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J.D. Power Asia Pacific Considers Aftermarket Drivers in India

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Written by Mohit Arora, Executive Director, J.D. Power Asia Pacific

Earlier this year, the Competition Commission of India (CCI) served notice to 17 automakers in the country for what the Commission termed to be anti-competitive practices. The charge was that these automakers hold restrictive control on the sales of spare parts to their authorized service networks which, in turn, means high prices to consumers.

Under India’s CCI ruling, the 17 carmakers will be forced to supply parts in the open market and may have to limit sales to their own dealerships. There are key questions that the industry must face if this ruling holds.

  • If this happens, would the authorized networks in the Indian automotive industry be ready to embrace a deregulated aftermarket industry akin to mature markets like the United States, Europe and Thailand?
  • Can the two networks survive alongside each other profitably?
  • How is consumer behavior likely to change once a reasonable aftermarket option is available to them?

Based on our company’s analysis, we find several trends that may provide some answers to these questions:

  • For the last several years, the propensity of customers to service their car during the warranty period at non-authorized networks has declined significantly, to just 2% in 2012 from 16% in 2005. In addition, there is a steep reduction in the number of customers using parts offered by a non-authorized network during the warranty period.
  • The biggest advantage of these non-authorized network facilities—accessibility—has been diminished from a customer’s perspective due to the proliferation of authorized service centers even in Tier 2 and Tier 3 towns. In the past five years, there has been a 50% increase, on average, in the number of authorized outlets, with some automakers more than tripling their network penetration. In addition, stand-alone service and spare parts centers have been added, which shows automakers are reaching out to customers more effectively. As a result, the proportion of customers who cited “convenient location” for defecting to non-authorized networks has been nearly cut in half—to 37% in 2012 from 76% in 2005.
  • During the past few years, we have observed overall improvement on work quality being administered at authorized workshops. The proportion of customers who say that the work on their vehicle was done right on their first visit was at an all-time high of 95% in 2012. This has increased loyalty and advocacy to the authorized networks.

In addition, India’s non-automaker sponsored aftermarket industry is fraught with counterfeit parts, unskilled labor and modest technology. Clearly with the CCI ruling, even if genuine spare parts are made freely available in the non-authorized aftermarket network, significant shifts in customer preferences to these workshops will remain an unknown as these groups face bigger challenges than availability of parts.

How Will Aftermarket Players Create Success in the Indian Market?

We see four key drivers to creating a vibrant aftermarket: growth in the primary vehicle market; dealing with the trade environment; warding off the competitive threat from authorized networks; and being ready to change with customer behavior. All are important ingredients, but the key focus must be on end-customer behavior.

As vehicles age, the owners’ propensity to service them at an aftermarket chain increases. In the United States, nearly 43% of customers, in their fifth year of ownership, visit an independent service facility for their service needs. A similar trend is likely to occur in India, especially when light-vehicle sales are expected to double from 3.6 million in 2013 to 7.8 million units in 2018. The rising service load will be a major stress on the current automaker workshop infrastructure and customers may have to look to aftermarket chains for a quick fix.

Also, J.D. Power data shows that customers are more likely to have their cars serviced at non-authorized workshops for simple services such as an oil change. Customers are seven times more likely to opt for an oil change at non-authorized workshops than in automaker-sponsored ones.

However, vehicles are becoming more complex from an engineering perspective, which is increasing the complexity of repairs that require specialized tools and specially trained technicians. With overarching concerns about safety, environmental pollution and vehicle durability, consumers feel that complicated repair services are best left to the experts, that is, authorized service centers.

Thailand Consumers Move to Quick Service Chains

A case study supporting changes in customer behavior is seen in the aftermarket industry in Thailand. There has been significant growth in non-authorized service chains in the recent past in Thailand. The focus has been to provide quick service, supported by a suitable value chain of spare parts, which has contributed to a 30% jump in the number of outlets in less than two years. One of the largest and most successful non-automaker service chains is B-Quik. Its highly advertised promise is for quick service, trained technicians and genuine parts.

In short, there is potential for the aftermarket industry to flourish and coexist with the authorized network. The expansive geographic spread and increasing ownership numbers in India will drive the requirement for non-automaker-sponsored service set-up. In the near term, potential non-authorized aftermarket entrants must look at establishing a strong brand position built on quality of service, combined with a prudent choice of business model that relies on the proposition of speed and cost effectiveness.

In the longer term, there needs to be a sharp focus on execution, especially in the area of the customer experience, accessibility and type of service. This combination of speed, quality, cost and accessibility will lay the foundation for building customers’ sense of “trust,” and ensure a successful and profitable venture in the non-authorized aftermarket in India.