How Can The Auto-Aftermarket Benefit From Becoming A More Circular Economy?
By a conservative estimate, there are 200 Mn two-wheelers, 35 Mn cars & utility vehicles, six Mn commercial vehicles and another six Mn tractors in India. It is a common understanding today that when these vehicles reach the end of their life, they become an environmental hazard.
The recently announced Vehicle Scrappage Policy is the right step towards regulating and mitigating the environmental risks they pose. Of course, the impact of the policy goes well beyond that. Once it fully kicks in, its knock-on impact will also help the domestic auto industry reduce its input costs. But even the best-formulated policy cannot address all aspects of a challenge.
One such challenge for the auto industry is the scrap and waste generated by the domestic independent aftermarket. At revenues upwards of Rs 1 Lakh Cr annually, the domestic automotive aftermarket in India is the material underbelly of the automotive industry. The calculation includes spare parts, vehicle fluids (excluding fuel), batteries, and tyres. For each of these products that are fitted or poured into a vehicle, something is also being removed or poured out. We hardly spare a thought to what happens to most of these!
Keen observers would be quick to point out that many of the aftermarket product classes named above are indeed being recycled. Yes, they are, but by an unorganised sector, whose methods and practices are far from ideal and who cannot be held accountable for the processes they follow.
To address the subject completely, one needs to examine not just the “why” but also the “how” to do it. This article focuses on the “why”. So here are three reasons why it makes sense for aftermarket brands to invest in making the independent aftermarket circular. Companies who invest in this space stand to grow revenues, mitigate overall input costs, and independently, improve margins too. Do read on to know more.
An estimated 30% of industry revenues are lost to knock-offs of genuine spare part brands. By making it difficult for counterfeiters to lay hands on discarded parts from quality manufacturers, the industry is making it easier for quality products, made by legitimate manufacturers to be sold.
The target consumer for a brand-new laptop is different from that of a refurbished one. High time aftermarket brands woke up to the fact that such segments exist even among vehicle owners, and there are workshops that cater to them. Not every part removed from a vehicle is at the end of its life. By judiciously choosing among the reuse, remanufacture and recycle options for such parts and consumables removed from vehicles, it is possible to extend the useful life of a good percentage of these parts. If done right, the above two factors would plug revenue leakages and tap into new applications for mainstream manufacturers.
The easiest one to explain is the input cost benefits of recycling. This could begin with packaging material for many products and, in many products that are sold as sub-assemblies, many parts are over-engineered and will survive one more product life cycle. These sub-assemblies and packaging material can be recycled to reduce input costs.
A vibrant circular economy in the aftermarket will also make workshops look a lot less cluttered! In some ways a dealer showroom is to an OEM what an independent workshop is to aftermarket brands- it is where their products are used or purchased and perceptions about aftermarket brands and the industry are formed.
If a neighbourhood hair salon can look presentable, why not independent auto-workshops? After all, far more complex tasks are performed in an auto-workshop. By not helping workshops declutter and look modern, aftermarket brands are hurting their own image too, not just that of the workshops who use their product. A cluttered workshop follows the unwritten, unspoken code of charging their customers less, keeping them away from their premises by providing them pick-drop facilities. This only translates into a lower market-operating price for spares and directly results in lower profit margins for spare parts companies.
In many repair and maintenance services, there is a 25-30% difference between how much a franchised workshop charges vis-à-vis an independent workshop. If the added value can be demonstrated, a neighbourhood independent workshop can charge many of its customers more than it does today and still not come across as cost-effective and convenient. Finally, in an unorganised sector like the independent aftermarket, what better way exists to know the true potential of a workshop than to quantify the scrap it generates over a period! Would spare part companies not love to know who the biggies are in this metal jungle?!
– Rajeev Radhakrishnan is the Founder-CEO of T7E Aftermarket Connect and the founder of Mechanik TV. He writes about the automotive aftermarket industry.
This article was first published on Motoroids - How Can The Auto-Aftermarket Benefit From Becoming A More Circular Economy? - Auto News From India.