Amid Government Impetus, Automotive Parts Manufacturers in Poland are Jittery about Electromobility
March 23, 2018 | Frost & SullivanEstimated reading time: 5 minutes
The perception of electromobility as a double-edged sword, the increasing importance of intelligent production processes and rising anxieties about price competition are among the key findings of a recent online survey—The Barometer of Automotive Parts Industry in Poland—conducted by Frost & Sullivan in partnership with Association of Distributors and Manufacturers of Automotive Parts (SDCM). The survey was conducted among managers across three key segments of the Polish automotive parts industry: parts manufacturing, distributorships, and workshops.
Automotive parts manufacturing
The hot-button topic of electromobility, which is being strongly promoted by the Polish Government in the context of the recent Electromobility and Alternative Fuels Act, received a muted reception from automotive parts manufacturers.
According to the survey, 63% of the automotive parts manufacturing plant managers believe that electromobility is the most important Mega Trend that will change the commerce and service market for the automotive industry. Autonomous vehicles ranked second with a significantly lower share of 39%. It is also worth noting that 44% of managers consider the rapid development of electromobility a threat to their companies, and only 19% perceive it is an opportunity for faster development.
“Such a negative perception is connected with the fact that, currently, the automotive industry in Poland is mostly organised around the production of parts and components for cars with conventional powertrains. For a typical factory that produces silencers for combustion vehicles, the development of electromobility carries with it the potential risk of losing market share and causing employee layoffs, as its products will not be used in electric vehicles”, explained Alfred Franke, Chairman of SDCM.
“Manufacturers of automotive components for conventional vehicles legitimately believe that the road to clean transport is to lead through gradual adaptation and hybridisation, which will allow them to adjust to the new realities of mobility”, added Ivan Kondratenko, Consulting Analyst, Mobility at Frost & Sullivan.
The survey also revealed that the industry had a keen understanding of the potential benefits arising from the implementation of Industry 4.0 solutions. More than half identify evolving customer requirements (56%) and productivity growth (51%) as factors that can motivate manufacturers to transform their business through the adoption of intelligent production processes. Receptivity to the idea of Industry 4.0 also stems from the fact that 56% of managers view the lack of qualified staff as the greatest threat to the development of factories and identify automation of factory processes as a potential solution to eliminate this challenge.
“Automotive factories of the future will significantly change the processes of the traditional value chain. Increased automation, digitalisation, and connectivity will transform current business models in the parts and components manufacturing sector”, noted Kondratenko.While acknowledging its importance, 63% of respondents nevertheless cited high investment costs as a major barrier to transitioning towards Industry 4.0.
Automotive parts distribution
There was widespread optimism among automotive parts distributors about sales prospects for 2018. As many as 41% of distribution companies participating in the survey expect growth rates to exceed 10% with 40% anticipating growth of up to 10%.
The automotive parts distribution sector in Poland is characterised by very high levels of competition. Not surprisingly, therefore, as many as 68% of components distribution company managers identified price wars as being the most dangerous factor for their respective companies. “This phenomenon occurs in all market segments—from low-cost automotive parts to premium brand products”, said Franke.
When assessing the level of price wars in individual segments, 36% of respondents gave the highest rating (5) in the premium brand sector, which means that price wars are so intense that they completely destroy profitability. In other areas—among mid-range and low-cost products—the situation has been assessed slightly more optimistically; however, most managers rated the competition at 4 on 5, which means that price wars still have a significant impact on profitability. In such situations, especially in the premium brand segment, the market forces players to distribute products at lower prices than their competitors, so that they can sell larger volumes in order to potentially offset price reductions.
Another challenge for distributors is the growing activity of the original equipment supplier (OES) sector in spare parts sales with 69% of managers reporting an increase in distribution and sales in the authorised dealers segment in 2017. With the increasing technological complexity of automotive parts and rising sales of new vehicles, vehicle manufacturers want to increase their market share in the aftermarket by selling components with their own logo. This, in turn, significantly affects independent spare parts distributors, reducing their market share.
Automotive parts workshops for service and repair
The survey also revealed interesting insights from automotive workshops dealing with service and repair. According to their assessment, 59% of customer visits are due to failures or wear and tear. Such a high proportion highlights several characteristic features of the domestic automotive industry. Firstly, cars in Poland are ageing, with the average age of cars being over 10 years, which results in more serious problems and more frequent vehicle failures. Secondly, the average driver ignores the importance of routine maintenance visits to a workshop when all components in a car are functioning smoothly.
A majority of 57% of respondents declared an increase in the level of investments in car workshops in 2017, with 87% stating that the bulk of investments were to purchase workshop equipment. “This is the result of modern IT and electronic solutions being a characteristic feature of the technologically advanced vehicles being sold currently. This, in turn, is compelling workshops to make the necessary investments in tools for effective diagnostics and repair of a wide range of advanced automotive components and systems,” concludedFranke.
About SDCM:
Association of Distributors and Manufacturers of Automotive Parts (SDCM) is the voice of the Polish automotive industry. It encompasses more than 100 major players in the automotive parts industry and represents the interests of stakeholders in an industry valued at over PLN 125 billion and supports nearly 270,000 jobs annually. SDCM is a member of the largest European organisations active in this sector such as CLEPA and FIGIEFA.
About Frost & Sullivan:
Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make or break today's market participants. For more than 50 years, we have been developing growth strategies for the global 1000, emerging businesses, the public sector and the investment community.
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