end of 2020. The surge will enable China to surpass the U.S. and boast the world’s largest vehicle fleet, the China Automobiles Dealers Association said last week.
More importantly, the vehicle fleet in China is aging rapidly and thereby requires more repairs and maintenance. Deloitte data show the share of vehicles aged 5 years and above in the fleet increased to 47 percent last year, from 39 percent in 2010.
With the expansion and aging of the car and light-truck fleet, repair and maintenance services developed into a 930 billion yuan ($133 billion) business in 2018 after growing at a rate of 13 percent the past three years, according to Deloitte.
The market is expected to maintain double-digit growth for several more years, said Brian Kesseler, co-CEO of U.S. supplier Tenneco Inc., who was in Shanghai this month to open the Asia headquarters of the company’s newly created aftermarket parts business unit, DRiV.
After acquiring Federal-Mogul in 2018, DRiV will take over Tenneco’s aftermarket and business unit that builds shock absorbers; struts; noise, vibration and harshness performance materials; and brake pads for automakers. The company’s other businesses will retain the Tenneco name and focus on powertrain technologies.
When assessing the prime market opportunities, Tenneco looks at vehicles between six and 13 years old, Kesseler said. “Between now and 2025, that vehicle population [in China] will be growing at a 11 percent compound annual growth rate,” he predicted.
With the Asian center in Shanghai, DRiV is better positioned to bring its multiple product lines and differentiated brands to aftermarket customers in China, Kesseler added.
Tenneco is not alone in striving to expand its presence in the Chinese aftermarket. At Automechanika Shanghai, Bosch, Continental, Denzo, ZF, Delphi Technologies and Mahle were among the major global suppliers promoting their latest aftermarket parts and services.
Tenneco forecasts that China will overtake the U.S. with the largest vehicle aftermarket by 2025, a view that is also widely shared in China’s auto industry.
China’s vehicle aftermarket offers immense growth potential, but it is also tricky to navigate.
While U.S. and Western European owners prefer to carry out vehicle repairs and maintenance on their own, 95 percent of Chinese car owners rely on dealerships and independent stores to perform the work, according to Deloitte.
The aftermarket in China is also highly fragmented with numerous independent stores across the country.
Another key feature is the rise of the so-called 020 business model where companies distribute spare parts both online and offline. Backed by internet giants such as Alibaba Group and Tencent Technology, startups such as Tuhu and Carzone are rapidly embracing the business model.
“It is a fundamentally different and disruptive market model,” Kesseler noted.
Global suppliers including Tenneco have started to collaborate with these startups to distribute aftermarket products. It is a learning experience, but also carries a potential benefit, according to Kesseler, who is also head of DRiV.
He believes it is only a matter of time for the business model to make inroads in the U.S. and Western Europe.
“By doing well in that model here,” he said, “we believe we’ll be ultra-competitive in the other markets.”