Malaysian automotive aftermarket industry set to gain maximum traction amongst all ASEAN Countries over 2026

By Tuhin Deb

Over the past couple of years, both the automotive and its aftermarket industry have been flourishing in the South-east Asian region. Industry executives are encouraged to make more investments owing to such astounding performance of the region’s automotive market.
In 2015, over 30 million vehicles were sold pan-Asia, China observably led the pack, accounting for more than 50% share. In India, production of vehicles in 2015 was significantly higher as compared to the previous year with leading manufacturers like Tata Motors and Mahindra & Mahindra focusing on expanding capacity.

Apart from China and India, automakers are also looking towards ASEAN countries as profitable manufacturing hubs. An open market policy and recent economies of scale have been pivotal to the speedy escalation of region’s industrial manufacturing aspirations. According to a report published by Future Market Insights (FMI), the total revenue generated from the ASEAN automotive aftermarket segment is expected to surpass US$ 48,372 million by 2026, expanding at 9.6% compound annual growth rate during the period between 2016 to 2026.

Market Overview
Escalating urban population density and rise in vehicle demand has catapulted the automotive production to a substantially higher level in ASEAN countries, especially in Malaysia, Indonesia and Thailand. Further, increased purchasing power is anticipated to result in higher sales of vehicles and their aftermarket component in these countries. FMI’s report identifies that the expanding vehicle parc in the region is fuelling demand for aftermarket services from car owners. Moreover, authorities have been quite supportive of growth of the overall automotive sector in the region. For instance, in 2012, the government of Thailand launched the First Car Scheme policy, wherein — people who bought a car for the first time were exempted up to US$ 3,250 payable tax. This, in turn, saw a nearly 33% hike in vehicle sales in the country between 2012 and 2013. The ‘Organisation Internationale des Constructeurs d’Automobiles’ (OICA), recently stated that the sales of passenger cars in Singapore increased from 17,197 units in 2012 to 43,423 units in 2016, while in the Philippines, sales rose from 21,860 units to 62,560 units during the same period.

Surging automotive sales have created lucrative market opportunities for original equipment manufacturers (OEMs) and component manufacturers in the ASEAN region. Demand for maintenance, modification, and repair have skyrocketed in several ASEAN countries as more people opt to customise their cars. Thus, companies are coming up with strategies to strengthen distribution channels in order to improve sales and gain higher marketshare. Many companies are shifting towards digital platforms and e-commerce retailing to showcase their latest items that could be purchased online and instantaneously. E-commerce portals are expected to become one of the dominant sales channels in the automotive aftermarket segment by the year 2020 attributed to the factors such as ease of accessibility, lower pricing and availability of ample information on the product.

Manufacturers of automotive aftermarket components are establishing franchisee owned business outlets in South Asian countries witnessing strong economic growth. Some of the major manufacturers for Japan, North America and Europe are showing higher interest in many ASEAN countries. In an effort to attract business and invite higher investments, the 10 countries association created the ASEAN economic community (AEC) a few months back. The AEC captivates the idea of a single market in the region that will allow for an easier flow of trade in these nations.

Investments from non-ASEAN countries into ASEAN countries is likely to grow due to AEC in the near future. The joint initiative between Cambodian and Japanese businesses to build the Sanco Poipet Special Economic Zone is one such example. The zone already holds several Japanese firms including Nagoya-based Toyota Tsusho Corp and Yokohama-based NHK Spring Co that fall in the list of major auto part makers.

Scope of Aftermarket Segment in Malaysia
The scope in automotive aftermarket business is exponentially high and has been well assessed by some of the automotive companies based in ASEAN counties as well. After carefully reading the market trends, Malaysia’s prominent automaker Perodua has announced that it will cut down on its automotive production in 2017 and will actively focus on offering after-sales services in order to stimulate growth in term of revenue.

While the company primarily builds compact cars, it unveiled the first-ever sedan class ‘Perodua Bezza’ in July 2016, that managed to cross 36,000 units in sales. Apart from its home domination, the company also holds a healthy export portfolio, particularly in Indonesia. UMW Holdings Berhad is the largest shareholder in the company, acknowledged as a leading industrial enterprise in the Asia Pacific region.

In 2017, Perodua is expected to increase its capital investment to upgrade its production facilities and also improve its distribution network. The company is likely to emphasis on strengthening its aftermarket business to tap on the segment’s lucrative market opportunities.

Over the years, the automotive industry in Malaysia successfully created a strong customer base across Asia Pacific region. Its stronghold in the South-east Asian automotive market is characterising the growing interest of global players to set up facilities in the country with a production capacity of over half a million vehicles annually. Some of the native companies produce build cars in collaboration with Chinese, Japanese, European and South Korean counterparts, while also manufacturing indigenous cars independently. Amongst the ASEAN countries, Malaysia represents for one of the strongest automotive industries. Quite notably, the establishment of national car projects PERODUA and PROTON performed as a base for further growth of the country in both car manufacturing and assembling. These projects paved the way for other Malaysia-based manufacturers such as Inokom Corp Bhd and Naza.

This year, the sector in the country is expected to witness moderate growth, which will be primarily shaped by factors such as the current consumer sentiment and the country’s currency status. Overall revenues from aftermarket sales including parts and accessories are expected to rise steadily in upcoming months. In addition, growing competition and margin squeeze in the automotive manufacturing market in Malaysia are urging companies to implement market-friendly strategies. According to a data sourced by Malaysian Automotive Association, sales of vehicles dropped by around 14% by November last year in the country. Hence, companies are foraying into other subsidiary options including automotive aftermarket segment to sustain the market. It is projected that the automotive aftermarket will account for 33% share of the ASEAN market by the end of 2026, witnessing a robust growth of over 12%.

Rest of ASEAN
Amongst other notable ASEAN countries, Singapore, Indonesia, Thailand and Philippines are expected to showcase attractive opportunities for the players operating in the region. For example, auto manufacturer Nissan launched its new hatchbacks models Note and Pulsar in the ASEAN market at the 2017 Singapore Motorshow. Moreover, Nissan has partnered with Tan Chong Motor (Myanmar) Co., Ltd. (TCMM) to assemble cars in Myanmar. The assembly line will roll out several of the Nissan models including new Nissan Sunny. This shows that smaller countries in the ASEAN region are also receiving healthy investment opportunities and are enjoying a healthy market uptick. Myanmar might possibly turn into a market prospect for manufacturers in the upcoming years. Few smaller countries in the South-east Asian region have registered handsome growth of their economy in recent times, which could be linked with the increases in vehicle sales within these countries.

The American automotive giant, Ford reportedly marked its fourth consecutive year of groundbreaking sales in the ASEAN region with nearly 11% rise in retail sales compared to 2015. In 2016, the Thai-built Ranger was one of the grossing models for the company setting an all-time sales record. Demand for Ranger as the best-selling pickup truck from Myanmar, Cambodia, Philippines, Malaysia and Vietnam.

The information presented in this article is sourced from a report by Future Market Insights (FMI). Excerpts of the report can be accessed at http://www.futuremarketinsights.com/reports/asean-automotive-aftermarket