The automotive aftermarket has gone off the rails
The analysis of the supply chain shows declining performance, modest margins and high tensions on warehouse turnover rate
Decreasing performance, modest margins and high tensions on warehouse turnover rates. The Italian Independent Aftermarket continues to struggle and is set to close 2019 in the red. The causes of this downward trend, following an expansionary cycle that lasted five years and came to an end in 2018, must be found not only in economic terms but also geopolitical factors, at least according to an analysis carried out by the Polytechnic University of Turin, presented during the second economic-financial conference of the aftermarket sector. The current crisis plaguing the car market, with registrations declining globally (96.8 million in 2018 -1.1%), trade wars between the US and China, a stagnating world economy, the unknowns of the Brexit, Germany edging closer to a technical recession and the drastic drop in consumption in the euro-zone have led to great uncertainties throughout the IAM chain. A concern that didn’t find any real answer even in the monetary stimuli adopted by the ECB with the quantitative easing. In fact, in spite of the low rates and greater availability of money to be borrowed from banks, many companies have preferred to postpone long-term investments waiting for better times. The recent downturn of the Italian Iam market, which began in 2018, is pushing down prices (-2.1% in August 2019), contracting volumes (-3.4%) and turnovers (-5.3%), with the consequent stagnation of real wages (wages in line with the cost of living). According to Silvano Guelfi, scientific director of the Automotive independent aftermarket research centre at the Polytechnic University of Turin, this situation is accelerating a selection process within the supply chain. In fact, analysing in detail the performance of the players in the sector, a number few differences in corporate strategies can be observed. The gap between the operators who, while moving with extreme caution, are innovating, even sacrificing part of their margin, on production efficiency, logistics and staff know-how, and those who have decided to wait for signs of an economic reversal is widening. The result, in the long term, will be a significant number of companies going out of business freeing considerable market shares and business volumes amounting to roughly 361 million euro, according to the most recent estimates. The proof of these changes is given by the numerous acquisitions, mergers and commercial partnerships that are pushing many players to join forces to better face the changes taking place in the automotive world.
The economic and financial performance of the Italian independent aftermarket, recorded between 2014 and 2018, indicate a loss of volumes and turnover over the last 5 years. A situation that, given the negative signs coming from the global economy, will remain unchanged in 2019 and will have repercussions also in 2020. Analysing the past five years, it’s evident that the value of production and distribution in 2018 was negative (-1.4% on 2017). Data on sales and EBITDA margins of the top 10 operators showed a fluctuating trend, while the others experienced a sharp reduction. In the case of the top 10 best structured operators, the commercial margin in 2018 was 25.7% with an improvement of 0.9 percentage points over 2017 (+0.4% on 2014). On the other hand, as far as EBITDA data are concerned - the average is 5.5% in 2018 - 7 out of 10 companies went through a contraction compared to 2014 (-1.2%), recording a slight recovery only at the end of 2018 (+0.1 percentage points). Furthermore, returns on investments are faring no better, with the top 10 operators, going from 11.5% in 2014 to 8.4% in 2018. In this case, though, the figure should not be viewed solely in a negative light. In fact, in the long-run, ongoing investments can support business development through operations that, according to Guelfi, require foresight and careful management of financial levers. A completely different ball game involves spare parts dealers whose production value rose by +3.1% in 2018 over 2017. Looking at the overall performance of the sector, the numbers describe a rather healthy state with a positive rate of development throughout 2018. Margins remain negative with a very rigid cost structure. Financial debts - money borrowed from banks - is on average limited and constant while payment times have remained stable. There is some tension, and the same goes for all the operators in the supply chain, on warehouse turnover rates. The negative trend, on the other hand, is affecting Iam producers, which in 2018 recorded a production value of -1.2% over 2017. Data on trade and gross operating margins of the top 10 operators are characterized by a minus sign: minus 0.9 percentage points compared to 2017 (-0.8% on 2014) in the first case and -0.5 percentage points in the EBITDA compared to 2017 (-1.6% on 2014).