By: Steven Rao, Research Associate, Ken Research.
The pandemic resulted in a significant decline in service volume and spare parts sales due to reduced vehicle usage and lockdown measures. Consumer preference for unorganized workshops is driven by cost savings, as they offer lower prices compared to OEM workshops. The adoption of fully electric vehicles is currently minimal, but hybrids have gained popularity. As electric cars become more prevalent in the future, the unorganized workshops may face challenges due to the technical complexity of electric vehicles. Nonetheless, the future growth drivers for the industry seem promising, with the market for unlicensed service providers expected to expand as demand for second-hand vehicles increases.
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We had the privilege of conversing with a Mobility Service Project Specialist at an automotive company. With his extensive experience and insights, he offers valuable perspectives on the present and future of automotive aftermarket service in Philippines. Please note that the opinions and perspectives shared in this interview are his own and do not represent the official stance of his employer
Q1. What was the impact of COVID-19 on the automotive sector in the country?
COVID-19 pandemic had a significant impact on the automotive industry in the Philippines, especially for the aftermarket service providers. With travel restrictions and lockdown measures in place, vehicle usage drastically decreased, resulting in a sharp decline in service volume. Many vehicles were not being used, which led to reduced demand for maintenance. Regarding spare parts, it's evident that there was a decline in their sales as well. With fewer vehicles on the road and fewer maintenance visits, the need for spare parts naturally went down. As for the smaller businesses, individual automotive service owners faced considerable challenges. Some of these shops were forced to close down due to the reduced demand for their services during the pandemic. The decline in vehicle usage impacted these smaller businesses significantly, leading to financial difficulties.
Q2. What kind of workshops that were significantly affected
Automotive service workshops that had to close down were the unlicensed, unorganized players in the market. In the case of authorized service providers, the situation was relatively different. Many of them operate as chains with multiple locations. So even if one location was impacted and had to close down, the rest of the business could still continue to operate.
Q3. What is the split between organized and unorganized workshops?
Majority of players are unorganized workshops. The proportion of OEM license service providers would be around 40%, while the unorganized workshops would make up the majority with approximately 60% of the market in terms of presence.
Q4. Difference in pricing between OEM and unorganized workshops?
The difference is quite substantial. Prices offered by OEM workshops are typically around 40% - 50% higher than those provided by the unorganized workshops. The lower prices offered by the unorganized workshops can be attributed to the majority of their suppliers being based in China, which allows them to procure parts at more affordable rates.
Q5. Is the spare parts industry import driven or manufactured locally?
Spare parts industry in the Philippines is primarily import-driven, with approximately 90% of spare parts being imported from countries such as Thailand, Malaysia, and Japan. Only about 10% of spare parts are manufactured locally, and even those are often OE (Original Equipment) based and driven by OE companies.
Q6. What are the consumer preferences in terms of servicing?
Consumers tend to prefer authorized service providers for more expensive services depending on the nature of their car model and date of purchase. In the unorganized market, consumers seek a wide range of services, including body work and paintwork. For such services, they usually prefer unlicensed providers unless insurance companies dictate otherwise. If the insurance company doesn't mandate it, consumers would rather go to unlicensed providers for maintenance and other repairs. For certain repairs like suspension and wheel alignment, the majority is done through unlicensed service providers. For small electrical replacements, consumers also tend to prefer unlicensed providers. Interestingly, some retailers also offer these services, eliminating the need for consumers to visit an unlicensed shop or authorized service provider. Retailers play a role in providing small electrical replacements and installation services as well. Retailers who sell automotive parts often install them for customers, offering a convenient option for small electrical replacements.
Q7. How is the competition scenario?
Toyota currently holds a strong market share of about 50%. This is due to factors like service availability, technical expertise, and the availability of third-party parts. Mitsubishi is a close second, followed by Honda, while other brands, such as Ford, may also compete but typically rank lower.
Q8. Are consumers generally accepting of non-genuine branded parts?
Many consumers are willing to use third-party parts as they are often more affordable than OEM parts, making them a popular choice for cost-conscious buyers.
Q9. How is the scenario for electric vehicles in the Philippines? Is the adoption of electric vehicles growing?
Currently, the adoption of fully electric vehicles is almost nonexistent in the Philippines. While there are some charging stations being set up, sales of fully electric vehicles are minimal. However, hybrids have gained popularity and have their own fan base in the market. hybrid vehicles are more common. The specific brands of fully electric cars available are limited, with the popularity of hybrids outweighing fully electric options.
Q10. As electric cars become more prevalent in the future, what will be its impact on the aftermarket service industry?
The introduction of fully electric cars on a wider scale is likely to have a significant impact on the aftermarket service industry. Currently, hybrid vehicle owners already prefer visiting authorized dealers for maintenance due to the complexity of hybrid systems. With fully electric vehicles, the technical requirements will be even more advanced, making it challenging for unlicensed players to service these vehicles. This lack of technical know-how and expertise in handling electric cars will likely be a deterrent for unlicensed service providers and could negatively affect their business.
Q11. What are the future growth drivers in the automotive aftermarket industry?
In the future, the market for unlicensed service providers should grow. As new cars age and go past their warranty periods, the demand for second-hand vehicles will increase, leading to a larger market for unlicensed channels for maintenance. With the rising prices of new vehicles, more people are opting for second-hand vehicles, and they are likely to choose unlicensed service providers to maintain them, as they may not have information on how the vehicle was maintained by the previous owner. This trend is already evident as unlicensed service providers like Rapid are expanding their locations, indicating a growing market for their services.
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Ankur Gupta, Director Strategy and Growth