Digital Auto Care Factbook 2016 - (Page 98)

CHINESE AUTO CARE INDUSTRY programs, will help support development of the independent aftermarket (IAM) channel which should cause a shift away from the dealers' current market dominance. This development has certainly caught the eye of the auto makers who are also seeking ways to play in the IAM channel. The supply chain for the IAM channel in China can be characterized by its multi-layered structure, primarily using "parts cities", or Qi Pei Cheng, as the platform for supplying parts to garages. Today, garages have to source from various players at different levels (OES, retailers, 1st/2nd tier distributors, suppliers, import agents) to get the parts they need. These parts cities, of which there are an estimated 900 across China, have become a bottleneck to efficient distribution due to their fragmented structure and low technology orientation. China is a long way from the US market which has moved significantly to a two-step distribution structure. China's distribution profile looks a lot like the US market in the 1970s, with distributors falling into two types; "by-makes" who focus on a narrow vehicle platform, such as SVW of SGM; or "by service" which cover multiple vehicle models but with a limited parts line, generally more fast moving parts like filters, lubricants, wipers, friction parts and the like. In general, most are relatively small scale (<$5 to $10 million) and are regionally, even locally oriented. A large distributor would have $50 million in revenue versus over $200 million for a large distributor in the US. Some of the leading local players, like Carzone, are actively expanding their two-step model with their own stores. There are no big retailers like Advance, AutoZone and NAPA as in the USA. A couple of these major players have attempted to enter China but have failed. As mentioned, urban markets in central and west China are rapidly developing for auto sales (as well as other consumer products) and currently feed off the larger, nearby Tier 1 and Tier 2 cities for their parts sourcing. China's IAM distribution market lacks scale, and with that comes poor efficiencies and higher supply chain costs. While the distribution system is "working" it is severely stressed and needs to evolve to effectively support the market's growth. The concept of developing a modern distribution business model with a strong logistics and service capability is daunting to many small Chinese distributors who are running their businesses based on limited resources, thin margins and low technology (not to mention some grey business practices). Even larger distributors are still far from their counterparts in the US. Virtually no China IAM distributor is running on a commercial ERP package, and few have any semblance of a WMS system. As it has in other markets, China is likely to advance quickly in distribution development and even skip some steps that the US market went through. As an example, e-commerce is a red hot topic in China today. Many e-commerce platform companies have already come and gone in the recent two years. TQMall is a noteworthy one to watch and is causing some turmoil in the market. TQMall (http://www.tqmall.com) was setup in November 2013, with investors from previous employees of Alibaba, Taobao and Netease (all notable e-commerce players in other markets). TQMall is reportedly working with 18 international suppliers including Bosch, Hella, Gates and Ferrodo. As of end February 2015, it has expanded to nine provinces covering over 20 cities, with 30,000 stores signed on to provide parts supply to garages. TQMall started with two on-line items: tires and lubricants. Many traditional tire and lubricant distributors have been greatly impacted by them and many small ones have gone out of business. Even a couple of previously well-known tire focused e-commerce platform companies have been knocked out of the market. International suppliers are accelerating the establishment of their own aftermarket websites rather than relying on public platforms like TQMall. To date, these have been more like "flagship stores" which mostly are for marketing purposes. Many other companies, including parts distributors, are investing in this channel as well. Parts cataloguing remains a big obstacle for distributors and e-commerce companies in the market. Many data companies, both foreign like TechAlliance, and local are attempting to address this problem and appear to be making good headway. Success in this area will significantly help the market's advancement. In response to this inefficiency, traditional roles are continually changing. Some players are moving up and down to consolidate their different interests and to improve both revenue and margin, e.g. distributors opening their own garage chains. Various types of "platform" groups are emerging to form buying cooperatives and smaller distributors are cooperating to share resources like a warehouse or even an e-commerce capability. There are a growing number of these types of groups evolving, sometimes at the encouragement of a major international parts supplier. Program groups will continue to evolve as a partial solution to the industry's lack of scale and efficiency and could have a meaningful effect on IAM distribution in the future. The "opportunity driven" phase of China's aftermarket development is nearing its end. No longer is being at the right place at the right time with the right connections enough to sustain a profitable business. The long-term winners will be those companies bringing professionalism and best practices to the market. Source: TECHNOMIC ASIA Notes: 1 Includes sedans, SUVs, MPV, microvans and light buses. 98 2016 Digital Auto Care Factbook Copyright © 2015 Auto Care Association http://www.tqmall.com

Table of Contents for the Digital Edition of Digital Auto Care Factbook 2016

Auto Care Association Market Intelligence Committee
Economic Indicators
Key Economic Indicators
National Debt
Aftermarket Dynamics
Industry Employment
Technician Employment and Wages
What Do Our Members Think?
BCI Summary
State of the Auto Care Industry
U.S. Motor Vehicle Auto Care Industry
Introduction to the Channel Forecast Model
2014 to 2018 Forecast Assumptions
U.S. Motor Vehicle Auto Care Industry
Auto Care Sales History and Forecast 2007 to 2018
Auto Care Sales by Distribution Channel
Auto Care Segmentation
Auto Care Service and Retail Outlets
Auto Care Service and Retail Outlet Analysis
Program Distribution Summary
Retail Distribution Summary
e-Tailing
Financial Benchmarks
Financial Profiles of Select Auto Care Companies
Select Auto Care Transactions
Auto Care Industry
Consumer Profile
Replacement Rates for Motor Vehicle Parts and Jobs
Top 10 Replacement Rate Categories By Vehicle Age
Auto Care Industry Segments
Medium And Heavy Duty Truck Industry
Sales of Replacement Tires
Tool and Equipment
Paint, Body and Equipment
BodyShop Business Industry Profile: 2013-14
Vehicle Registrations and Usage
U.S. New Motor Vehicle Registrations
Top 10 Light Vehicle Registrations
U.S. Total Motor Vehicle Population
Hybrid Vehicles
Vehicle Operating Costs
Miles Driven vs. Gasoline Affordability
Gasoline Affordability and Fuel Consumption
Crude Oil and Diesel Fuel Costs
State Summary Statistics
State Summary Statistics
Global Auto Care Industry
Global Economic and Automotive Data
U. S. Trade Data for Selected Motor Vehicle Products
U. S. Trade Data By Country
Canadian Auto Care Industry
Mexican Auto Care Industry
Chinese Auto Care Industry
Glossary and Reference
Glossary and Terms
NAICS Definitions
Auto Care Data Resources
Auto Care Data Resources
Auto Care Association Market Intelligence
Auto Care Association Market Intelligence
Auto Care Association – Lang Market Comparison
Harmonization of Auto Care Industry Data

Digital Auto Care Factbook 2016