Top 3 predictions for the light vehicle automotive aftermarket in Saudi Arabia
The Saudi automotive aftermarket is the largest in the Gulf Cooperation Council (GCC) and is understandably attracting significant attention from car importers, car dealers, spare part manufacturers, and importers. The recent pandemic was, and still is, one of the most disruptive forces impacting the GCC light automotive aftermarket. If individuals and fleets don't drive, car part consumption remains limited, thereby significantly impacting market volumes. Despite improved market performance in the fourth quarter of 2020, Saudi imports of vehicles and spare parts reduced by 40 percent in 2020 compared to 2019 (source: GaStat).
The overall light vehicle automotive aftermarket is estimated to have decreased to around $2.5 billion at the retail level (including quick-service parts such as tires, batteries, lubricants, body parts, and accessories. This excludes labour charges). That means that on average, customers (individuals, Government, and fleets) were spending around $314 per vehicle on parts in 2020. Despite a drop, it remained the largest automotive aftermarket in the GCC with around 47 percent market share.
As the situation normalizes following the latest increases in oil prices and the Government's economic diversification efforts, individuals and fleets will become more mobile, driving the demand in the automotive aftermarket. How parts and services will be delivered is going to change going forward.
What's next for the market?
There are a few notable developments, both long and short term, which will drive the market forward to recovery.
In early 2021, Saudi Arabia introduced limits on the number of cars that nationals and expatriates can import. Although designed to support the new car market, the move is likely to impact the light vehicle aftermarket. Customers, who would be interested in importing used cars and those preferring not to go for a new one, will be more likely to invest in their existing vehicles by prolonging their assets' useful life.
The pandemic has accelerated the adoption of service aggregation platforms. In the last five years, over ten automotive platforms have been launched in Saudi, with roughly half of them focusing on service aggregation. Going forward, more platforms are expected to be launched to shorten the distance between service providers and end-users, both individual and fleet/Government.
Optimizing the number of customer touchpoints: Globally, the Saudi internet users have the highest penetration of WhatsApp users, with over 70 percent (source: Hootsuite) of internet users being on the social platform. With such channels emerging globally as highly effective in terms of booking services and providing feedback (like Hyundai India allows booking dealer services completely via WhatsApp), such platforms are expected to become a popular tool to interact with potential clients in Saudi in 2021 and beyond. Applying apps and digital tools can successfully reduce the time required to book parts and/or services from 7-9 minutes on average to 3-4 minutes.
Drop-in counterfeit and parallel imports: As of 2020, parallel imports and counterfeit parts accounted for up to 20 percent of all light vehicle parts in Saudi Arabia, depending on the product category. Since the launch of SABER online portal by SASO and a list of regulations (SALEEM) in 2019, the regulator has been updating rules for products that require either a certification (classified) or declaration (unclassified) of conformity (source: Al Tamimi & Co.). This is expected to positively impact the genuine and commercial (as defined by SASO) parts in the aftermarket going forward.
Top 3 Predictions:
Drastically intensified competition: As it will take 2-3 years for the market to recover to 2019 levels and return to 4-6 percent growth rates, taking market share from competitors will become the only viable solution in the short term. Price adjustments, optimization of delivery channels, and understanding your customer better will become a must to thrive in a slowly recovering market.
Market is set to consolidate even further: The market share of top 10 distributors in Saudi has gained around ten percentage points in the last ten years, reaching 45 percent of the market. In 2021, considering subdued market growth, it is expected to gain another 2-3 percentage points as some smaller distributors might focus their efforts on other markets.
Accelerated digitalization: This will make or break business cases. Saudi customers are getting accustomed to digital delivery channels via e-retail, e-hailing, food delivery. However, the automotive industry has much catching up to do. The fact that the number of touchpoints in the spare parts industry is limited to 2-4 per year (compared to ~15-18 times in online shopping and even more often in food delivery) makes it more challenging. The successful transformation of spare parts and service delivery channels is likely to support companies' growth strategies in the Saudi market going forward.
The Saudi light vehicle aftermarket is expected to become increasingly more organized, transparent, and digitalized. It is an opportunity for technological enablers and organized parts suppliers, workshops, and service providers. With an expected growth rate of about 2 percent in 2021, the market will likely take about 2-3 years to get to pre-COVID-19 levels. However, this can become an opportunity to take a step back and optimize operations and go-to-market elements for companies which look aspire to thrive in the next 5-7 years.