Australian Aftermarket sees surge of consolidations
Two recent events capture the changes taking place today in Australia’s automotive aftermarket.
The first is NAPA parent Genuine Parts’ acquisition of Exego Group – the country’s largest parts distributor with annual revenue of about $1 billion. The deal, completed in April 2013, includes about 400 Repco parts stores across Australia and New Zealand.
The second is General Motors’ decision to stop manufacturing new cars in Australia, announced in December 2013. GM’s Holden brand will no longer be sold in Australia after the final vehicle rolls off the assembly line in 2017.
The decision also reflects the challenges facing parts manufacturers, distributors and installers across Australia – how to serve a small market that is geographically isolated from the aftermarket’s major global supply chains in North America, China and Europe?
Although it is one of the world’s largest land masses, Australia is home to only 15.6 million passenger cars and light trucks – compared to about 250 million in the United States. Frost & Sullivan estimates wholesale parts revenue at approximately $13 billion and growing at less than 2 percent annually, with accessories and high-performance parts enjoying higher growth than most routine maintenance products.
It is also a very diverse car market – with more than 80 vehicles brands still driven there.
For GM, exiting Australia means it can focus its production resources in regions where costs are lower and demand is higher.
For Genuine Parts, entering Australia offers the opportunity to export some of the North American aftermarket’s cost efficiencies to a country that has much in common with the United States.
For example, Toyota brands account for one in five vehicles in Australia. However, Holden and Ford represent about 16 and 13 percent of the market, respectively. Major European brands such as Volkswagen, Renault and BMW represent less than 10 percent of the vehicle population.
Sport-utility and crossover vehicles are the fastest-growing segments in Australia’s vehicle market. Increasing sales of large vehicles at the expense of small cars is also a defining feature of the U.S. auto industry.
Furthermore, the average vehicle age in Australia is 9.8 years, compared to 10.3 in North America. This puts vehicles in both regions in the prime replacement age for a wide range of electrical, as well as mechanical parts. Average annual use – currently around 15,000 kilometers per vehicle – has remained relatively unchanged despite the increased migration to public transportation systems.
Australian new vehicle sales reached a record 1 million units in 2012. It is a positive trend suggesting that the aftermarket will offer growth opportunities over the medium to long term as these vehicles age.
Distribution in Australia increasingly resembles what is happening across North America. There is high growth for two-step retail distributors and a sharp increase in direct sourcing of parts from China. In addition to Exego, two more of Australia’s largest parts distributors – Automotive Brands Group, which included the Autobarn and Autopro store chains, and Burson Auto Parts – have changed ownership over the past several years.
The top five distributors – Repco, Supercheap Autos, Autobarn, Burson Auto Part and Auto One – make up more than 40 percent of total parts sales. Four of them have a significant retail, do-it-yourself focus, but also sell parts to garages and service centers, closely mirroring the strength of retailers such as AutoZone, Advance Auto Parts and O’Reilly Automotive in the United States.
The rapid pace of consolidation among Australia’s largest distributors will make it difficult for new entrants. The number of retail parts outlets is forecasted to decline from 6,985 last year to 6,483 by 2020.
As in other regions, e-retailing is quickly gaining ground as a new distribution channel – for service providers as well as vehicle owners. The recently launched Webtyre.net allows consumers to purchase tires online and then have them fitted at their nearest Ultratune service center.
On the service side, there are many well-known chains – including Repco Authorized Service, Kmart, Ultratune, Bosch Car Service, Midas and Goodyear – with large networks across Australia. About 30 percent of Australian vehicle owners perform at least some maintenance themselves, according to published surveys, but 40 percent admit they do not take their cars to a garage or a dealership unless there’s something wrong with it.
There are approximately 37,000 independent repair facilities and service centers in Australia. Overcoming the resistance to basic vehicle maintenance is an ongoing challenge for service providers across the country.
The independent aftermarket represents 70 to 80 percent of the total maintenance and repair business, with automakers and their franchised dealers in the OES channel accounting for less than 30 percent. Most major OEMs have introduced capped price servicing programs to reduce maintenance costs for consumers and draw more of them back to dealerships. They also face fewer requirements to share technical data with the independent aftermarket – so called Choice of Repairer legislation remains stalled in Australia.
It is a competitive landscape that offers low, but reliable growth for large companies that have the ability to invest in the country. Yet, unlike Asia and Latin America, there’s not a surge in new vehicle ownership to drive the industry forward.
Nonetheless, for a company like Genuine Parts, Australia is a good fit with its current business portfolio. The industry structure is similar to the United States – in terms of vehicle characteristics, competitors and routes to market. With its major U.S. competitors struggling to expand geographically, entering new regions should give the company an advantage as more and more aftermarket parts suppliers and distributors look overseas for growth.
Furthermore, growth in Australia offers prospects for expansion into neighboring regions across Asia, where the vehicle population is expected to double in size over the next five to seven years.
Australia may not be the right place to grow for many companies. Small suppliers are likely to find the competition to be increasingly challenging. But it has clear strategic advantages for those with the size and expertise to go global.
Stephen Spivey is the Program Manager for Frost & Sullivan’s Automotive & 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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