This article is reprinted from: 36Kr

By | Special Observer Zeng Wangui

Editor | Huang Zhenyao

Inherent Deficiencies in the Industry

China is a market for all nations' vehicles, with over 100 car brands, 1,600+ vehicle series, and over 200,000 vehicle models, resulting in a complex aftermarket with millions of SKUs and tens of millions of data matching relationships.

Broadly speaking, the automotive aftermarket refers to the demands and services derived from various post-sale stages after consumers purchase a vehicle until it is scrapped, including automotive finance, maintenance and repair, used cars and other subdivisions.

According to data statistics, as of 2018, China's automotive aftermarket had reached a scale of 1.3 trillion yuan, with approximately 300,000 upstream suppliers and 500,000 downstream repair shops in the entire industry chain. However, despite this enormous scale, no distributor has yet achieved a market share exceeding 1%. Throughout this long supply chain, services rely almost entirely on manual labor, with every step from inventory management, inspection, shipping, and delivery heavily dependent on offline personnel. Auto parts is an extremely complex and specialized field, and without experience and professional knowledge, it is difficult to enter. Therefore, the "master-apprentice mentorship model" has become the talent development model in this industry. The low cultural level of practitioners and the industry's inherent deficiencies have led to several problems in the aftermarket:

• Fragmented market, multi-level circulation, and low industrial efficiency

Lack of standardization and normalization across all levels

A market for standards from all nations, and the "language" and standards of upstream and downstream differ. uses precise numerical language to define components, while downstream uses vague textual language. Given the enormous SKU volume, the complexity can be imagined. This is just one aspect; the entire supply chain lacks unified standards for product, service, and process specifications, let alone standardized operations.

• Heavy reliance on manual labor, low efficiency, and poor service experience

Slow capital turnover and high financial pressure at all levels

People say "auto parts dealers" make money, but the money is basically in othersockets and warehouses—providing customer credit terms and inventory. Both upstream suppliers and downstream repair shops are numerous and vary greatly in scale. Banks have difficulty providing credit, and most enterprises face enormous financial pressure.

Urgent Search for Online Transformation

Every industryd enterprise has its own development bottlenecks. For traditional aftermarket parts dealers, production capacity bottlenecks are particularly evident come from the parts business and have worked in this field for over 20 years, personally experiencing the bottleneck period. It is extremely difficult for parts dealers to develop further once they hit a bottleneck—this is an inherent industry problem.

In recent years, influenced by the internet, parts dealers already in a bottleneck period have fallen into anxiety about finding a way out, surviving, and transforming to break through.

Starting from 2018, the overall vehicle market experienced its first sales decline in 20 years. Production capacity from the end has shifted to the aftermarket, intensifying competition on the supply side. A vehicle has over 10,000 components, backed by a massive global supply chain system. China is not only a major vehicle producer but also a major auto parts producer and exporter. The pandemic has disrupted exports for parts dealers relying on foreign trade, forcing them to convert capacity to the domestic market, further intensifying upstream competition.

"When it rains, it pours." Parts dealers were already anxious,d with added pressure from the overall vehicle market and manufacturing sector, the sudden pandemic may have caught upstream players off guard, pushing them to the brink of a "multi-pronged attack" survival crisis.

After the pandemic outbreak in January with lockdowns and road closures, most parts dealers' business was severely disrupted, with inventory backlog, logistics halted, and difficulty in resuming operations. En shops unable to obtain goods from parts dealers for various reasons gradually turned to online platforms. Personnel, business, and services increasingly moved online, and the transaction and service experience on online e-commerce platforms improved continuously. Traditional parts dealers became increasingly sensitive and urgent about online transformation.

Breaking Through the "Internetization" of the Aftermarket

Industry competition intensified, the market shrank, and the pandemic became an accelerator for aftermarket transformation. Enterprises either face direct elimination or seek transformation, leveraging the internet and digitalization to improve efficiency, reduce costs, and build sustainable long-term businesses-align-justify">Whether manufacturers, dealers, end repair shops, or vehicle owners, every link can be effectively connected through internet platforms. Through the internet, enterprises can achieve information, connect upstream and downstream, and improve supply chain transaction and management efficiency.

From an industry perspective, how can the automotive aftermarket achieve internetization and digitalization after the pandemic to better transform, upgrade, and improve efficiency?

In March this year, the government provided clear and support for "new infrastructure" from a policy perspective, which is a very positive signal, especially for industrial internet. For the aftermarket, industry infrastructure construction is truly the key to solving industry inefficiency and backwardness, thereby improving supply chain efficiency, service quality, and customer experience.

(1) Integrate databases, no more "talking past each other"

Auto parts is a very down-to-earth industry whereargon and colloquialisms prevail. Different people may use different names and definitions for the same component, creating a strong industry demand for data standardization. Auto parts data includes VIN code rules, encoding, product attributes, maintenance rules, etc. Each player has its own set of "data language." Dealers and upstream manufacturers cannot connect their data, and communication with downstream end repair shops is often "talking past each other." These barriers have formed over time. To crack this "hard bone," an industry-recognized standardized data language must be established.

