High profit margins for Middle East’s automotive aftermarket

7 ? 9 May 2017

Dubai World Trade Centre

High profit margins for Middle East's automotive aftermarket

High profit margins for Middle East's automotive aftermarket

Introduction

As part of a series of reports on the automotive aftermarket, the team at Automechanika Dubai has compiled data and insights on the Middle East's automotive market. The report takes a look at factors both positively and negatively impacting growth in the region, examines how the automotive spare parts market is performing and identifies key areas of opportunity within the sector. The report draws on market research provided by Automechanika Dubai Knowledge Partner, Frost & Sullivan.

Middle East automotive market overview

Volatile oil prices and limited government spending have lead to a drop in vehicle sales in the GCC in 2016. Market potential in Yemen, Syria and Iraq also continues to drop and has reduced to half. However, with the easing of sanctions in Iran and the January 2016 implementation of the Joint Comprehensive Plan of Action, vehicles sales in Iran are forecast to grow nearly three-fold to reach an incredible 2.3 million units by 2020.

All things considered, Frost & Sullivan estimates point towards an optimistic outlook for vehicle sales in the region in 2017. A compound annual growth rate (CAGR) of 9.1 per cent for light vehicle sales in the Middle East is likely between 2015 and 2020 and this will result in double digit growth for the industry.

As the GCC does not allow imports of cars five years or older, the overall share of used vehicle imports in the GCC is negligible. However, countries such as Iraq, Syria and Yemen have a large share of used vehicle imports. The average age of vehicles in the Middle East is 7.8 years, but this stretches to ten years plus in Yemen and it is estimated that at least 10 per cent of vehicles in operation (VIO) across the Middle East are 15 years or older, providing a ready volume for the aftermarket. While this figure is expected to drop to 8.8 per cent by 2020 with Iran, for example, expected to scrap three to four million vehicles by 2020, prospects remain positive for the aftermarket, particularly in the GCC countries.

Middle East spare parts market

Frost & Sullivan estimate that total spare parts demand in the Middle East was USD 12.98 billion in 2015 and that is expected to increase by 33 per cent to USD 17.27 billion by 2020 driven by an overall CAGR of 5.9 per cent. During this period, the CAGR in GCC is expected to be the highest at 6.5 per cent, with Iran coming in at 4.9 per cent and the countries of Iraq, Lebanon, Syria, Yemen and Jordan, combined, at six per cent. Parts per vehicles (PPV) are estimated at circa USD 493 in the GCC, USD 277 in Iran and USD 333 in the countries of Iraq, Lebanon, Syria, Yemen and Jordan, combined. The region is largely dominated by Japanese applications, but Korean applications are also quickly picking up. Other brands have the opportunity to gain market share if they can offer price competitiveness and build brand image. High maintenance costs for European OEMs hinders growth, but with more moves towards fuel-efficiency across the region, a potential market is opening for fuel-efficient technologies for which European manufacturers are known for their expertise in. Genuine and branded aftermarket parts make up about 58 per cent of supply with another 14 per cent attributed to counterfeit products. The rest is made up of other aftermarket parts, imports, and system suppliers.

Counterfeit products

Frost & Sullivan research estimates that counterfeit spare parts in the Middle East, excluding Iran, could make up a USD 8.3 billion market. Much of this is attributed to the fact that 60 per cent of spare parts products are imported to the region from China and it is unknown how many of these are low quality, fake parts. Messe Frankfurt against copying ? a side note on counterfeiting and product piracy Automechanika Dubai is organised by Messe Frankfurt, one of the world's largest trade fair companies with over 1,800 active employees. The group has a global network of 28 subsidiaries, five branch offices, and 52 international sales partners. In 2006, Messe Frankfurt became the first trade fair organiser worldwide to launch an initiative against brand and product piracy: "Messe Frankfurt against Copying". This initiative aims to ensure that exhibitors and visitors are fully informed and advised about the registration and assertion of intellectual property rights. Following these steps, Automechanika Dubai takes an active stand against brand and product piracy in an effort to create a fair business environment.

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