Consolidation among parts retailers and changing consumer habits are transforming Europe’s aftermarket, with logistics services both at risk and able to provide a competitive edge, writes Marcus WilliamsThe European automotive aftermarket and service parts business is in the midst of tremendous change, prompted by consolidation among major suppliers and distributors, new technology in vehicles and a push towards e-commerce – all of which is set to have big impacts for logistics and distribution, according to experts speaking at the recent Automotive Logistics Europe conference in Bonn, Germany.
Many of the developments are being driven by a shift in the market structure in Europe. For example, the traditional line for suppliers selling parts supplied to carmakers versus independent retail channels is blurring. Suppliers, carmakers and wholesale distributors are also increasingly using so-called Omni-channel distribution strategies, which might include sending parts not only dealerships or large retailers, but also directly to customers, for example through online orders.
Meanwhile, the fast pace of technological change in vehicles – including software, frequent model updates and electrification – are also set to reshape the aftermarket supply change, often in ways that may challenge the traditional businesses of both carmakers and logistics providers. But while logistics providers should be aware of the risks ahead, there is plenty of potential to gain and create new services.
[sta_anchor id="1"]Supply chain consolidationFollowing a long period of sales declines for new vehicles after the 2008 financial crisis, the aftermarket supply chain in Europe is again robust and relatively healthy. However, that is partly as a result of significant consolidation up and down the supply chain.[in_this_story align="right" border="yes"]
The wholesale aftermarket business has also consolidated, driven in part by investment from American investors. For example, the largest parts retailer in Europe is now US-based LKQ, a provider of service and accessory parts, which owns Euro Parts in the UK and Sator in Europe. Recently, Uni-Select, a North American parts distributor, invested in The Parts Alliance, the second largest distributor of aftermarket parts in the UK.According to Frank Schlehuber, director of aftermarket at the European Association of Automotive Suppliers (CLEPA), about 50% of the entire tier supplier business is now in the hands of the top 100 global companies (up from 36% in 2009).
At the same time, parts suppliers are targeting end consumers with more direct investment either in wholesale or through independent aftermarket retail. Hella, Federal Mogul and ZF are just some examples of major tier suppliers that have done so.
[related_topics align="right" border="yes"]“At the moment no one on the supplier side is ever just happy being a parts manufacturer,” said Schlehuber, everyone is thinking about how they can stretch the border a little bit and expand their activity.”
He added that 'intermediates', such as fleet and leasing companies, are also playing a greater role in the aftermarket landscape.
“What happened in the last six years is more intermediates came into the game and this affected both [franchised and independent] channels,” he said. “These intermediates, like fleet leasing and other big leasing companies, have a certain mass, and are looking for service alternatives.”
[sta_anchor id="2"]Supplying and serving whomever will buyOne of the implications of this consolidation is that it changes the purchasing power and customer dynamics for automotive suppliers. Schlehuber gave the example of the US, where parts retailers already sell $10 billion worth of parts, a direction in which Europe may also be heading.
“That’s the sort of dimension where OEMs would like to be. From a size and purchasing perspective, there is no longer a difference for a parts suppliers to sell to an OEM or to the independent aftermarket,” he said.
E-commerce distribution is also playing a significant role in the marketplace, as independent parts wholesalers and retailers look for opportunities to serve customers in new ways.
The result is an even more competitive landscape for carmakers, which are responding by expanding their own parts offerings, as well as by increasing delivery services to try to keep up with the independent aftermarket.
For example, OEMs are trying to compete by breaking into the independent aftermarket and e-commerce channels. A good example of this is France’s Groupe PSA, which in 2015 took over Mister Auto, a leading e-commerce dealer in multi-brand replacement parts, with around 2m customers and handling 12,000 orders a day.
This means that PSA is selling service parts that are not just used on Peugeot, Citroën or DS models but also rival car makes, including Volkswagen, Daimler and Toyota. Earlier this year, Ford also launched its all-makes Omnicraft brand in the US, which will eventually be rolled out to Europe and other markets.
Such strategies are ways for carmakers to make better use of workshop utilisation, according to Stephan Freichel, professor at Cologne University of Applied Sciences.
“[PSA] is heavily into [the 'all makes' programme] with 900,000 parts numbers and that is adding onto their original equipment supplier warehousing,” he said. “It means new part numbers and new distribution links. They are doing it not only for their workshops but to deliver into other parts of the channel, including wholesale of independent parts.”
Freichel added that the business and the logistics supporting it had to cope with the increased demand on services because of the business potential at stake.
Carmakers are also exploiting the connections they already have with the independent aftermarket to increase sales. “Very often the independent workshop needs a part from the OES [original equipment supplier] because it is a captive part and you can't get it on the independent aftermarket,” explained Freichel. “So if there is a connection, why not use it to sell other parts and to deliver it directly?”
Such changes in the landscape are already impacting logistics. For example, manufacturers increasingly have to cope with the requirements of the independent aftermarket, including trying to match the kind of multiple, same-day deliveries that are common among such retailers, rather than OEMs’ more traditional overnight services.
