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Political strife and economic realities are pushing automotive aftermarket suppliers to find lower-cost options and reduced political tensions in countries other than China.
Indeed, companies there are recognizing the challenges ahead and are moving their operations out to the likes of Vietnam, Malaysia, Morocco and Hungary, observed Paul McCarthy, president of the MEMA Aftermarket Suppliers Association.
And, he highlighted during the MEMA Aftermarket Suppliers Global Summit in Florida, they’re moving into Mexico as well.
“This is a different stage, a different type of competition for the global industry coming from China,” he noted.
But that doesn’t mean the industry will stop doing business outright with China.
Much has changed over the years, McCarthy observed. China used to compete on cost thanks to low wages. That’s not the case anymore. For example, a generation ago, China’s wages were half of Mexico’s. Now it’s more than double. Suddenly, China isn’t as affordable an option.
“This trend is not new,” McCarthy said. “And it was inevitable as China re-took its place as one of the world’s largest and most prosperous economies.”
But even as wages increased, China sold itself on the expertise it offered over anyone else.
“The best Chinese companies, their advantage is based on expertise. It’s based on scale, in terms of aftermarket products. And increasingly, it’s based on EVs and EV technology,” McCarthy said.
Furthermore, China saw its exports increase five-fold from 2020-2023. That’s creating excess capacity, leading to China sending that off to its neighbouring countries.
So as business moves to other nations, there will be an increasing need for aftermarket leaders who can tackle global complexities. Trade will always happen and find a way, McCarthy noted, pointing to how much more aftermarket business is coming from countries like Turkey and the United Arab Emirates.
“So our point of view is that the international aftermarket expertise to this world we’re describing, it just becomes more important,” McCarthy told attendees. “A more complicated world increases the need for professionals who can navigate that complexity. And it’s even more important to know who you can trust across borders to have those relationships and an uncertain world.”
The rules of doing business and what the aftermarket needs to adapt to have changed in the last 30 years. Those who can navigate those waters will come out ahead, he added.
Take a look at issues in the Red Sea. The region typically handles 10 per cent of global trade. When conflict began, that number dropped to 3 per cent.
“It’s amazing this decline that you see of the trade going into the Red Sea,” McCarthy said. “So a very concrete example of how volatility is impacting our business and we’re seeing it in our shipping prices and elsewhere.”
It all leads to the industry “trying to execute the biggest shift in the aftermarket footprint that we have had in generations.”
The pandemic accelerated disruption in supply chains, the biggest since World War Two, McCarthy noted. “It impacted everything.”
The aftermarket leaned into profitability by ushing in ultra-lean global supply chains following the fall of the Berlin Wall.
“That’s where the margin was,” McCarthy explained. However, he later observed, “That may never return.”
Business forebearers had a “period of great moderation” where they had global stability and could find efficiencies, he added. “Our world seems to have changed.”
