Digital Auto Care Factbook & Lang Annual 2017 - 93

CHINESE AUTO CARE INDUSTRY
However, there has been growing anti-monopoly legislation which aims to "open this channel up" to independent parts
and service suppliers as a means to lower the repair costs for consumers. This legislation, coupled with other government
programs, will help support development of the independent aftermarket (IAM) channel. However, the full impact and
enforcement of these evolving regulations will evolve slowly. As a result, there will be a gradual shift away from the car
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 and defend their current business.
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, which number over 460,000
outlets, have to source from various players at different levels (OES, retailers, 1st/2nd tier distributors, suppliers, import
agents) to get the parts they need. The 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'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 or SGM, and provide a broader range of parts; or "by service"
which cover multiple vehicle models but with a more limited parts line, generally more fast moving parts like filters,
lubricants, wipers, friction parts and the like. The by-service distributors are more fully developed with 8-10 regional
and aspiring national players comprising 40-50% of the market. Conversely, by-makes distributors due to their market's
smaller scale and fragmentation, are only now beginning to emerge with any significance.
In general, most distributors are relatively small scale (<$5 to $10 million) and are regionally, even locally oriented. A
larger distributor would have $50 million in revenue versus over $250 million for a large distributor in the US. Some of
the leading local players, like Carzone, ZC Parts and Jaipei, are actively expanding their two-step model with their own
stores. There are no big retailers like Advance, AutoZone or NAPA as exist in the USA.
As mentioned, urban markets in central and west China are rapidly developing for auto sales 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, thinning 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 robust WMS system.
As it has in other markets, China is likely to advance quickly in distribution development. 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 few
years. Some national-wide e-Commerce platform have built up in China, including B2C players, like Tmall.com, Tuhu.cn
and JD.com (mainly consumable products like lubricants, tires) as well as B2B players, like Autozi.com, and zgxcw.com
(mainly by-service parts, some by-make parts)
Parts cataloguing remains a big obstacle for both distributors and e-commerce companies in the market. Many data
companies, both foreign like TechAlliance, and local, like Jingyou and Timing, 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 the distribution structure's 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, or suppliers going direct to garages. Various types of "platform" groups are emerging
at the distributor level to form buying cooperatives or are cooperating to share resources like a warehouse or even an
e-commerce capability. Program groups, such as the China Aftermarket Auto Parts Alliance (CAAPA), have set up in China
and will continue to evolve as a partial solution to the industry's lack of scale and efficiency.
Indeed, the next 5 years will be critical in determining the scope and direction of China's aftermarket distribution as well
as the market's key winners and losers.
Source: TECHNOMIC ASIA
1
Includes sedans, SUVs, MPV and microvans

The 2017 Digital Factbook is Copyright © 1990 Auto Care Association and/or its licensor.
All other rights reserved. Use of the 2017 Digital Factbook is subject to compliance with the Legal Terms and Conditions found on page 113 of this report.

http://www.Tmall.com http://www.Tuhu.cn http://www.JD.com http://www.Autozi.com http://www.zgxcw.com

Table of Contents for the Digital Edition of Digital Auto Care Factbook & Lang Annual 2017