Latin American aftermarket offers growth for distribution groups, service chains

U.S.-based service chains, such as Midas, SpeeDee and Carglass, recognize what a growing number of aftermarket suppliers are starting to see.

Latin America offers a wide range of opportunities for them to grow their businesses.

To begin, total vehicles in operation is forecasted to grow at 5.2 percent annually over the next five to seven years, reaching almost 100 million vehicles in the top 11 countries by 2017. That is more than four times the forecasted growth of North America’s car parc.

In some countries, such as Mexico, the make/model composition of those cars and light trucks is similar to North America’s population, making it easier for parts and service providers to penetrate the market.

Another feature of the Latin American aftermarket is a comparative lack of distribution infrastructure to service this growing vehicle base. In many places, there are no large retail chains or buying groups with all-makes-and-models coverage of thousands – or even hundreds – of different spare parts.  In its place is a fragmented network of retail distributors that carry a much smaller selection of products. This makes it harder for shops that repair and maintain these vehicles to find the parts they need at the right time.

The result is that shops cannot service vehicles as efficiently as they otherwise could. And vehicle owners pay more for their repairs than they should.

Midas International Corp. presently has about 50 franchisees in operation across Mexico, where sales of basic maintenance parts such as tires, batteries and brakes are growing rapidly. Midas subsidiary SpeeDee Oil Change & Tune Up has franchised garages in more than 20 Mexican cities.

In Brazil – Latin America’s largest automotive market with more than 35 million light vehicles – windshield repair chain Carglass operates more than 60 stores and 600 accredited sales points.

The rush into Latin America is not limited to U.S.-based service chains. German-based Bosch Car Care Services and French-based Norauto operate more than 100 garages across Argentina providing routine maintenance, as well as more advanced repairs.

Prospects for growth are high. The network of independent repair facilities that currently services most Latin American vehicles faces the same challenges as American garages – skilled labor shortages, as well as access to the latest tools and training needed to work on increasingly sophisticated automobiles.

Multi-national service chains are better positioned to address these challenges and capitalize on the growing demand for maintenance and repair services to support Latin America’s rising vehicle population.

For parts suppliers, it is a similar story.

Annual vehicle inspection programs supporting enhanced government safety and emissions regulations are helping drive more demand for maintenance parts, such as wipers blades and spark plugs, among others.

As the growing population of new vehicles reaches the five-to-seven-year age range, sales of starters and alternators, radiators, mufflers and other common repair parts also will rise.  

Frost & Sullivan forecasts total parts revenue to increase by about 30 percent over the next three to five years, exceeding $30 billion at the manufacturer level. At the retail level, demand for all automotive parts and accessories across the 11 main countries – Brazil, Mexico, Argentina, Chile, Colombia, Peru, Venezuela, Ecuador, Paraguay and Bolivia – could reach $100 billion.

However, many of Latin America’s distribution groups are regional in scope. Two of Argentina’s largest parts distributors – Totsa S.A. and Darsur S.R.L. – are mainly focused in the central and southern regions of the country, respectively.

With no distribution groups of a national scale in many Latin American countries, there would seem to be opportunities for American, as well as European suppliers to consolidate some of these market opportunities.

In the meantime, vehicle owners and service technicians are increasingly turning to Internet retailers to meet the demand for parts and accessories not available at their local stores. Latin America ranks second in terms of annual online retail sales growth, averaging 20 percent in the five-year period from 2007 to 2012. That is more than double the rate for North America.

Within Brazil’s maturing digital space, automotive has become one of the market’s leading retail categories in terms of consumer interest. IBOPE Media and Nielsen’s "Netview" showed automotive as the 15th most popular website category in Brazil, and the one with the highest spike (17 percent) in number of unique visitors.

Connect Parts is the leading online seller of auto parts in Brazil. MercadoLibre.com is eBay’s Latin American partner and the region’s number-one e-commerce site. It also features an extensive automotive category.

High sales growth for these sites seems to be a response to the lack of availability from traditional aftermarket distribution channels.

Barriers to entry remain for foreign competitors, but they have declined substantially in recent years. In Brazil, import tariffs for auto parts have fallen from 14 percent in 2010 to two percent today. However, the Brazilian government has tightened nontariff barriers by requiring licensing requirements on imported car parts.

In other Mercosur countries, such as Venezuela and Argentina, the importation of auto parts from outside the region’s free-trade zone are subjected to high import duties, forcing new entrants to develop local supply chains in order to operate there profitably.

In addition, high inflation in some countries – Venezuela and Argentina, in particular – could make it too costly for some new vehicle owners to afford maintenance and repairs, stifling some potential growth.

For now, the hub of Latin America’s aftermarket is Sao Paulo – home to some 450 of Brazil’s approximately 600 parts and service companies. Two of the country’s largest distribution groups – Distribuidora Automotiva and DPK – are based there. More than any other suppliers, they resemble the large warehouse distributors of North America, with multi-brand product lines and retail stores serving local garages and vehicle owners alike.

Frost & Sullivan expects to see the emergence of more such groups in the coming years.

A growing middle class throughout Latin America – and Brazil in particular – promises to increase car ownership and, thus, demand for parts and service to maintain them. For now, many of these motorists are getting by with a fragmented network of small parts retailers and family-owned garages to keep their cars on the road.

But as the car population grows and repair centers that are unable to invest in new tools and training close, Latin America will need a modern automotive aftermarket with all the features – such as large parts and service chains and wholesale buying groups offering all-makes-and-models coverage – of the modern industries found throughout North America and Western Europe.

Those companies investing now are best positioned to build brand loyalty with consumers and enjoy the ride, as demand for their products and services continue to grow.

Stephen Spivey is the Program Manager for Frost & Sullivan’s Automotive and Transportation Aftermarket research practice. He focuses on monitoring and analyzing emerging trends, technologies, and market behavior in the global automotive aftermarket. For more information on Frost & Sullivan’s Automotive and Transportation research, contact Jeannette Garcia, Corporate Communications, at [email protected].

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