The automotive aftermarket parts industry in Southeast Asia has witnessed significant growth over the years, driven by increasing vehicle ownership and a growing middle-class population. However, several challenges have emerged, impacting the industry’s dynamics and profitability. This blog will explore three key challenges faced by stakeholders in the Southeast Asian automotive aftermarket parts industry and discuss potential strategies to overcome them.
Weakening Regional Currencies
One of the primary challenges faced by the automotive aftermarket parts industry in Southeast Asia is the weakening of regional currencies. Many countries in the region have currencies that are less robust compared to major global currencies such as the Euro and the US Dollar. This currency disparity affects the industry in several ways:
a. Weaker Spending Power: When regional currencies depreciate against the Euro and the USD, consumers in Southeast Asia experience a reduction in their purchasing power. This makes aftermarket parts more expensive for consumers, leading to decreased demand.
b. Import Costs: For Importers and Distributors, sourcing parts and accessories internationally, the weakening regional currencies result in increased import costs, further squeezing profit margins. It is important for suppliers and manufacturers to ensure that their local partners/representatives operate viably.
Rising Shipping Costs
Shipping costs are another major challenge for the automotive aftermarket parts industry in Southeast Asia. The region’s reliance on international supply chains means that fluctuations in global shipping costs directly impact the industry. Several factors contribute to this challenge:
a. Global Supply Chain Disruptions: Disruptions in global supply chains, such as those caused by the COVID-19 pandemic and rising oil prices, have led to increased freight rates, and delays in delivery times.
b. Environmental Regulations: Stringent environmental regulations have led to higher fuel and emission standards for shipping vessels, which, in turn, increase shipping costs.
c. Geopolitical Tensions: Trade tensions and geopolitical conflicts are disrupting some shipping routes and further escalating costs.
High Regional Customs Duties and Import Taxes
High regional customs duties and import taxes are an additional challenge faced by the Southeast Asian automotive aftermarket parts industry. These levies, imposed by governments to protect domestic industries or generate revenue, significantly impact the cost of imported parts and components.
To address these challenge, stakeholders especially suppliers and manufacturers, need to consider:
1) Localised Pricing Strategies – Pricing in line with the local currency’s value can help maintain affordability for consumers, which equates to improved sales opportunities. One pricing for the world, may be easier to manage, but it won’t maximize each market’s potential.
2) Local Assembly – Establishing an assembly plant in Southeast Asia to harness the benefits of the ASEAN Free Trade Area (AFTA) is a bold strategy with the potential for substantial rewards. Costs (product, shipping, duties and taxes) and time saving in the supply chain are reduced significantly for a more competitive edge.
Companies should be well-informed about the customs and tax regulations in each Southeast Asian country where they operate. Leveraging preferential trade agreements, can significantly reduce the impact of high customs duties and import taxes.
AFTA plays a pivotal role in bolstering trade and manufacturing across all ASEAN nations while simultaneously acting as a catalyst for promoting economic integration with our regional and international partners.
In conclusion, the Southeast Asian automotive aftermarket parts industry confronts notable hurdles such as depreciating regional currencies, escalating shipping expenses, and high customs duties and import taxes. To prosper in this dynamic environment, it’s important for businesses to proactively embrace strategies that address these challenges. By doing so, stakeholders can strategically position themselves for success in this promising, and competitive market.
