Is the prosperity of the "piéçards" sustainable?

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A reading of the very edifying document defending PHE's IPO confirms the analyses that have shown for years that, in the automotive sector, expenditure on use is increasingly dominating acquisition expenditure. The document pays little attention to electrification and considers that this change may not contradict the trend of growth in the parts market. The argument is extremely interesting, but consumers may give it a thumbs down.
 
The IPO of PHE (Auto Distribution) and the documents published to defend it underline the prosperity of this major player and the market in which it is positioned. Having invited its CEO at the time, Olivier van Ruymbeke, to discuss with researchers specialising in automotive issues 15 years ago, I can only emphasise here the robustness of this trend on the one hand and the ability of this company to benefit from it on the other.
 
The trend is well known to all and was largely confirmed by the re-examination of the vehicle fleet which was carried out by all parties in 2020: the French fleet - like other European fleets - is ageing and, since the manufacturer after-sales service is struggling to capture vehicles over 5 years old, this is distorting the structure of the after-sales and parts market in favour of the "independents".
 
In particular, there has been a strong development of the share of vehicles over 15 years old, which public statistics have long ignored by not providing statistics on them. By reintegrating these vehicles, it was found that the fleet of private vehicles was underestimated by 2 or 3 million and that its average age was even closer to 11 years than to 9.
 
In this context, as Stéphane Antiglio, the head of AD, was keen to point out, being both an ally of the "do-ers" (via Oscaro) and very present with those players who are most present with the owners of the vehicles whose share is growing the most, namely the MRAs, is the best positioning there is.
 
This is also what manufacturers want to develop with initiatives like Distrigo or groups like Mobivia with Originauto.  
 
To give an idea of the phenomenon, we can compare, for the first 4 months of 2021, the number of new cars aged 15 years and over purchased by households with the number of new private vehicles they have acquired: 468,000 compared with 248,000 (out of 582,000 private cars registered in total).
 
The figures clearly indicate that the willingness to pay for after-sales services favours independent after-sales and the alternative supply of parts. Insofar as the ageing fleet is extremely diversified because the number of models of one vintage has continued to grow and ageing implies the multiplication of coexisting vintages, this cheap offer must be ensured for an immense variety of references. It is exactly the know-how of the "piéçards" to manage this immense variety, the corresponding logistics and the prices as accurately as possible. Consolidation has quickly appeared on a national basis at first and now on an international basis as a key to the resilience of this model in the contemporary context.
 
The document produced by PHE is based on a study commissioned from Roland Berger to document all of this and to convince readers to give PHE the means to continue its work as a major European consolidator so that LKQ does not take over. In addition to the basic arguments already mentioned, the bullish forecasts concerning the market addressed by PHE are combined with an argument that puts the importance of electrification into perspective. 
 
In fact, there are quite strong reasons to think that ageing fleets and a prosperous aftermarket could cease to be synonymous with electrification. Indeed, everything suggests that, fundamentally, electrification should exacerbate the tendency for the fleet to age: technically, the reasons for failure of electric MPGs should, compared to their combustion counterparts, decrease very significantly, reduce the number of workshop entries, the consumption of parts per vehicle on the road and allow registered vehicles to achieve much higher mileage.
 
Furthermore, apart from the GMP part, the problems of degradation of the functional performance of vehicles are largely linked to vibration phenomena. As these are notoriously less frequent in electric vehicles, their ageing should be much easier.
 
In this perspective, we could or should see individual mobility needs met by fleets which, even if they were to continue to grow, would involve fewer new vehicle registrations and average ages which would flirt with 20 years rather than 10: a vehicle which travels 12. A vehicle that travels 12,000 km per year and could remain reliable for up to 480,000 km could last 40 years; a fleet of 40 million vehicles like the current French fleet could then be built up with 1 million registrations per year instead of 2 and its average age could flirt with 20 years. Despite this, in the absence of EGR valves, injectors, catalytic converters, diesel or particle filters, the ageing in question, which until now has allowed the PHE market to grow, could cease to comply with this law.
 
One can certainly put this alarming analysis into perspective - as Roland Berger and we have done - by pointing out that even if we make very high assumptions about the growth of battery electric vehicle (BEV) registrations between now and 2035, the inertia of the fleet will preserve the PHE market for the next 15 years.
 
Nevertheless, in the long term, in 2040 or 2050, the structural decline in the number of workshop entries per vehicle, which has been observed for years with internal combustion vehicles, will eventually become more pronounced with electrification and, even if the technical nature of operations and the price of parts were to continue to exert pressure in the opposite direction, there are solid reasons to believe that business opportunities for PHE could become scarcer.
 
Roland Berger presents some interesting counter-arguments to this thesis, which are particularly important for the 'piecers', pointing out that, with ADAS in particular, parts and technicality of operations could, despite the scarcity of reasons for entering the workshop, compensate for the downward trend.
 
The table illustrating this reasoning found in the document defending PHE's IPO is provided above.
 
 
It indicates that vehicle sophistication continues for reasons mainly related to a never-ending quest to improve the passive and active safety of vehicles. As a result, despite electrification, consumers may - without making the industry better off, on the contrary - be subjected to an environment where parts distributors remain extremely successful. 
 
Today, brands such as Dacia are giving up their Euro Ncap stars because this is the condition for continuing to offer affordable products to customers. This trade-off - as the case of the Dacia Spring shows - will become more and more systematic with electrification. 
 
If this is the case, then it is also possible to imagine that, tired of seeing the cost of the car drift, consumers or their insurers or guarantors will demand that the replacement costs of ADAS, headlights or bumpers be reduced and/or that they be dispensed with altogether.
 
17/05/2021
 
 

The weekly column by Bernard Jullien is also on www.autoactu.com.

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