Strong growth for Myanmar automotive aftermarket

16 September 2015 Consultancy.uk

Myanmar's automotive aftermarket is undergoing an impressive growth phase following the ease of car import regulations after decades of restrictions, reveals a market study by Solidiance. Demands for spare parts and after sales services are on the rise as car circulation is dominated by second-hand units, with more than 20 Asian brands ruling the automotive aftermarket.

In 2012, all Myanmar citizens were allowed to import cars, which led to rapid increase in car numbers over recent years. As of May 2014, there were 4,407,741 registered vehicles in the country.

Number of Registered Vehicles in Myanmar

However, Myanmar still relies mainly on motorcycles (accounting for 85 percent of total vehicles) for transportation, while cars remain out of reach for majority of the population due to high cost and import tax. Even the Burmese who can afford a car, often choose imported and second-hand vehicles due to lower cost, good quality, and spare parts availability.

The growth of the automotive sector is not the only factor generating the expanding opportunities in the aftermarket. According to a white paper released by Solidiance, an Asia-centric corporate consultancy firm, the dominance of second-hand vehicles leads to greater demand for spare parts and services. Moreover, the extreme climate and poor road conditions wear out automotive parts faster, accelerating vehicle spare parts replacement rates in the country. Today, the majority (79%) of Myanmar roads remain unpaved, despite ambitious government plans to upgrade the country’s infrastructure.

Myanmars road length

Among automotive spare parts, battery and oil filter register the strongest growth rate in the market, followed by tyres. Leveraging a reputation for quality, Japanese tyres make up 27% of the passenger and commercial vehicle market, with Yokohama and Bridgestone as the leading tyre brands. Japanese brands also hold nearly half of Myanmar’s battery market. In comparison, the oil filter market is led by Indonesian, Thai and Chinese brands. Since oil filters are changed more frequently, around 3-4 times a year, car owners tend to opt for the cheaper products.

Myanmars Oil Filter Market size - 2008-14

Japanese brands rule the market due to their “quality at affordable price” perception. However, recently Chinese and Korean brands have started to gain popularity because they offer new vehicles for half the price of new imported Japanese cars. Toyota remains the most popular brand in Myanmar due to its durability, a key customer preference since the country’s infrastructure is still underdeveloped outside major urban areas.

According to Mickael Feige, Partner at Solidiance Thailand, “US and European brands hold a small percentage of the market. Despite their reputation for high quality, Western spare parts remain expensive for the average Burmese consumer.”

Myanmars Tires Market size

Going beyond price
Myanmar remains a price-sensitive market where price remains the first consideration, followed by product quality. Majority of end-users are not knowledgeable about brands and products. Often, they request a product by asking for the price instead of the brand, and they expend extra time and effort to lock in the best deal.

A car service centre manager in Yangon has witnessed this numerous times: “If there is a price difference between tyre and repair in one workshop versus another, end users will often buy the tire from the cheaper workshop and go for repair and maintenance somewhere else despite the inconvenience.”

Tire Brands in Myanmar 2014

However, as the economy grows and income levels rise, other factors are coming into play as well. Burmese end-users’ purchasing choices are also driven by the car type they own, the price difference between cheap and branded spare parts, and the period of product usage.

Battery Brands in Myanmar 2014

Future outlook and opportunities
Myanmar’s automotive sector is expected to grow at 7.8% through 2019, driven by an emerging economy, expanding infrastructure, less stringent regulations, and rising income levels.

The country’s automotive aftermarket is also set for strong growth, tied to increase in vehicle numbers, income per capita, and credit access. Given the low car penetration rate as well as the country’s accelerating development, the future for automotive spare parts looks bright with a projected market size of $80 million by 2017.

Myanmars Tires, Battery & Oil Filter Market Size

In addition, since Myanmar's vehicle market consists mainly of used cars, the demand for spare parts and quality aftersales service will continue to rise as Burmese incomes rise in the coming years. The General Manager of Western Car Showroom in Yangon reiterated this trend, “Burmese car owners are not used to quality aftersales service. Yet, I see growing demand for it and tremendous opportunity as the country opens up further.”

Other opportunities are also available elsewhere, such as garage chains as currently, there are none of them in Myanmar and no regulation constraining it.

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Four ways digitalisation is transforming car brands and dealers

16 April 2019 Consultancy.uk

From changing expectations from the customer to new stakeholders entering the industry, the digital transformation of global automotive industry means it is facing the wholesale transformation of its business model. In a new white paper, global consulting partnership Cordence Worldwide has highlighted four major digital trends that are transforming the relationships between car brands and dealers with consumers.

With digital transformation drives booming across the industrial spectrum, automotive groups are no different in having commenced large digital transformation programmes to improve productivity, efficiency, and ultimately profitability. Falling sales figures mean the automotive sector is facing an increasingly difficult road ahead, something which means companies in the market are even more hard pressed to find new ways to improve their bottom lines.

While it offers major opportunities, the industry’s move to digitalise is not without complications. It has triggered a series of major internal changes, which have presented automotive entities with the challenge of becoming a “customer-oriented” industry. A new report from Cordence Worldwide – a global management consulting partnership present in more than 20 countries – has explored how automotive companies are navigating the rapidly changing nature of digital business.

New business models

The level of change likely to be wrought on the automotive industry by digitalisation is hard to overstate. Automation could well lead to significant reductions in the number of accidents, higher vehicle utilisation and lower pollution levels, while leading to a $2.1 trillion change in traditional revenues, with up to $4.3 trillion in new revenue openings arising by 2030.

