As part of an effort to bolster profits, automobile dealers and manufacturers in Malaysia and Indonesia are expanding aftermarket oil change businesses, raising the level of competition for existing service providers and potentially altering the landscape of a major lubricant sales channel.
Industry sources and analysts said automakers are reacting to intensified competition for their core businesses.
The OEMs are operating in highly competitive markets, Dushyant Sinha, associate director of automotive and transportation in the Asia-Pacific region for Frost & Sullivan, told Lube Report Asia. The fight for market share through rampant promotions and discounting are squeezing [vehicle sales] margins further. In such a scenario, OEMs are looking for new sources of revenue. There is also a strong imperative to hedge performance and counter any market volatility that could completely erode the already slim margins.
Aftermarket has emerged as an important area in this regard, and OEMs have started to focus on specific segments like aftermarket oil change in a big way. This trend is not only likely to continue but rather grow by leaps and bounds.
According to a 2014 report by market research firm Frost & Sullivan, Strategic Analysis of the ASEAN Automotive Aftermarket, the aftermarket segment is expected to grow at a compound annual growth rate of 12.9 per cent for the period of 2010 to 2018, with Indonesia, Malaysia and Thailand being the three largest markets in the 10-nation Association of Southeast Asia Nations (ASEAN).
Major automobile players in Malaysia are turning attention to this segment. National automotive manufacturer Proton Holdings Bhd said in its annual report that in November it started an on-going nationwide transformation exercise to improve its service centers and upgrade its network facilities and services.
In a February news release about the upgrading of a service center in Sarawak state, Proton Chief Executive Officer Dato Abdul Harith Abdullah said, Therefore, we are intensifying our efforts to provide quality service and convenience to our customers by making sure our service centers are open seven days a week in the more urban or busy areas, where customer trends show their preference to service their cars on a weekend.
Proton has 270 service outlets nationwide plus 16 more extensive 4S-branded centers offering maintenance services, parts sales and car washes, along with vehicle sales. In October, 47 outlets started opening seven days a week, and the remaining outlets will follow suit by 2015. Honda plans to increase its number of sales and service centers in Malaysia from 75 to 90 by 2015, while some Nissan service centers extended operating hours late last year.
The Malaysian government, through its National Automotive Policy, aims to reduce car prices by 20 percent to 30 percent by the end of 2018 by taking steps to foster competition - steps that could eventually lead to liberalization of the countrys auto industry. Against this backdrop, revenue from aftermarket sales is attractive to vehicle manufacturers and retailers.
After sales services - inclusive of oil changing and regular maintenance - have relatively higher margins, and lower oil prices will encourage motorists to use their cars more often, raising demand for aftermarket parts and services, said Japnit Singh, senior director of Spire Research and Consulting.
ASEAN Automotive Federations sales statistics for 2014 showed Indonesia as the largest vehicle market in the region with 1.2 million passenger and commercial vehicles sold and 7.9 million motorcycles.
With the huge vehicle population in Indonesia, listed automotive company PT Mitra Pinasthika Mustika Tbk, the main dealer for Nissan and Datsun vehicles, said it will increase its number of service centers from 105 to 115 by March 2015. In January the company opened its largest sales and service center in Alam Sutera, Indonesia with 52 service bays.
The opening of the dealership in Alam Sutera is also part of an effort to optimize business opportunities for MPMX, as the automotive [segment] is growing positively in Indonesia amid the countrys growing middle class, estimated at 150 million in 2015, Director of Planning and Business Development Agung Kusumo said in January in a statement.
Its competitor, PT Daya Adicipta Mustika , the main dealer for Honda motorcycles in West Java, achieved a 39 percent increase in aftermarket lubricant sales in 2014, Assistant Manager of Parts Sales Rukana Rama told Lube Report Asia. The companys lubricant sales hit 147 billion rupiah (U.S. $11 million) last year.