Freichel explained that meeting the demand for more parts and more frequent deliveries has led the OEM sector to provide a better service than ever before. For example, some car brands have invested heavily in their networks, adding new warehouses, such as BMW has done, both in the US and Europe, with its dealer metro distribution centres, providing multiple deliveries per day.
“In the network there are some really big developments and logistics has to cope with that,” said Freichel.
For example, the path through which OEMs, parts suppliers or independents will reach further customers is also dependent on logistics, including a strong network of warehouses and logistics services. Freichel suggested that e-commerce demand may not all move comfortably through traditional channels to dealers, and that manufacturers may need to consider expanding their distribution footprint with new facilities or in partnerships with providers.
Filtering data through the supply chainThe ability of either OEMs or independent retailers to break into each other's territory is supported by the greater connectivity available to companies in a digitalised age. Schlehuber said that connectivity allowed companies to reach out to end consumers, and to retrieve data about driving, use and parts conditions to predict replacement need. Companies are increasingly collected data and using it to steer their business in new directions.
With cars becoming even more connected, including for telematics, software updates and remote diagnostics, the potential to improve forecast and schedules for parts repairs could filter down into the supply chain and help support logistics.
John Willems, director of industry marketing for automotive at TNT Express, which is now part of Fedex, said that already OEMs were getting better at forecasting parts lifecycles and replacement times. Further pinpointing schedules could help to avoid expensive charter services for emergency parts.
“Better scheduling can remove need for overnight air charter and make it cost efficient [and it means] a better service for the real emergency occasions. That is where we can contribute to the results of a company.”
Kai Rabe, European aftersales logistics manager at Adam Opel, also highlighted how crucial connectivity was in allowing OEMs and service providers to work together to better use data and improve logistics processes. However, he frankly admitted at this stage that the rate of digitalisation and the internet of things were daunting and difficult to plan for in logistics
“I don't fully understand it and can't control it but we have to steer processes with our partners,” he said. “We will not stop this development, change will come. The only thing we can do is to prepare together as well as we can for the huge changes on the horizon.”
[sta_anchor id="3"]Electric vehicles and the aftermarketNew vehicle technology also looks set to have an impact on the physical aftermarket supply chain. While the combustion engine is likely to remain dominant for years, if not decades to come, the rise of electric vehicles will mean fewer but potentially more difficult individual components to handle, with impacts on warehousing and transport.
“Today, there can be between 200,000-300,000 SKUs in a [spare parts] warehouse if not more,” noted TNT's Willems. “Electric vehicles will reduce that and that will change the logistics set up.”
Kai Rabe agreed and said Opel would have fewer parts in its portfolio with the growth in electric vehicles. He also pointed to innovations in manufacturing and supply, such as addictive manufacturing (3D printing), that may further change distribution.
“Those parts may not even be stored in the warehouse because they are 3D printed or we try to deliver them straight from a supplier to our customers,” he said. “Also the market dynamics will be pretty huge because even in the aftermarket we will get multichannel distribution, so there is a lot of change out there.”
Willems pointed out, however, that at the moment the batteries used to power these vehicles were “pretty ugly to carry” and are categorised as dangerous goods, with a Tesla lithium-ion battery measuring about 3 metres long.
“You cannot carry it efficiently in a network with a lot of other shipments” he said. “When you need to replenish these sorts of batteries, you are forced into using a dedicated truck to ship them, which is very costly. There are developments that look nice but drive up the cost for the customer. Somebody needs to pay it.”
[sta_anchor id="4"]Compete for the obsoleteSome observers have suggested that future cars will pose risks to the traditional aftermarket and its logistics providers. Autonomous vehicles, for example, will crash less and thus require fewer of the replacements parts that are lucrative in the aftermarket. Likewise, fewer part numbers in electric vehicles could reduce volume in the supply chain.
Software updates could also save carmakers money on recalls in future, with online updates potentially preventing major recalls, and avoiding the complex logistics around them.
However, such outlooks overlook the fact that customers expect frequent, if not constant updates to technology. Christoph Stürmer, global lead analyst at PwC Autofacts, suggested that cars could be subject to so much technological obsolescence that opportunities in the aftermarket will increase substantially, as cars are virtually overhauled with new software and hardware every year.
“The necessity of keeping cars up-to-date is going to be much more increased and this is going to blur the lines between first level manufacturing and second level, retro fitting modular upgrades,” he said. “I see a transition phase with a lot of new business.”
Stürmer also pointed out that introducing new technology and electronics is not always seamless, and that they often have a high failure rate.
“Even today the main cause for vehicle to fail is in the electric systems,” he said. “So the more electric systems you put in the higher possibility that something is going to break and [the customer] are not going to know what to do with it.”
In either case, even as the vehicle market changes quickly, the aftermarket won’t, by its very nature, change over night. Regardless if electric vehicles gain swiftly in sales from their current low share, or whether mass-scale vehicle autonomy is five years away or ten years away, many traditional parts used today will be around for some time to come – and thus continue to demand similar logistics services.
“The good thing with the aftermarket is that this is not going to happen overnight,” said Frank Schlehuber. “The share of EVs is low and we should not forget that worldwide we have 1.2 billion vehicles and we will need a service for the next 10-15 years.”
Christopher Ludwig contributed to this report