Conventional engine, transmission, and affiliated components will represent immediate high growth opportunities, while transition to vehicle electrification will drive investments in electric vehicle (EV) related remanufacturing.
By Benson Augustine, Senior Industry Analyst, Aftermarket & Digital Retail – Mobility
Rematec, a leading trade show for stakeholders in the automotive remanufacturing ecosystem, was held in Amsterdam in June this year, after a four-year hiatus. It comes at a crucial juncture when latest trends are coalescing around the need for sustainable practices and circular economy models, and the automotive industry is undergoing a disruptive shift towards vehicle electrification.
Indeed, amidst concerns over increasing material wastes and pollution, the automotive aftermarket, much like other industries, has been embracing new business models based on the circular economy. Central to this has been remanufacturing (or reman) – where used parts are restored to almost new condition with associated warranties – together with recycling, reduce, and repair. In concert, they are now enabling more responsible material consumption across the automotive aftermarket value chain.
Across industries, including in the automotive aftermarket, there has been a push towards carbon-neutrality. This has highlighted the growing prominence of reman components in the retail aftermarket. Rising raw material prices have provided further demand impetus. Uptake of reman parts has received a fillip from their relative affordability as consumers look for a steady supply of cost-effective parts.
Circular economy practices, including use of reman components, have been embraced by automakers like Stellantis N.V., Ford, and Groupe Renault even as distributors like LKQ Corporation and Tier 1 suppliers such as ZF Reman, Valeo, among others, consistently emphasize the crucial role of reman parts in driving sustainability agendas.
To learn more, please access Circular Economy Initiatives and Growth Opportunities from Remanufacturing in the Automotive Aftermarket, 2023 and Global Automotive Aftermarket Outlook, 2023 or contact sathyanarayanak@frost.com for information on a private briefing.
Europe and North America Lead, China to Emerge as a Future Growth Hotspot
Frost & Sullivan research indicates significant growth potential for remanufactured legacy components, such as engines and transmissions, along with emerging electronic components, such as control modules and engine control units (ECUs), over the next 5 to 8 years. We also foresee OEMs, suppliers, retailers, and wholesalers focusing on private-label products to boost retail end margins. This will be helped along by lower operational costs linked to the fact that there is no requirement to manufacture the core product.
In terms of business models, we will see North America and Europe leading investments in EV-related reman, with APAC positioned as a core hub.
In terms of replacement channels, preferences appear to vary depending on region and category. In 2022, for instance, barring APAC, all major regions, including North America, Latin America, and Europe, exhibited favored independent aftermarket (IAM) over original equipment suppliers (OESs) for reman part replacement. Globally, however, engine and related components like turbocharger, transmissions, and ECUs were mostly serviced through the OES channel. Over the next 5-7 years, we expect the OES channel to improve its services, while the IAM channel will win over customers by providing competitive solutions at lower prices.
North America and Europe currently dominate the global reman aftermarket. Their transition to market maturity post 2030 will be accompanied by the emergence of Asia Pacific as a potentially high growth region. This, however, will be predicated on the ability to change consumer mindsets since the region currently has low levels of acceptance for reman products.
High levels of domestic uptake and its leading presence in the global reman logistics space will underline China’s position as a growth hotspot. Latin America will also present growth opportunities with prospects driven primarily by price rather than by sustainability considerations. The region’s proximity to North America will, moreover, transform it into an alternative sourcing hub to China.
Our Perspective
Over the next 3 to 5 years, we will see suppliers and aftermarket value chain enablers maneuvering to gain first mover advantage with integrated reman programs. Meanwhile, a growing EV parc will emphasize the need not only for strong value chain programs that support economies of scale but also for a renewed focus on EV components. A third trend we foresee is consolidation, wherein smaller companies will merge with or will be acquired by larger companies to complement its existing portfolio or to gain market entry into newer markets.
Frost & Sullivan research indicates that conventional engine, transmission and affiliated components will remain the largest replacement revenue category. Accordingly, OES suppliers will need to ensure a steady supply of engines and engine-related cores in the aftermarket. Simultaneously, they will need to explore the possibility of vertical integration, either through portfolio expansion or by linking with a larger supplier.
Rising EV uptake will translate into higher demand for remanufactured eComponents and batteries. This will require suppliers in North America and Europe to fast-track R&D initiatives in this area as well as partner with retailers, wholesale distributors, and OES channel participants to build a network to store, transport, repair, and service eComponents and batteries.
The ability to successfully realize circular economy practices will depend on reinforcing customer acceptance of automotive reman parts. It will also require a robust core sourcing strategy which brings together suppliers, salvage yards, remanufacturers, and distributors in a seamless, mutually beneficial ecosystem.
With inputs from Amrita Shetty, Senior Manager, Communications & Content – Mobility
