Deloitte 2020 White Paper of China Automotive Aftermarket highlights digitalization and its impact on China’s market
S2c Firms Such as Tuhu Plays an Important Role in Transforming the World's Next Largest Auto Market Through Digital Innovation
In its latest report 2020 White Paper of China Automotive Aftermarket, Deloitte highlighted several core insights that shaped and continues to transform this fast-growing sector, as well as future developments to watch. The report not only covered trends in China’s automotive aftermarket and insights on consumers’ online maintenance behavior, it also discussed how rapid digitalization has contributed in an influx of tech firms entering the auto aftermarket. The rise of the vertically integrated S2c[1] model (typically driven by firms such as Tuhu) has disrupted and transformed the market landscape, creating unique value-chain integration and online-offline customer experience.
Chinese car ownership to lead the world by 2025, but aftermarket lags behind
Benefited from fast economic growth and demographic dividend over the past two decades, auto sales of China have been growing robustly for a long time. According to the report, China is expected to surpass the United States to become the world’s largest auto market by 2025. Maintenance market capacity will continue to grow and be expected to reach CNY 1.7 trillion (USD 260 billion) by 2025.
Despite promising market growth, China’s auto aftermarket industry continues to face various challenges. The sector has yet to reach mature, and a lack of integrity in some areas has damaged consumers’ trust. These problems need to be resolved if the auto aftermarket is to realize its full potential.
“China’s auto sector has seen explosive growth for over a decade, but the development of its service market has lagged behind. The aftermarket has grown in the last 10 years but remains fragmented, disorganized, and relatively small in scale. At the same time, the development of mobile internet and digital technology allows new business opportunities to thrive,” said Wei Tongwei, Secretary-General of the Automobile Repair Parts Working Committee，China Automobile Maintenance Industry Association.
Younger, newer drivers go digital for quality assurance
According to Deloitte, the domestic online auto maintenance market will remain rapid annual growth, approximately over 22% from 2019 to 2025. Meanwhile, the age distribution of the consumers shows a standard “olive” structure, covering drivers aged from 25 to 54 years old, among which age group between 25 and 34 accounts for the highest proportion (up to 51%).
The research also found that people with less than 3 years driving experience require higher quality auto parts. This reflects the fact that “genuine products” and “quality assurance” cannot be positioned as core differentiated competitiveness in mature markets, but they are Chinese consumers’ concerns at current stage.
Deloitte believes that the needs of Chinese consumers are different from those of developed markets. Not only do Chinese auto maintenance consumers want access to quality maintenance services, they also require the industry to embrace digital transformation and meet consumer preferences.
Digital models transform the industry
Digitalization in auto aftermarkets has attracted an influx of tech firms to enter, including large incumbents in the value chain, resulting in new business models and competition patterns.
The S2c model integrates auto parts manufactures (upstream), supply chain & e-commerce platforms (midstream) and auto service networks (downstream), and provides services to end customers directly. It shows a typical vertical integration trend in the market. Tuhu, whose investors include Tencent, Sequoia Capital, Carlyle and Joy Capital, is one such S2c enterprise. Established in 2011, Tuhu is a leading online platform for auto maintenance products and services in China, with more than 2,000 workshop stores and 13,000 partner stores in Asia. Empowered by digitalization and standardization , the model of “online ordering with offline delivery” has gained market confidence.
Deloitte’s report also highlights key issues for the future development in China auto aftermarket. The needs to develop core capabilities such as data acquisition and increment, supply chain management, as well as maintenance technology and criteria top the list. As the report pointed out, enterprises that effectively manage new channel models, deepen empowerment, strengthen vertical integration, and upgrade capabilities through digitalization and standardization will eventually benefit from the opportunities of this dynamic market.
