Increasing focus on the China automotive aftermarket (5)

In our introduction, we introduced six Emerging Trends Driving the 2010 China Auto Industry:

• Sustainable demand growth fueled by urban economic development
• Shifting preferences for increasingly savvy consumers
• Hyper-competition across the automotive market segments
• Adaptive brand innovation to extend product reach and grow share
• Increasing focus on the automotive aftermarket
• Accelerated drive to globalization

We will cover each of these trends in depth in this series of articles.

Increasing focus on the automotive aftermarket

Along the value chain of global automotive industry, profit is gradually shifting from the vehicle manufacturing to aftermarket service. It is generally understood that aftermarket service and parts contributes more than half of the profits to the global automotive industry. In the United States, more than 70% of auto firms' earnings have come from their service and parts business, in contrast to only 40% in China.

Entering 2010, Chinese vehicle makers and their international partners obviously recognized huge opportunities from the aftermarket opportunity and accelerated their pace of resource commitment. For network development, vehicle makers are shifting the focus from building brand new 4S dealerships to encouraging current dealers to set up 1S or 2S sub-dealers, particularly in suburban areas, as well as accessible places for rural consumers. For example, among 125 dealers of Mercedes Benz nationwide, there are 42 satellite dealers including 37 sales only dealers and 5 service workshops.

Establishment of sub-dealerships not only provides greater access to potential buyers, but also helps to support service delivery to remote car owners. For service delivery, vehicle makers are dedicated to implementing Customer Relationship Management (CRM) systems and brand experience management stantards to each dealer showroom. Customer retention and lifetime value creation become a focus through the dealer management and performance assessment system.

For service innovation, the vehicle makers are also look beyond traditional service and parts, and extend to derivative business, such as leasing & financing, used car sales, rebuilding & decoration, telematics, and other business. Such an expanded product and service portfolio creates incremental value to car owners, and also maximizes the profitability of OEMs. Shanghai GM and Toyota China are among those first movers to launch their used car business and introduced their own telematics brands (On-star and G-book) to China.

In our next and final article in this series, we will discuss China's "accelerated drive to globalization".

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About the authors:

Bill Russo, Gasgoo.com's columnist, is a Senior Advisor with Booz & Company as well as the Founder and President of Synergistics Limited. He lives in Beijing and has more than 20 years of experience in the automotive industry, most recently serving as Vice President of Chrysler's business in North East Asia.

Jeffrey Zhao, is an Advisor with Synergistics Limited. He lives in Fairfax, Virginia and has more than 10 years of experience in the automotive industry, most recently serving as Senior Manager for New Business Development for Chrysler's business in North East Asia.