China’s Automotive Aftermarket:
Making Sense of the Data
China Aftermarket Forum
Shanghai
June 13, 2008
Kent D. Kedl, General Manager
kkedl@technomicasia.com
©2008 Technomic Asia. All rights reserved.
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Technomic Asia
China Office
Room 502, Jin Tai Building
58 Mao Ming Road (South),
Shanghai 200020, China
Tel: +86-21-6473-2588
www.technomicasia.com
Today’s Agenda
• Data in China…
• Who are we?
• China Parc update
• Defining addressable market
• Review of Growth options
– Expand vehicle coverage
– Widen geographic distribution
– Deepen product price tier coverage
©2008 Technomic Asia. All rights reserved.
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About Data in China
道可道非常道
• “Accurate China Data” is impossible – China is too big, too complex and too fragmented to
fit neatly into categories
• Data is only useful insofar is it enables you to make critical decisions
– “Opportunistic strategies” are still too often the norm here
• Data makes sense within the story of the market as told from the perspective of your
products as the leading actor
– “The number of cars on the road in China” is not useful!!
– “The number of vehicles of a certain type, a specific age owned by a particular person”
might be useful
©2008 Technomic Asia. All rights reserved.
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Who we are and what we do…
Technomic Asia assists US & European firms to understand their China / Asia
opportunities, put their strategy together and then execute it:
Growth Strategy
• Market assessment
Expansion
• Growth strategy
Exploration
• Competitive analysis & benchmarking
• Distribution & value chain assessment
Full-Scale
Operation
• M&A (target search, due diligence,
negotiations)
“Asia
Growth
Cycle”
Global Supply Chain
• Supply chain optimization
• Strategic sourcing
• Supplier Improvement Program
• Warehousing/DC planning
©2008 Technomic Asia. All rights reserved.
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Regional focus…
Since 1978 — and from multiple locations in Asia — Technomic Asia has supported
hundreds of multinational companies, including:
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©2008 Technomic Asia. All rights reserved.
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3M
Armstrong
BMS
Boots
Brunswick
Citibank
Cooper Tire
Delphi Auto
Dow Chemical
DuPont Dow
ECL (Pechiney)
Emerson Electric
Ford Motor
Gates Rubber
General Mills
General Motors
Handy & Harman
Honeywell
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Mitsubishi
Morgan Chase Capital
Motorola
Pentair
PPG Industries
Prudential Venture
Roche
Sara Lee
Schering
Schneider Electric
Schroders
SKF
Sony
Standard Chartered
Unilever
USG
Woodward
World Kitchen
Overall Vehicle Parc
China’s overall on the road, 4 wheel vehicle parc totaled an estimated 43 million in
2007…
China’s 4 Wheel Parc – Estimated 2007 (mln vehicles)
4.7
14
24.5
Sedans
LCV
HCV
Note: sedans include SUV/MPV; LCV comprise lite/mini truck and lite and mini bus; HCV comprise medium/large trucks and buses.
Source: CBU Autostats; Technomic interviews and analysis
©2008 Technomic Asia. All rights reserved.
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Sedan Parc
Sedan Parc exceeds 24 million…
BMW
3%
Honda Fit
26%
24%
47%
Santana 2000
Source: CBU Autostats; Technomic interviews and analysis
©2008 Technomic Asia. All rights reserved.
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Chery QQ
= Small
= Mid-sized
= High End
= Luxury
Parc by Age
Based on continued rapid new vehicle sales, China’s parc continues to be relatively
young with over half the parc 3 years old or less.
2007 China Sedan Parc by Age
Total Market Units = 24.5 million
2007 China Small Bus Parc by Age
Total Market Units = 7.9 million
10%
2%
40%
55%
35%
58%
0 to 3
4 to 9
0 to 3
>9
Source: Technomic interviews and analysis
©2008 Technomic Asia. All rights reserved.
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4 to 9
>9
Parc (Sedan) Forecast
Mid sized sedans will show the greatest growth over the period, growing at 26%
per annum to over 37 million vehicles, and will remain the largest segment.
Forecast of China’s Sedan Parc
by Vehicle Type
(units ‘000 - rounded)
Units
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2007
Small
2008
2009
Mid Size
2010
2011
High End
LUX
Source: Technomic interviews and analysis
©2008 Technomic Asia. All rights reserved.
2012
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Sedan
Type
2007
Size
2012
Size
AAG
%
Small
Sedan
6,152
13,165
16%
Mid-Sized
Sedan
11,878
37,062
26%
High End
Sedan
5,851
17,617
25%
Luxury
Sedan
637
2,412
30%
Total
24,518
70,255
23%
Defining Your Addressable Market
It is critical to consider multiple variables when determining addressable market…
this is the setting of your “story”.
• Vehicle type
• Vehicle group (European, local, etc.)
• Parts per vehicle
• Incidence
• Replacement frequency
• Price point/supplier group
• Age
• Current and forecast
With good data, effective market targeting can be done.
©2008 Technomic Asia. All rights reserved.
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Defining Your Addressable Market
For example, in the AM, you can refine your addressable market by…
…first determining replacement activity…
…then incidence.
Share of Replacement
Activity by Vehicle Age
Number of Parts per
Vehicle
General
Replacement Level
Part A
0 to 3
4 to 9
>9
Vehicle Type
Number
Small Sedan
Once every 4 years
5%
50%
45%
Small Sedan
2
Mid Sedan
Once every 4 years
6%
48%
46%
Mid Sedan
2
High Sedan
Once every 5-6 years
10%
45%
45%
High Sedan
3
Luxury
Once every 5-6 years
10%
45%
45%
Luxury
3
Small Bus
Once every 4 years
5%
49%
46%
Small Bus
2
Sedan Type
©2008 Technomic Asia. All rights reserved.
