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CHINAAUTOMOBILEMARKETINGANDSERVICESUMMIT2003KeyIssuesInDevelopingAutomobileServiceMarketZafarA.MominVicePresidentandDirectorHeadofAsianAutomotivePractice1stDecember2003THEBOSTONCONSULTINGGROUP-1-AGENDAChinaAutoServicingLandscapeLessonsfromGlobalAutoServicingMarketImplicationsforChinaAutoServicingMarket-2-THERAPIDLYGROWINGAUTOMARKETWOULDBEONEKEYDRIVEROFTHEGROWTHOFTHEAUTOSERVICEMARKET4.14.44.75.15.50246820032004200520062007Vehicles(Munits)CAGR:8%('03-'07)TotalCarParc(2000-2005)EstimatedCarParc(2003-2007)25.528.631.938.835.20102030405020032004200520062007Vehicles(Munits)CAGR:11%('03-'07)EstimatedVehicleSales(2003-2007)Source:DRIAsianAutomotiveIndustryReport,August2003;BCGestimates-3-STRONGGROWTHEXPECTEDFORCHINAAUTOAFTERMARKET14.017.821.722.625.327.930.533.205101520253035402000200120022003E2004E2005E2006E2007E(US$Bn)CAGR:10%('03-'07)IndustryForecastofChinaAutoPartsandAftermarket(US$Bn,2003–2007)Source:AccessAsia-4-CURRENTAUTOSERVICINGMARKETISFRAGMENTEDDuetotheProliferationofSmallSub-scalePlayersCategory1enterprisesCategory2enterprisesCategory3enterprises3411234190905001,0001,5002,0002,5003,0003,5004,000ShanghaiNoofplayers(1)3,484DefinitionSize-Onlyabletoperformspecificlightserviceandmaintenancetasks:-Cleaningservices-Repairandfittingofperipherals(body,paintwork,batteries,display,windowsetc)-Noservicingofmain/criticalparts-Abletoperformminorrepairs,maintenanceworks,andspecificrepairs,modificationandinspectiontasks-Abletoperformalltypesofautorepairs,modificationsandmaintenanceworks-Moststringentinset-uprequirementsTypeofplayers-Fast-fitchains-Traditionalindependentsmallscaleentrepreneurplayers-Independentmulti-brandautoserviceprovider-3S/4Sdealers-OEMappointed/affiliatedservicestations~1,000unlicensedrepairshops(2)FragmentedChinaAutoServicingMarket,e.g.Shanghai(1)Notinclusiveoftheunauthorizedrepairshopsandmotorcyclerepairshops(2)EstimatesfrompresssearchesSource:Presssearches-5-THEREAREBOTHNATIONALANDLOCALREGULATIONSGOVERNINGTHESET-UPOFAUTOSERVICEENTERPRISESButEffectiveEnforcementIstheKeyIssueTheroleofeachentityNationalAutoServiceSet-upRequirementsShanghaiRequirementsProvincesRequirementsMinistryofCommunicationsSetnation-wideregulationsgoverningthetransportindustryProvincial/MunicipalCommunicationsBureausAdoptandexecutethenationalpoliciesMaychosetofurtherdetailrequirementsunderthepolicyBeijingRequirements...FacilityandequipmentFacilitymustsuitablebeforrepairworksandcarpark-Repairspace800m2-Carparkspace800m2Meetslistofrequiredgeneral,special,testingandmeasurementequipmentHumanResourceManager:TertiaryDegreeholder,8yearsexperienceEngineer:Atleast1qualifiedauto/mechanicalengineer,Inspectionengineers:Atleast3properlytrainedinspectionengineersOthersWorkingcapital0.5MRMBMusthavepropermanagementandqualityinspectionstandardsMustmeetallenvironmentalandsafetyrequirementsExample:BeijingCategory1AutoServiceEnterpriseSet-upRequirements-6-FOREIGNPLAYERSAGGRESSIVELYTRYINGTOGETAPIECEOFTHEAUTOSERVICINGMARKETEspeciallyintheFast-fitSegments•Alreadysetupover150autoservicestationsinChina•Targetsetup1,000Boschservicestationsby2010•BiggestautoserviceandautopartschaincompanyinJapan•InvestingUS$30millioninJVwiththeShanghaiPai-AnGrouptoentertheChinamarket•PlanstoconstructalogisticscenterinPanyu,Guangzhou•Selected4cooperationpartnersinGuangdong•Planstoopenitsfirstdirectsalesshop(16,500m2)inShanghai•Planstoopen200fastrepairshopsinShanghaiandothercitiesinChinaoverthenext2-3years•SAICannouncedUS$30MnJVwithShelltoenterautomaintenanceandrepairservices•Initiallaunchofquick-lubeserviceshopsinShanghai,thennation-wide-7-KEYISSUESFACINGTHECHINAAUTOSERVICINGINDUSTRYEnforcingtheRegulatoryRequirementsIncreasingPriceTransparency&ConsumerEducation123UpgradingQualityandServiceStandardsCurrentskilllevelofautoservicemaynotbeabletomeettherequirementsofthefuturevehiclemarketNeedtoelevatequalityofself-taught/untrainedserviceprovidersWidedeviationofpriceandpartsqualityacrossdifferentplayersNotransparentbenchmarkofservicingpricingLackofconsumerunderstandingontheeconomicsandqualityofserviceandpartsCurrentproliferationofun-licensedandill-equippedserviceprovidersEnsuringthatserviceprovidersmeetrequirementsisthebiggertaskathand-8-AGENDAChinaAutoServicingLandscapeLessonsfromGlobalAutoServicingMarketImplicationsforChinaAutoServicingMarket-9-ChannelsMANYDIFFERENTCHANNELSHAVEEMERGEDINMATUREMARKETSChannelsHeavy/CollisionrepairParts&accessoriesMaintenanceservicingLight/MediumrepairOEMs-affliatedIndependentsOEMDealersOEMfranchisedservicestationsOEM-ownedautoservicechainsSupermarketsTireplayersParts/SpecialistPlayersAutoServiceChainsBodyshopsTraditionalplayersLubricantsExamplesExample:USAutoAftermarketLandscape-10-ChannelsOEMDEALERSHAVELOSTSHARETOINDEPENDENTSIN80sAND90s,BUTAREFIGHTINGBACKChannelsAftermarketRevenueShare(US)48%45%46%45%43%43%58%0%25%50%75%100%1986198819901992199419961998DealerIndependents44%46%43%199920002001DealerIndependentsDealerRevenueShareCAGR-2.5%4.2%Source:NADA-11-ChannelsFAST-FITSMOSTSUCCESSFULOFTHEINDEPENDENTSRapidGrowthInThe80sAnd90sChannels...su