Innovation and digitization to drive aftermarket in India
India is the fifth largest automobile market in the world, and a not-so-named auto component or the automotive aftermarket sector plays […]
Anushruti Singh April 18, 2019
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India is the fifth largest automobile market in the world, and a not-so-named auto component or the automotive aftermarket sector plays an important part in its growth and turnover at large. In recent years, a rapidly-growing middle class and increased purchasing power is driving the vehicle sales, thus, creating immense opportunities for manufacturers and supply chains to put an effective aftermarket sector in the country. Seeing such positive sentiments, auto OEMs are also foraying into the aftermarket segments. After entering the two-wheeler aftermarket segment in 2017, Rico Auto forayed into the four-wheeler aftermarket segment last year. The company did so with 28 products and is targeting for a revenue of ₹ 100 crores by 2020 from the sector. According to reports, it is anticipated that by 2025, the Indian automotive aftermarket will become the third largest market in the world. As per the report titled “Transformation Shifts in Mobility and Impact on Aftermarket in India” by the Confederation of Indian Industry (CII), the domestic automotive aftermarket has grown at a compounded annual growth rate (CAGR) of 14 per cent in the last five years. It is expected to touch ₹ 75,000 crores by 2020. The report also states that the country’s car market also has the potential to grow to over six million units annually by 2020, up from 3.7 million in 2016. The data collected by the Automotive Component manufacturers Association of India (ACMA) also reports that, of the total Indian aftermarket, the two- and three-wheeler segments account for around ₹ 12,038 crores, while the passenger car segment accounts for around ₹ 18,970 crores, commercial vehicles for around ₹ 19,748 crores and tractors for ₹ 5,342 crores. What is Aftermarket? For those who are not familiar with the term “Automotive aftermarket,” it is a secondary market that encompasses all parts and services purchased for vehicles, light or heavy, after original sales have been done. It includes replacement parts, accessories, service repairs, lubricants, appearance products and so on. “When parts supplied by an original equipment manufacturer (OEM) get damaged or worn out, the replaced parts built or manufactured come under the aftermarket category”, Fahad Hazari, Product Lead at Uno Minda Distribution and Services, said when asked about what automotive aftermarket exactly is, while visiting the 4th edition of ACMA Automechanika Show. In a more elaborate manner, the parts that come into the aftermarket segment include product type – braking (brake pads, hydraulics and hardware, and rotors and drums), steering and suspension (ball joints, tie rods, sway bar links, bushings, bearings/seals and coil springs) hub assemblies (wheel-ends), universal joints (drive lines), gaskets, wipers, filters (air, oil and cabin air), lighting and spark plugs. The auto component industry, which had an annual turnover of US$ 51.2 billion in 2017-18, is expected to cross US$ 200 billion by 2026. While exports have grown at a CAGR of 11.42 per cent to US$ 13.5 billion, auto components production has seen an increase of 12-14 per cent in 2018-19, due to robust growth in the domestic and export markets. Industry experts believe that the future of the automotive secondary market looks bright amidst all the transformations that the sector is undergoing. Ashish Bhat, Executive Vice President and Head, Digital Factory, Siemens India, shares, “The automotive component industry in India is making significant progress in the adoption of Industry 4.0, and there is great potential to take this sector a step ahead. With digitalisation, manufacturing enterprises, especially the SMEs, can enhance their efficiency to fight scale, reduce cost of production, minimise manufacturing defects and shorten production time. With this, they can not only meet international quality standards but also strengthen their position as competent suppliers for the global market”. The Evolution of Aftermarket The Indian auto parts sector contributes 2.3 per cent to the Gross Domestic Product (GDP) and employs as many as 1.5 million people directly and indirectly, constituting a big chunk of SMEs in the sector. The organised sector mainly has OEMs that manufacture high-precision machinery and parts, and the sector is largely made of the unorganised sector, that is, MSMEs that produce low-quality products. Initially, the aftermarket was small in size. In the 1970s, the industry got initiated with the operations of Maruti Udyog Ltd. And in the 1980s, many new manufacturers emerged in the sector. There are three main automotive aftermarket clusters that have flourished in the past few decades, in the west, north and south regions. These are Mumbai, Pune, Nasik and Aurangabad in the west, Chennai, Bengaluru and Hosur in the south, and New Delhi, Gurugram and Faridabad in the north. According to CII’s report, the states of Tamil Nadu, Andhra Pradesh, Karnataka and Kerala contribute more than 75 per cent of the total aftermarket potential. Here, sales of auto components owing to increased vehicle ownership (new and used vehicles) in semi-urban and rural markets are driving demand. The report also revealed that the number of vehicles are expected to grow by six to seven per cent this year. This offers a substantial opportunity for independent aftermarket service providers, both existing and new entrants, to grow. As of now, no specific data has been found for the total number of aftermarket companies functioning in India, but