China's automobile stock market is about to become the world's largest single market, and its high scale and high growth are also attracting more and more attention from enterprises and capital. The Digital Future, Aftermarket Industry Transformation - 2020 China Automotive Aftermarket White Paper released by Deloitte's automotive industry team shares Deloitte's insights into the transformation of the automotive aftermarket industry and its judgment on future trends through in-depth analysis and interpretation of multiple dimensions such as policies, capital, consumers, and business logic.

1. Market: The world's largest single market has just grown up, and it is time to make a gorgeous turn towards high-quality development

Affected by China's unique economy, industrial foundation, and social factors, the development of China's automotive maintenance market has formed some unique characteristics, such as large market scale and fast growth; outstanding social benefits; low maturity of the middle and lower reaches of the industry.

On the market side, the prospects of China's automotive market are bright and will continue to maintain high growth in the next 10 years. The maintenance market capacity continues to maintain considerable growth, and it is expected to reach 1.7 trillion in 2025.

On the policy side, the automotive aftermarket started late, and policies have been issued frequently recently, but the implementation effect needs to be further improved. By reviewing the policy details over the past five years, it can be found that supervision mainly revolves around three rectification ideas and directions: openness, transparency and standardization. Finally, on the capital side, the automotive aftermarket is still the key track for capital layout. In the past three years, capital has vigorously promoted industrial transformation, with more than 50 single financings of more than 100 million yuan in the industry, but at the same time, capital investment has obviously begun to become rational.

Looking forward to the future, the core of the macro opportunities in China's automotive aftermarket maintenance industry lies in digitalization and customer-oriented thinking. Deloitte believes that the development of digital technology has reached a relatively supportive cycle for change. Traditional pain points are expected to be improved with high quality, high efficiency and scale effect with the help of digital technology. The key to winning the future industry transformation also lies in who can use digital technology and complete the deep adaptation of digitalization and business based on a deep understanding of the industry.

2. Consumers: Consumers still pursue "reassurance, peace of mind and comfort", and online experience becomes the key The basic characteristics of Chinese consumers include low car use intensity, low car awareness, emotional attitude towards car consumption, and more willingness to pay for convenient services.

The busy pace of life makes consumers more expect "reassurance, peace of mind, comfort and high cost-effective" maintenance services. In the automotive maintenance market, Chinese consumers are also more willing to embrace digitalization to obtain maintenance information and service experience more efficiently and with higher quality. Digital touchpoints provide differentiated opportunities for the highly competitive automotive aftermarket.

Figure 1: Analysis of factors affecting Chinese consumers' decision-making in automotive aftermarket services

Analysis of factors affecting Chinese consumers' decision-making in automotive aftermarket services Data source: Deloitte research and compilation Chinese people's online consumption habits are leading the world. At the same time, the automotive aftermarket has also shown a clear trend of onlineization. Based on incomplete statistics and interviews with industry experts, Deloitte estimates that the online rate of domestic automotive maintenance will maintain an annualized growth rate of more than 22% from 2019 to 2025.

Business model 1: Integrated integration model under the M2B2b2c trend. Under the traditional multi-level distribution value chain model, the main companies include the original after-sales service chain represented by the traditional dealer group, and the maintenance chain brands represented by the traditional third-party auto service chain companies, traditional OEMs and traditional parts manufacturers.
Business model 2: Integrated integration model under the S2c trend. The S2c value chain model is currently dominated by companies with Internet backgrounds, starting from the e-commerce platform in the value chain, and at the same time completing the value chain integration upstream and downstream. Deloitte believes that the S2c value chain integration model has advantages in customer operation, parts cost and auto service network operation quality compared to the traditional vertical integration model, so this model has extremely high development potential.
Business model 3: Traffic intermediary model. A simple traffic intermediary cannot achieve a win-win situation for consumers, platforms and maintenance service networks, and business logic cannot support its sustainable development.
Business model 4: B2B auto parts e-commerce model. B2B auto parts vertical integration is an integration model with very clear business logic. From the perspective of supply chain integration, the auto parts industry will inevitably have large B2B e-commerce companies focusing on auto parts.
The industry phenomenon-level reconstruction driven by the digital wave mainly includes the following points:
Digital reconstruction of "people" - digital liberation of technician training efficiency and improvement of technician value Digital reconstruction of "goods" - extreme flatness and long-lost integrity Digital reconstruction of "money" - from liberating the accountant to Fintech empowerment Digital reconstruction of "customers" - assured, worry-free, comfortable Digital reconstruction of "stores" - extreme standardization and asset efficiency Finally, returning to the essence of business, the five major capabilities of future winners in the maintenance market include: data acquisition and data value-added capabilities, supply chain capabilities, maintenance technology and standards, industry ecosystem construction capabilities, and iterative innovation.
4. Digitalization opens the future, and transformation brings opportunities Regarding the aftermarket, especially the maintenance market, Deloitte has given the following suggestions for future development from the upstream to the downstream of the value chain, combined with the analysis of trends:
Enterprises in the upstream of the value chain: actively explore new channel models, and participate in vertical integration with their own advantages, including actively embracing innovative product distribution models, actively building the ability to directly face consumers, and actively combining their own advantages to intervene in non-standard maintenance businesses.
Enterprises in the midstream of the value chain: deepen empowerment, strengthen vertical integration, and actively explore new opportunities for data monetization, including deepening B2B empowerment value, building competitive advantages, and controlling terminal data; deepen vertical integration to become a smart bridge between production and sales integration; and tap Fintech opportunities with the help of supply chain data capabilities.
Enterprises in the downstream of the value chain: Digitalization and standardization drive capability upgrades are the general trend of the industry, and they should actively seek supply chain platform empowerment, consolidate non-standard businesses, and strengthen insurance businesses.
The great changes in the automotive industry are epic. The emergence of participants represented by Internet companies has accelerated the iteration and upgrading of the industry, and new models have emerged in an endless stream, and the division of labor and status in the value chain have also been constantly changing. However, there is no doubt that returning to the essence of aftermarket business, the quality of end-user service and experience based on resource integration will be the eternal key to success.