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February, 2017
Key growth areas ahead
Overview of opportunities for new and
existing aftermarket companies in the KSA
Table of Contents
1
2
3
4
5
6
Macroeconomic Background and Outlook
New Vehicle Market Dynamics
Vehicles In Operation Analysis
Aftermarket Analysis
Global Trends and Local Perspective
About Frost & Sullivan
3
5
8
11
14
19
2
Macroeconomic Background and Outlook
3
The KSA: Economic Background Fundamental factors support the industry in the medium- to long-terms
* *Key assumptions: non-OPEC supply to reduce, fuel demand expected to grow in the US. Source: IMF, KAPSARC, Frost & Sullivan Analysis
Fuel demand inelasticity Due to limited number of transportation modes and fuel types, substitutes will remain low.
Recovering GDP growth Set to increase from 1.2% in 2016 to 2.0% in 2017.
Low motorisation rate Currently around 230 vehicles per 1,000 population in the KSA, still room to grow.
Growing population Set to gain ~10% by 2021 vs. 2016 exceeding 35 million people (the KSA).
Government expenditures Expected to stabilise at ~33-34% of GDP in 2017 and beyond.
Stabilising oil prices* Expected to reach an average of USD 51 in 2017 and USD 56 by 2020.
4
New Vehicle Market Dynamics
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Light and Medium/Heavy Vehicles Additions Stabilisation and growth expected in 2017 and beyond
Note: LIGHT VEHICLES include: passenger cars, pickups, LCVs MEDIUM/HEAVY COMMERCIAL VEHICLES include: MCVs, HCVs and buses.
*M/HCV also include used imports. Source: Frost Sullivan
841,000 668,000
879,000
79,000
54,000
58,000
920,000
722,000
937,000
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
2015 2016e 2021f
Un
its
(Mill
ion
)
Light Medium/Heavy
• As a result of an economic situation improvement, vehicle sales are expected to pick up in 2017 and grow further until 2021. Commercial vehicles are likely to rely on used imports from Europe.
• American brands are likely to face decreasing number of vehicles in operations going forwards, Korean brands are set to benefit from CAFE regulations with high presence in B and C-sedan segments.
New Vehicle Sales*, the KSA, 2015-2021f
6
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%
Sport
Other
LCV
Bus
MPV
Pickup
SUV
Sedan
Sport Other LCV Bus MPV Pickup SUV Sedan
2015 0.2% 0.7% 3.5% 1.5% 3.9% 16.2% 23.0% 51.0%
2014 0.2% 0.8% 3.0% 1.7% 4.1% 17.7% 23.8% 48.7%
2015 2014
↑ +2.3
↓ -1.5
↓ -0.9
Light Vehicle Sales by Segment, the KSA
Outlook for 2021
↑ Sedans, SUV B
↓ Pickups, SUV E
• Long term target: one used car to be sold for one new car
• Right sourcing is crucial, short term rental contracts could support used cars business
• Gross profit margins: still high at >30% and expected to remain at that level.
• Online sales channel still not penetrated enough, currently not in focus of main dealer groups.
• Typically, gross profits exceed 60-65% even in mature markets (the EU, the USA)
• Captive banks do not always provide the lowest cost of capital, multi-bank offers could be a solution
• Emission regulations limit sales of large SUVs (CAFE) – will impact market segment shares
• Digitalisation and penetration of e-channel in sales process
• Increasing service touch points – going mobile • Competitive spare parts pricing • Service lead-time reduction
Five Key Business Streams: What to Expect? New car sales no longer in main focus, profitability becomes crucial
Note: F&I – Finance and Insurance Source: Frost Sullivan
Overview of Key Business Areas in Automotive Market, the KSA, 2016
New car sales Used cars
sales
Parts and accessories
Service
F&I
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Vehicles In Operation Analysis
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The KSA Vehicles In Operation Review Market is undergoing some turbulence, however long term outlook remains positive
Source: Frost & Sullivan.
31.4 35.3
7.1 9.5
0.6 0.8
226
269
0
50
100
150
200
250
300
0
10
20
30
40
50
60
2015 2021f
Un
its
(Mill
ion
)
PopulationNr of light vehicles in operationNr of medium/heavy Vehicles in operationLight vehicles per 1,000 population
• Despite expected dynamic development of number of vehicles in operation in 2016-2021, vehicle population density is set to remain on a lower side with a strong potential to grow.
• Additionally, lack of alternative fuel types and transportation modes is expected to support growing number of vehicles in operation.
CV VIO, KSA, 2015-2021f VIO Density, KSA, 2015-2021f
9
226
25
553
587
806
130
0 500 1,000
KSA
India
Germany
Japan
USA
China
Units (Million)
Top
5 c
ou
ntr
ies
by
new
ve
hic
le s
ales
Age Split: Passenger Cars and Commercial Vehicles Current market decrease is expected to negatively impact average vehicle age
Source: Frost & Sullivan.
