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Aftermarket, competition among firms increasingly selective
Dino Collazzo
The Italian Independent aftermarket is currently enjoying good health and closed last year with a positive sign. Apart from last year’s figures though, the whole supply chain is undergoing a reorganization of relationships and partnerships between trading partners creating a new economic balance. According to the Polytechnic University of Turin and more specifically its research center for the automotive sector, a selection process favoring the most virtuous companies is currently taking place.
The Italian IAM (Independent aftermarket market) is currently enjoying good health and closed last year - the fourth consecutive - with a positive sign. Aftermarket companies are booming as shown by the growing competitiveness, between the different players involved. This situation, according to a study carried out by the Polytechnic University of Turin, which was disclosed during the seventh IAM Italia conference, is generating a state of anxiety throughout the supply chain. With the result that in the coming years a reorganization of relationships and partnerships between trading partners in sectors such as distribution, components and spare parts are creating a new economic balance. According to Silvano Guelfi, scientific director of the Independent Automotive Aftermarket research center, the IAM system is undergoing a selection process favoring the most virtuous companies. Namely those focusing on investments, capital injections, debt reduction and technological innovation. We are looking at a long-term strategy where big companies, being more structured, are ready to sprint towards higher margins and revenues while the others, the vast majority, keep trailing close behind trying to stay hooked to the sector’s recovery. However, the trend is not shared by every player in the aftermarket supply chain, as highlighted by differences in terms of growth, investments and results obtained by the distribution, component and spare parts sectors.
Investment is the key word in the IAM sector. Starting 4 years ago, companies operating in the retail sector have adopted a strategy aimed at strengthening their market position through debt reduction, production efficiency and capitalization. Analyzing the trend from 2012 to 2016, several positive results were recorded. The first is a steady increase in the net worth of a number of companies, with a CAGR (compound annual growth rate) of 7.8%, coupled to a rise in investments (4.1% CAGR). A closer look highlights some positive changes. First and foremost the reduction in collection and payment times (from 97 to 95 days, and from 107 to 94 days respectively), an improvement in the inventory turnover rate (from 2.66 to 2.87), a higher capital productivity (from 1.68 to 1.74), an economic breakeven point that went from 89 to 80% and a NFP/EBITDA ratio that dropped from 3.74 to 2.81. All signals showing that the operational risks in the distribution sector have been greatly reduced. In 2016, in fact, the EBITDA was 8.1% (7.4% in 2012) while the value of production in the 2012 - 2016 period recorded a CAGR of 6.3%. Numbers that explain the 4.2% turnover in 2016 over 2015. These encouraging figures, however, do not apply to all the companies operating in this sector. In fact, driving the distribution sector in Italy are mainly 10 premium players which hold 48.5% of the market share. A data destined to rise, according to study carried out by the Polytechnic University of Turin, up to 64% by 2020. Also in view of the mergers, acquisitions and business partnerships that are already being established within the system. Comparing the first 10 companies in the sector with all the others, what catches the eye is the growth differential between the two groups. The first 10 large companies, in fact score excellent results as far as commercial margin are concerned (27.5% in 2015 in line with 2014), higher gross operating profits (7.5% with a +0.4% over 2014) and gross return on net capital investments (11.5% with a +1.3% over 2014). While all others trail in negative territory. The turnover of the top 10 companies is driven mainly by volumes, given the consistently low prices, while the others keep struggling. A similar argument also applies to components suppliers and spare parts dealers. The difference here though is that, while the distribution sector is going through a phase of strong investments and therefore proves to be more dynamic, other sectors started reaping the rewards of past choices. A common element in this case is given by the presence, even among component suppliers, of a few large players that are sharing out the market among themselves.
In summary, the IAM sector is going through a transformation. The companies involved adopted strategies and used resources in order to reposition themselves on the market. The decision to offer quality goods at a reasonable price range, establish partnerships, agreements and create business networks with other operators (production, distribution and consumer) and improve manufacturing processes by investing in technological innovation are speeding up the selection process. This will create larger and better structured groups able to work together in several areas.
Investment is the key word in the IAM sector. Starting 4 years ago, companies operating in the retail sector have adopted a strategy aimed at strengthening their market position through debt reduction, production efficiency and capitalization. Analyzing the trend from 2012 to 2016, several positive results were recorded. The first is a steady increase in the net worth of a number of companies, with a CAGR (compound annual growth rate) of 7.8%, coupled to a rise in investments (4.1% CAGR). A closer look highlights some positive changes. First and foremost the reduction in collection and payment times (from 97 to 95 days, and from 107 to 94 days respectively), an improvement in the inventory turnover rate (from 2.66 to 2.87), a higher capital productivity (from 1.68 to 1.74), an economic breakeven point that went from 89 to 80% and a NFP/EBITDA ratio that dropped from 3.74 to 2.81. All signals showing that the operational risks in the distribution sector have been greatly reduced. In 2016, in fact, the EBITDA was 8.1% (7.4% in 2012) while the value of production in the 2012 - 2016 period recorded a CAGR of 6.3%. Numbers that explain the 4.2% turnover in 2016 over 2015. These encouraging figures, however, do not apply to all the companies operating in this sector. In fact, driving the distribution sector in Italy are mainly 10 premium players which hold 48.5% of the market share. A data destined to rise, according to study carried out by the Polytechnic University of Turin, up to 64% by 2020. Also in view of the mergers, acquisitions and business partnerships that are already being established within the system. Comparing the first 10 companies in the sector with all the others, what catches the eye is the growth differential between the two groups. The first 10 large companies, in fact score excellent results as far as commercial margin are concerned (27.5% in 2015 in line with 2014), higher gross operating profits (7.5% with a +0.4% over 2014) and gross return on net capital investments (11.5% with a +1.3% over 2014). While all others trail in negative territory. The turnover of the top 10 companies is driven mainly by volumes, given the consistently low prices, while the others keep struggling. A similar argument also applies to components suppliers and spare parts dealers. The difference here though is that, while the distribution sector is going through a phase of strong investments and therefore proves to be more dynamic, other sectors started reaping the rewards of past choices. A common element in this case is given by the presence, even among component suppliers, of a few large players that are sharing out the market among themselves.
In summary, the IAM sector is going through a transformation. The companies involved adopted strategies and used resources in order to reposition themselves on the market. The decision to offer quality goods at a reasonable price range, establish partnerships, agreements and create business networks with other operators (production, distribution and consumer) and improve manufacturing processes by investing in technological innovation are speeding up the selection process. This will create larger and better structured groups able to work together in several areas.