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Defining Your Addressable Market
Understanding parts pricing tiers is critical…
Higher quality
and price
• Active in OEM market
• Dominate foreign and more expensive cars
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Int’l
Brands
Recognized domestic brands
Mid-high price
Some OEM business
Pressing Int’l brands for share
High End Local
Brands
• Varying quality and price
• IAM focused
• Largely serves local vehicles
Low End Local
Brands
• Fragmented base
• Very low price/quality
• Imitate both int’l and local brands
Imitation/Fake
©2008 Technomic Asia. All rights reserved.
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Defining Your Addressable Market
Representative market shares…
Sedan Application
High End Local
Suppliers
US/Euro
Suppliers
Japanese
Suppliers
European Car
US Car
Japanese
/ Korean Car
Domestic China
Car
= Strong Involvement
©2008 Technomic Asia. All rights reserved.
= Limited presence
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Low End Local
Suppliers
Defining Your Addressable Market
Typical Brand Shares by vehicle segment…(Value basis)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Small Sedan
Int'l
©2008 Technomic Asia. All rights reserved.
Mid Sedan
High End
Sedan
Local High End
14
Luxury
Sedan
Local Low End
Small Bus
Fake
Defining Your Addressable Market
Using rough benchmarks, an illustrative Part A opportunity by vehicle maker
group can be estimated…
Rough Estimate
of 2007 Parc - %
(Sedans)
Computed
Aftermarket –
Part A units (mm)
Adjusted Value
Share*
Estimated Value
– RMB mm
European
31%
3.0
42%
232.7
North American
10%
0.9
12%
66.5
Japanese
15%
1.4
17%
94.2
Korean
5%
0.5
5%
27.7
Chinese/other
39%
3.8
23%
127.4
Auto Groups by
Geographic Roots
*Based on adjusted average Part A price
©2008 Technomic Asia. All rights reserved.
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Growth Potential – Vehicle Coverage
The market’s share of global vehicle suppliers is shifting…
Easy
Penetrability
Hard
Niche Basis
©2008 Technomic Asia. All rights reserved.
Size of Car Parc
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Significant
Growth Potential – Vehicle Coverage
US Car
• GM as the major
player today
• Ford growing
• Chrysler?
Korean Car
• Price competitive
• Smaller scale
operations
Domestic China Car
• Consolidation occurring
• Increasing desire for sophisticated
performance
• But price sensitivity
Japanese
• Strong protection of home
country suppliers
• Rapidly growing
manufacturing presence
European Car
• A priority market for all suppliers
• Branded locals very active
• Increasing price pressure
©2008 Technomic Asia. All rights reserved.
Segment size is illustrative
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Distribution Models
China’s aftermarket distribution remains highly fragmented and unorganized,
enabling value to be created through streamlining and consolidation…
Garages
Local
Manufacturers
1st Tier
Distributors
Foreign
Manufacturers
Importers/
Agents
Retailers
2nd Tier
Distributors/
Intermediaries
Consumers
Auto. OEMs
4S/3S Shops-
Conventional Flow of Goods
Alternative Flow of Goods
©2008 Technomic Asia. All rights reserved.
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Distribution Models
Explore all of your distribution options (don’t just stick with the model that
brought you here or the one you use in your home markets).
Positive Contributions
Constraining Issues
“Exclusive”
Branded
Distributor
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Full dedication & loyalty
• Expect heavy support from Client side
Solid commitment of sales target, growth • Limited overall scale
Management convenience/order
• Challenge in control of grey channel
activity
Client part expertise
Regional
General
Distributor
• More powerful distributors
• Needs close eye on pricing order &
territorial activity
• Quick market access with nationwide
network
• Some need of financial assistance i.e.
rebate, payment credit-term
• Solid commitment of sales target, growth
• Diluted effort on Client
Applicationspecific
Distributor
• Better expertise/dedication
• Effective to gain share in specific vehicle
makes
• Narrow focus—needs specific support
• Supervision
• Available candidates in new vehicle group
Basic
Distributor
• Supplemental channel-especially for
secondary areas
• Higher mark-up
• May “upgrade” into general distributor
• Loyalty turns out problematic
• Little solid commitment – small scale
©2008 Technomic Asia. All rights reserved.
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Price/Brand Positioning
Aftermarket segmentation by Brand suggests a large market among high end
locals which could represent a diversification opportunity.
Estimated Share of Part A Aftermarket by Brand
By Value…
By Volume…
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Small Sedan
Int'l
Mid Sedan
High End
Sedan
Local High End
©2008 Technomic Asia. All rights reserved.
Luxury
Sedan
Local Low End
Bus
Fake
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Small Sedan
Int'l
Mid Sedan
High End
Sedan
Local High End
Luxury
Sedan
Local Low End
Bus
Fake
Price/Brand Positioning
The high end local brand share can often represent about over 30% of market
value and is likely to grow in position in the near future…
• Difficult for foreign supplier to penetrate as a foreign brand
• Participating in this segment suggests many challenges for to consider…
– Dual or hybrid brand approach?
– Cannibalization issues
– Dilution in current margin level
– Product source
– Offensive versus defensive rationale
– Organic versus acquisition (more likely) entry
• This strategy clearly is a long-term move which requires detailed consideration.
• Initial comments on potential acquisition targets follow….
©2008 Technomic Asia. All rights reserved.
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Questions & Comments
Issues addressed today…
• China Parc update
• Defining addressable market
• Review of Growth options
– Expand vehicle coverage
– Widen geographic distribution
– Deepen product price tier coverage
For more information, please contact:
Kent Kedl, General Manager
kkedl@technomicasia.com or +86-136-0191-3061
©2008 Technomic Asia. All rights reserved.
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