32% 26%
29% 29%
23% 27%
16% 18%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2015 2021f
VIO
Sh
are
1-3 4-7 8-11 12+ years
21% 16%
20% 21%
30% 31%
29% 32%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2015 2021f
VIO
Sh
are
1-3 4-7 8-11 12+ years
Average Age 6.9 years (2015) 7.5 years (2021)
Average Age 8.7 years (2015) 9.2 years (2021)
Light VIO by Age Split, 2015-2021f, the KSA Commercial VIO by Age Split, 2015-2021f, the KSA
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Aftermarket Analysis
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Automotive Aftermarket in the KSA Tyres, batteries and lubricants to dominate the market with over 50% market share
Source: Frost & Sullivan
• Total market revenue estimates: SAR 25.0 billion in 2015
• Expected growth: 5.1% annually until 2021
• Likely revenues in 2021: SAR 33.6 billion
• Key driver: growing vehicle population
• Vehicles in operation: estimated 7.7 million in 2015 likely to reach 10.3 million by 2021
• Higher spend per vehicle expected: vehicle owners are likely to keep their vehicles for longer periods
• Increasing average age of vehicles to grow from 6.9 years in 2015 to 7.5 years by 2021
• Major revenue is expected to be generated by regular maintenance parts: Tyres, Batteries and Lubricants
• Brake pads are expected to account for almost 25% of other parts
Market size / growth
Drivers and Restraints
Revenue by Product Type
12
The KSA Automotive Aftermarket: Value Forecast Average annual growth rate above 4% across all segments
Note: Others include Steering System Hard Parts, Remanufactured Engine & Transmission, CV Drive axle & Boot Kit, Remanufactured Rack & Pinion Steering Gear, HVAC & Engine Cooling Components of Commercial Vehicles, Class 6-8 Truck Powertrain Systems & Components, Class 6-8 Truck Chassis Systems & Components, Tire Pressure Monitoring Systems, Light Vehicle Exhaust Emission Control Systems, Fuel Delivery Systems, Engine Control Units, Ignition Parts, Automotive Sensors, Ignition Wire Sets, Class 6-8 Engine Components, Remanufactured engines and transmissions, Selected Fractional Horsepower Motors, Fuel Injectors, Fuel Pumps, Selected Automotive Remanufactured Pumps, Sports Compact Under hood components, Belt, Hoses, Gaskets and Seals, Battery, Carburettor, Gauge, Internal Engine Hard Parts.
*Retail prices. Note: all figures rounded Source: Frost & Sullivan
Revenues* (2015) SAR, million
Revenues (2021f) SAR, million
CAGR (2015-2021f) SAR, million
Tyres 7,550 10,500 5.7%
Batteries 1,200 1,560 4.5%
Lubricants 4,640 6,010 4.4%
Other parts 11,590 15,550 5.0%
Total 24,980 33,620 5.1%
• Despite a slowdown in 2016, the market is expected to start recovering in 2017 and continue growth until 2021.
• Brake pads are expected to account for up to 25% of “other parts” category.
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Global Trends and Local Perspective
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Aftermarket Senior Management Top-of-Mind Issues While private labels will intensify price competition, Business to Business (B2B) eCommerce channels will keep the market active in 2016.
Source: Frost & Sullivan
Automotive aftermarket: Senior management top-of-mind issues, global, 2016-17
0
1
2
3
4
5
Economic vulnerability inChina and Brazil
Growing B2C eCommercepenertration in emerging
markets (China, India, Brazil)
In-vehicles sales (Telematicsbased business solutions)
Competition from privatelabels
Growing influence oftechnology in the bay
Diagnostic tools andsoftware solutions delivery
evolution
Strengthening ofeCommerce channel in B2B
sales
Service aggregation, mobileservice nextgen business
models
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Global Perspective: New Entrants and Disruptive Models Technology is at the heart of all new emerging service models in the vehicle aftermarket
Source: Frost & Sullivan
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Diagnostics
Remote Diagnostics: LAUNCH Tech USA, On board
diagnostics (OBD) II-based DIY applications
Connected Car
Remote Servicing: Tesla
Prognostics: General Motors
New Service Models
Mobile Services: GO Tire
Mobile Vehicle Service: yourmechanic.com
Quick Service: Ford Quick Lane, Kwik Fit
Aggregator
Handheld Tablets: General Motors, Ford, Launch Tech
USA, Bolt On, Autoserve
Service Aggregators: Whocanfixmycar.com,
RepairPal, openbay
Software Subscriptions: Snap-On, Robert Bosch,
Advance Auto Parts
Participatory Services
Augmented Reality: Audi, BMW, Volkswagen, Bosch
Telepresence: AUDI
Mobile-based Apps: Federal Mogul, Mitchell International Inc, Robert
Bosch
Phases in eRetail Evolution: Transitioning from B2C to B2B DIFM customers as final target of the eRetailing channel
Source: Frost & Sullivan
eRetailing in Automotive Aftermarket: Parts Distribution in eRetailing, Global, 2015
17
OES Traditional Distributors/Retailers
Workshops
Parts/Tire eRetailers
Own Web Sites
DIFM Customer
DIY Customer
Directly shipped to workshops for DIFM customers
DIY customers buying directly from eRetailing avenues
Fraction of DIFM customers buying online and eventually going to workshops
Installers/jobbers increasingly buying
online
eRetailing Avenues
Traditional Channel
First Phase eRetailing Channel
Marketplaces
Next Phase eRetailing
Key Takeaways Tough competition ahead, but rewards are also high
Source: Frost & Sullivan.