according to the journal Indian Auto component Industry: Challenges Ahead, written by Sachin Borgave and JS Chaudhari, the sector has more than 420 players in the organised sector and more than 10,000 players in the unorganised sector. SMEs are largely based out of tier 2 and 3 cities. Around 390 auto component manufacturers have ISO 9000 certification, while 223 companies have QS-9000. Thrust to Success In 2017-18, the total exports value of India’s automotive exports stood at US$ 13.5 billion, while it was US$ 10.9 billion in 2016-17. The growth is being driven by the expanding domestic market and increasing globalisation (including exports) of several Indian suppliers. In the past few years, this sector has gained momentum on investments. As per the Department of Industrial Policy and Promotion (DIPP), the foreign direct investment (FDI) inflow in the period April 2000 to June 2018 was US$ 19.29 billion. In recent developments, giants like Schaeffler India, German Automotive major continental Elgi Equipments and IMI Precision Engineering have all decided to invest in the country. The budget, too, has given the much-needed attention to the MSME sector by extending incentives. An industry expert opines that increasing the zero tax income limit to ₹ 500,000 will be a shot in the arm for the middle-class, thus boosting market sentiments. “These measures will lead to improved sales of automotive products, especially two-wheelers, farm equipment and entry-level passenger vehicles, which, in turn, will fuel the growth of the domestic auto component industry”, says Ram Venkataramani, President of the Automotive Component Manufacturers Association of India (ACMA). Digitisation of manufacturing operations and investments in technologies such as PLM, Simulation, etc are set to be crucial differentiators in making companies globally–competitive and catering to the emerging needs of next-generation automobiles in the wake of the E-vehicles revolution and “connected mobility” megatrends. One crucial step for the segment is technology and innovation. Raj Manek, Executive Director and Board Member of Messe Frankfurt Asia Holding Ltd, opines, “The automotive market is witnessing rapid technological transformations. In tune, regulatory changes in India are also redefining the domestic aftermarket”. Indeed, technology and innovation in the component sector is playing a vital role in the growth of the sector. Today, most companies are looking at tech innovations and product development, which hold the key to tap the biggest growth opportunities in the future. One such SME company is Turbo Tech Engineers based out of New Delhi, which supplies and manufactures precision-engineered replacement turbocharger components, turbo repair kits and complete VSR-balanced CHRA/core assemblies to the turbo repair sector. Gurinder Singh, its owner, says that today, due to precision engineering his company is the only manufacturer after OEMs in the turbo manufacturing aftermarket segment. “Our factory is the only one after OEMs who are into manufacturing turbochargers and its parts for diesel engines. With the help of precision engineering, our team of technical engineers has changed the designs and technicalities of the products, giving them better and prolonged life”. According to Singh, manufacturing is a task that needs precision and perfection with a blend of modern tech and, thus, only a few players have ventured in this sector. With more innovation, the company has recently forayed into manufacturing of turbochargers for petrol and Euro 6 engines, and is anticipating seeing double–digit growth in its business. E-commerce has also given a significant boost to the automotive aftermarket. Simply searching for the term ‘auto parts online’ on the Internet opens up a bunch of e-tailing platforms where auto parts are sold via suppliers and manufacturers for B2C and B2B consumers. Most of the registered people on these trading websites are medium and small players, who can have a regional presence through these portals, such as marketplace or third party e-tailers. According to a global report on E-Commerce Automotive Aftermarket scenario conducted by Transparency Market Research, the Asia-Pacific region is expected to dominate the global e-commerce automotive aftermarket by 2025. The Indian government’s initiative Digital India and collaboration between brick-and-mortar stores and E-commerce platform providers is boosting the industry demand globally. While easily availability coupled with cost-saving prices are surging the e-commerce activities. Do-it-yourself is also becoming quite prominent. Challenges India’s aftermarket in the past was focused on cost, but now the sector is focusing on quality of the products and services. However, the sector is complex in many ways and needs to work around the following roadblocks:
- Unorganisedand fragmented operations in the aftermarket makes it highly inefficient and, in many cases, unreliable. This leads to higher costs or higher dissatisfaction among consumers.
- Missing data and information for training and actual repairing and maintenance of vehicles.
- Substandard parts and services impact the safety standards and vehicle fitness, which contributes to road fatalities.
- Poor returns of investments (RoI) from its trade channels due to inefficient inventory and supply chain practices. Theunorganisedmarket only adds further to this weakness of the industry.
- Collaboration to organise data and information with an open source approach to provide parts and repair information to the industry.
- Minimum standardisation for both parts and services.
- Training and online support to technicians.
- More IT innovations and skill management programmes to fulfill the needs of skilled workers.