More Parts, More Parcels: As Car Sales Fall, Auto E-Commerce Grows

The automotive industry is facing serious upheavals. In this QAD Precision Report we look at these challenges and how e-commerce is a growing market for automotive OEMs.

Even before the impact of the global coronavirus pandemic, the automotive industry had been facing significant disruption in the past few years. These include electric vehicle start-ups, changes in regulations, globalisation and the tendency for consumers to replace car parts instead of purchasing new vehicles.  

Electric vehicle (EV) technology — and the increasing consumer adoption of greener alternatives —  has begun to make serious inroads into the automotive market. The biggest name here is, unsurprisingly, Tesla. In June and early July, Tesla’s stock soared and the EV maker is now the most valuable car manufacturer in the world. The total cost of ownership is lower for EVs than their internal combustion engine — or ICE — counterparts. As a result, EVs are being considered as suitable replacements for taxis, police vehicles and corporate fleets.

ICE manufacturers in the European Union have a second green challenge to contend with — Regulation (EU) 2019/631. This regulation sets a CO2 emissions target of just 95 g/km across the fleet of new cars and light commercial vehicles sold in the EU from 2021. A year and a half ago, the average EU fleet had an average CO2 emissions measurement of 120.4 g/km. Reaching the 95g/km is certainly a challenge. Manufacturers responded with mild-hybrid, PHEV, BEV and regenerative hybrid systems that should reduce C02 emissions in traffic. And then came Covid-19. 

The Impact of Covid-19 on Car Manufacturing and Sales

As the global coronavirus pandemic spread, car manufacturing facilities around the world shut down or were temporarily suspended. In March, many of Europe’s biggest automotive manufacturers, including Fiat Chrysler, Jaguar Land Rover, Volkswagen and Peugeot halted or reduced operations in response to the outbreak. The situation was similar in North America. By early April, Covid-19 had shut down 93 percent of US automotive manufacturing.

The fallout from the pandemic continues. This week, Jaguar Land Rover announced plans to cut 1,100 agency jobs. JLR, the UK’s largest automotive company, lost £500 million (approximately $627m) in three months due to production stoppages and closed car showrooms.

As JLR illustrates, the coronavirus pandemic hit automakers in ways other than halted production — namely the shutting down dealerships, which negatively impacted sales. The pandemic slowed showroom traffic as people responded to “shelter in place” and “stay at home” guidelines. In addition, many countries closed dealerships as “non-essential” during the stricter phases of lockdown. Car dealerships responded by leveraging technology, such as virtual tours, and videos.

Despite these innovations —many of which are likely to continue post-pandemic — high unemployment rates, prolonged furloughs and economic uncertainty has also impacted sales. Simply put, in difficult economic times, people are less likely to spend money on new cars. J.D. Power, the car review and automotive data company, reported that car sales fell 59 percent. 

Consumers Have Older Cars, But Modern Shopping Habits

That consumers are reluctant to part with money for new vehicles long predates the Covid-19 crisis. In 2019, the average age of cars and light trucks on the road reached a record high of 11.8 years. To put that into perspective, in 2002, the average vehicle age was 9.2 years.

While people may be waiting longer to buy new cars — a trend that is likely to continue due to the economic toll of the pandemic — they are certainly purchasing replacement parts in order to keep their vehicles on the road. Here automotive OEMs are facing another challenge — the impact of e-commerce.

E-commerce has upended the traditional parts distribution model. Instead of purchasing parts from a dealership, car owners are turning to online marketplaces such as Amazon, eBay and Alibaba, or even classified advertising platforms such as Craigslist to buy replacement parts. 

Although the pandemic negatively impacted the online auto aftermarket sales as well as new car sales, this market is in good shape and almost certainly set to grow. In the US in March, online sales of original equipment manufacturer (OEM) auto parts plunged up to 39 percent, however, sales figures began to recover in mid-April. 

Furthermore, this is a market that is steadily growing. The US online market for aftermarket replacement parts is forecast to reach $19 billion by 2022. In Germany, online shoppers spent over €1.6 billion on car and motorcycle parts in 2019, up from €1.2 billion in 2016. 

Automotive OEMs and Globalization

Some car owners will always choose to replace parts with originals. Others will opt for generics — particularly if the price and delivery windows makes this option significantly more attractive.

Automotive OEMs have responded to these trends by increasing their e-commerce operations, particularly the need to ship more parts with express carriers. However, this can be a challenging pivot for companies that have traditionally relied on freight shipments.

A further consideration is that automotive OEMs are not just sending more parcel shipments — they are servicing customers in a larger number of countries than ever before. The automotive industry has become global in nature. Car sales in the so-called BRIC countries — Brazil, Russia, India, and China — grew from just under 11 million cars in 2005 to over 34 million vehicles in 2019. Last year, consumers in one of the BRIC countries bought four out of every 10 new vehicles sold.

Getting to Grips with Automotive OEM E-Commerce 

Not that long ago, automotive OEMs and aftermarket parts supplies sent large freight shipments of parts to distributors. These distributors were responsible for moving these parts to repair shops and customers. However, online automotive parts sales are becoming a more important channel for auto manufacturers. As a result, manufacturers increasingly need to send smaller numbers of shipments to individual customers as well as repair shops. 

These shipments can be time-critical, particularly if a revenue-generating vehicle is off-road and waiting for parts to arrive. Rapid delivery is important here, meaning an express shipment is necessary.

Transportation management solutions designed for freight shipments are not optimized for express shipments. Logistics managers and IT teams at OEMs have had to get creative, often cobbling together a solution to manage parcel shipments.

However, as parcel and express shipments become an increasing part of an automotive OEM’s transportation mix, these kinds of ad hoc solutions become increasingly inefficient and expensive to maintain.

Global manufacturers with multiple production facilities and customers in hundreds of countries therefore need transportation solutions in order to service all these customers, wherever they are. 

How QAD Precision Help Automotive Manufacturers

QAD Precision works with the world’s largest OEMs and aftermarket parts suppliers, including two of the Top 5 manufacturers of heavy-duty trucks. We help automotive OEMs and aftermarket streamline and simplify global and domestic shipping operations.

QAD Precision offers a range of solutions that help automotive OEMs and aftermarket parts suppliers streamline their global trade and transportation operations. These include our global multi-carrier, multi-modal Transportation Execution solution; Delivery Exception Management, for 360 degree visibility into all shipments with all carriers, along with exception alerts; Export Management automate export processes, documentation production and customs reporting; Restricted Party Screening to verify vendors and trading partners; as well as Import Management and Free Trade Agreement solutions to optimize trade operations, improve visibility and control, and help manufacturers remain in compliance.

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About QAD Precision – Trusted Global Trade and Transportation Execution

QAD Precision, a division of QAD Inc., provides industry-leading global trade compliance, and multi carrier transportation execution solutions from a single, integrated platform. An ISO-certified company, QAD Precision assists companies to streamline their import, export and transportation operations, optimize deliveries, and increase logistics ROI. QAD Precision’s scalable and extensible solution easily integrates with existing ERP and WMS solutions. Industry leaders in every region of the world rely on QAD Precision’s global support centers to leverage thousands of carrier services and manage millions of global trade and shipping transactions every day. For more information about QAD Precision, visit www.qadprecision.com.