• Light vehicle sales to reach around 880,000 units by 2021, growing at a CAGR of close to 1%.
• Korean brands set to continue gaining market share, Toyota stable, US brands under pressure.
• Number of vehicles in operation set to grow from 7.7 million (both passenger cars and commercial vehicles) in 2015 to slightly over 10 million by 2021.
• Total spare market is estimated at SAR 25.0 billion in 2015, likely to reach SAR 33.6 billion by 2021 as a result of growing number of vehicles in operation
• New business models coming up, smarter, technology-based investments ahead and reaching customers through new channels becomes crucial.
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About Frost & Sullivan
19
Introduction to Frost & Sullivan
MENASA = Middle East, North Africa and South Asia
Frost & Sullivan is a leading global strategy consulting company, headquartered in the United States. Established in 1961, in New York City, the company today has 40+ offices across the globe. It has 3 offices in the Middle East in Dubai, Bahrain and the KSA.
The company has a domain knowledge approach to research and strategy consulting (dedicated team of 300+ automotive researchers and consultants globally, 20+ specifically working for MENASA). The automotive team has been working closely with OEMs and Vehicle Dealerships in the KSA, the UAE, Kuwait and in Middle East, Africa on multiple projects ranging from price benchmarking to developing their long term strategy and identifying specific areas of business opportunity.
40+ offices, 30 Countries
1800+ Consultants
250,000+ Clients serviced worldwide
Fortune 1000 clients and SMEs
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Organization Restructuring
Mfg / Process Consulting
Technology Research
12 Industries
50+ Product Categories
Combination of Market, Technology, Economics and Applications
GLOBAL FOOTPRINT CONSULTING SERVICES INDUSTRY EXPERTISE
20
Core Functions
• Growth Strategy
• Geographic Expansion
• Partner Identification
• Mergers and Acquisitions
• Techno Economic Feasibility Studies
• Vendor / Supplier Identification
• Vendor Satisfaction
• Regulatory Analysis
• Technology Assessment
• Product clinic
• Technical Insights
• Market Entry Strategy
• Econometric Analysis
• Dashboard – Market Information
• Dealer Development
• Spare Part Pricing
• Dealer Benchmarking
• Dealer Training
• Usage and Attitude
• Brand Equity
• Cost of Ownership
• Product Clinic
• Customer Satisfaction
• Mobility Tracking
• Manufacturing Excellence
Support functions
CEOs office Vendor Sourcing R&D Technology
Manufacturing Sales and Marketing
Channel Management
Customers
Finance Administration Human
Resources Information Technology
Quality Assurance
Corporate Communication
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Logistics
Fund Raising Company Due Diligence
Salary Benchmarking Management Systems
Awards Brand Protection
Infrastructure Assessment
Product Offerings for Automotive across Value Chain
21
Frost & Sullivan’s Automotive Practice offers 6 levels of Consulting and Advisory Services
6 L
eve
ls o
f En
gage
me
nt
Customised Databases and information provide all necessary inputs for Operational Planning
Decision Support Databases
1
Knowledge Centre Reports and Industry Updates on Market and Competition provide Tactical Information Support
Syndicated Research Reports
2
Customised Market Research Projects to Analyse and Evaluate Customer Requirements, Competition Business, Industry Trends and New Growth areas
Customised Market Research
3
Long term Engagements on Identifying Growth Options, Market Entry Strategy, Business Portfolio Assessment and Consulting Projects 4
Working on Inorganic Growth: Mergers and Acquisitions, Joint Ventures, Partner Identification to Due Diligence, Structuring and Post Deal Integration
Partner Identification and Research
5
Strategy Workshops with Boards and Senior Teams on Business and Strategic Planning, Growth Roadmaps, Solving Critical Business Issues
Strategy Workshops and Advisory
6
Support Advisory Services
Supply Chain Engineering Financial Advisory Manufacturing Advisory
1. Operational Improvement 2. Growth 3. Shareholder Value
Key Organisational Challenges
22
Disclaimer and Copyright Notice
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