As a result of this colossal opportunity, it is easy to see why almost all automotive groups now have digital departments, with generally strong communication within the digital transformation and the customer approach. The changes to society which this may have are potentially distracting automotive firms from the change it is leading to in its own companies though, according to Cordence’s paper.

The automotive market is dead, long live the mobility market

Because of this, the sector’s business model is set to transform over the coming decades. With digitalisation speeding up the appearance of concepts such as car-sharing, a subscription package model will likely become more palatable. At the same time, car and ride-sharing models will cater to the sustainability criteria of millennials, who will rapidly become one of the automotive market’s leading consumer demographics in the coming years.

Antoine Glutron – a Managing Consultant with Cordence member Oresys, and the report’s author – said of the situation, “These ‘old school industries’ are now working on creating new opportunities, but in so-doing are facing challenges and threats: new jobs, new technologies, new ecosystem of partners, necessary reorganisation, different relationship with customers, and even new businesses. The customer approach topic is in fact a real challenge for car companies as it implies changing their business model and adjusting their mind-set to address the customer 4.0: from product-centric to customer-centric, from car manufacturer to service provider.”

Digital customer experience

In the hyper-competitive age of the internet, even top companies face an uphill challenge when it comes to holding onto customers through brand loyalty. Digital disruption has resulted in changes to consumer behaviour, which is forcing a range of marketing strategists to reconsider their old, possibly out-dated strategies. As modern customers wield an increasingly impressive array of digital tools and online databases, they and are now able to quickly and conveniently compare prices, check availability and read product reviews.

The automotive sector is no exception to this trend, according to the study. In order to adapt to the needs of the so-called ‘customer 4.0’, car companies will increasingly need to change their business model and move away from product-centric companies to customer-centric ones, from car manufacturers to service providers.

Glutron explained, “As an automotive company, you can no longer expect customer loyalty simply with good products; you must conquer and re-conquer a customer that “consumes” your service. The offer now has to be global, digital and personalised. Your offer has to be adapted to this customer’s needs at any given moment. A key issue related to data control is to build customer loyalty by creating a customer experience 'tailored' throughout the cycle of use of the 'car product': purchase, driving, maintenance and trade-in of the vehicle.”

One way in which the sector may be able to benefit from this desire for a tailored experience is via connectivity. Consumers are generally positive about new connective features for automobiles, and many are even willing to pay upfront for infotainment, emergency and maintenance services. Chinese consumers, where the connected car market is set to hit $216 billion, are already particularly interested in paying a little more for navigation and diagnostic features in their future new car. This can also enable automotive companies to exploit a rich vein of customer data, enabling them to rapidly tailor their offerings to consumer behaviour.

New automotive segments

Digital transformation has also brought with it the rise of completely new application areas. As mentioned earlier, the most well-known example is the autonomous or self-driving car, where the last steps forward were not taken by major automotive groups but by technology companies such as Tesla. While this may have given such firms the edge in the market briefly, a number of keystone automotive names will soon be set to take the plunge into the market themselves, leveraging their car manufacturing prowess and huge production capacities to their advantage.

Before companies rush to invest in this market, however, it is worth their while to remember that the readiness and uptake for such vehicles differs greatly geographically. For example, following a study published in 2018, 92% of Chinese would be ready to buy an autonomous car, compared with only around 35% of drivers in France, Germany and US. Meanwhile, the infrastructure of different nations will also be significantly less accommodating of the new technology.

Use digital for steering thr activity

Elsewhere, Cordence’s analysis has suggested that hooking the cars of tomorrow into the Internet of Things is also likely to see a rapid change in the business model for car maintenance, providing real-time diagnostics for problems. This presents chances for partnerships to improve the connectivity of cars, especially with tech companies; for example, PSA partnered with IBM for a global agreement on services in their vehicle. Meanwhile, data could also be sold to other parties with an interest in this data, such as the government, which could use it to manage traffic levels, or ensure that only adequately maintained vehicles take to the road.

Glutron added, “With the increase in the amount of client data and connected opportunities, the recommendation is to set up data-centric approaches. The value is now in the customer data. The general prerequisites are to rework the data model and the Enterprise Architecture and generally build up a data lake including data from all sources (internal and external, structured and unstructured).”

From automotive to mobility

Relating further to the idea of connectivity, the report claimed that automotive firms must now adjust their models in line with the provision of end-to-end mobility, rather than treating the sale of a car as an end point in their relationship with the customer. In order to realise this transformation, transformations are likely to become more and more important.

A network of partner companies means automotive firms can provide a global mobility experience. As the vehicle is increasingly connected to its environment, new partners can also be cities, governments, and other service providers within the global mobility services industry in which the car brands want to take part.

According to the study, the target is clear. Companies must look to a holistic transport service, offering to move customers from A to B in a unique and pleasant way – otherwise they might as well take public transport. At the same time, they should extend the services reachable “on-board” (especially the enhancement of the connectivity between the car and smartphones or other connected devices), and reach high standards in terms of user experience (online sales, online payment, customised experience during and after the use of the car).

Concluding the report, Glutron stated, “These mobility market transformations could be considered a threat for the car manufacturers. Quite the opposite: if they take up the challenge and review their business model so that they become the service provider – communicating no longer to a driver but to a ‘mobility customer’ – they can then take advantage of their expertise and their position as a historical player. The most convenient means of transport are cars, and building a car is highly-skilled work.”