Once standardized language is established, the most basic empowerment is improved transaction efficiency between upstream and downstream. For example, when a database contains sufficiently large component data, the traditional manual inquiry and quotation process will be completely replaced by intelligent systems. Through precise identification, matching, and standardized "translation" of component data, the accuracy and efficiency of component SKU queries and procurement are improved from the root. Currently, Baturu's database contains over 500 million data matching relationships. The most direct value is solving intelligent matching relationships between massive SKUs, vehicle series, models, and components for customers making batch inquiries and quotations. Prices that previously took half a day to collect and quote can now be provided by the system in seconds, with a quotation rate of 98% and a data error rate below 0.02%.

The deeper value of auto parts data is empowering each link in the supply chain. When data is truly used uniformly across horizontal and vertical dimensions within the industry, it becomes true infrastructure.

(2) Online information systems supporting closed-loop transactions and services

The aftermarket will inevitably develop toward internetization and digitalization—this is the trajectory of both the era and industry development. Through information systems (tools) connecting manufacturers, suppliers, service providers, and repair enterprises, information flow, product flow, logistics, and capital flow are integrated, achieving multi-flow integration and closed-loop transactions. Every service node in the chain can achieve interconnection and online intelligent operations, reducing information silos in transactions and services, thereby achieving integrated management of the entire supply chain.

The traditional auto parts procurement model has customers submitting purchase requests to parts dealers' salespeople via phone, WeChat, or QQ. Upon receiving requests, salespeople manually check inventory, pick goods based on sales orders, then package and coordinate logistics for shipping. For a small or medium-sized parts dealer, typically 6-7 salespeople handle quotations and orders. When this entire process is supported by a system and fully online, the process transforms: end customers submit batch inquiries and quotations through mobile apps, the system automatically provides instant quotes, identifies central warehouse inventory, and simultaneously coordinates logistics for order placement, picking, and shipping.

With traditional offline ordering, a salesperson can handle at most 100 orders per day. With systematization, one salesperson can handle 300-400 orders daily, conducting nearly 2 million additional business per month.

Especially during the pandemic, online information system connections minimized the impact of personnel, time, and physical space barriers on transactions and services.

(3) Smart warehouse and distribution improving logistics

Online auto parts transactions are one aspect; offline delivery and service are equally important. Traditional parts dealers manage warehouses entirely manually, with distribution relying basically on third-party logistics. Difficult warehouse management and logistics control result in extremely low turnover efficiency.

For most merchants, lacking inventory management capabilities, very few enterprises can establish warehouses in hundreds of cities nationwide to achieve door-to-door or same-city delivery.

Integrated smart warehouse and distribution combines storage, picking, packaging, and delivery functions, simplifying product logistics, shortening delivery cycles, improving logistics efficiency, promoting seamless business process integration, and reducing logistics operation error rates. Additionally, fewer cargo transfer steps mean lower logistics costs.

In smart warehouses, a series of automated logistics equipment—including conveyor sorting systems, automatic product identification, logistics software, sorting robots, etc.—replace previously manual operations. After the central warehouse logistics and platform information flow and capital flow automatically receive orders, information is synchronized, automatically sorted, and dispatched.

In the future, warehouse scope and extension will continuously expand: nationwide super-regional central warehouses + merchant warehouses + forward-positioned or community warehouses combined, with integrated distribution through self-built or third-party logistics.

(4) Optimizing the last mile

Aftermarket full-vehicle component transactions are complex, low-frequency scenarios requiring high service and technical support. How can we improve efficiency and service experience when leveraging good data and system tools while facing massive SKUs and transaction uncertainty?

We believe that through standardization + intelligentization + digitalization, using big data analysis to forward-position high-frequency full-vehicle components and wear parts locally, and further forward-position ground-level services, optimizing the last-mile service experience for customers is key to improving offline service efficiency and experience.

"Service" is the core in the aftermarket.

Forward-positioned stores are forward-positioned warehouses from a merchandise perspective, positioning high-frequency and wear components to meet customers' immediate needs. From a service perspective, they are service providers where customers' all issues are handled by local chain stores coordinating market development, product distribution, after-sales support, and technical support. The newly upgraded Baturu chain store brand this year is being implemented in practice, continuously forward-positioning products and services.

Beyond infrastructure refinement, leveraging the internet and information systems to build good service quality and standardize transactions and services is another path to changing the traditional automotive aftermarket's fragmentation, chaos, and inefficiency. In the future, the industry will gradually achieve product data standardization, business process standardization, service process standardization, etc., making standardization and normalization building industry consensus.

Industrial internet differs from consumer internet in that it requires all industry links to first digitalize before digital interconnection. Improving efficiency in just one link while other participants remain unmoved ultimately proves futile.

Business is difficult this year; external market space shrinks continuously, making internal operational improvement increasingly important. Aftermarket enterprises must learn to use internet and digitalization systems and tools to eliminate previously backward practices through advanced systems and tools, increase revenue while reducing expenditure, improve efficiency, recover money that should rightfully be in their pockets, and avoid wasting money.

Crouch Down and Sink In

The nature of industrial internet determines that the aftermarket is an industry requiring long-term strategic planning. It cannot be achieved merely by building a platform or transforming one link; rather, one must crouch down and sink in, deeply engaging in every aspect of industry development to apply new technology and find paths truly elevating industry development.

Due to its enormous scale and size, the aftermarket inherently has numerous problems. Each small problem might become a major issue in other industries, requiring even more patience to become a "long-term advocate" for the industry, truly improving aftermarket transaction and service standardization and intelligentization, rather than merely pursuing short-term sales, performance, and financing.

America's large vehicle ownership and high vehicle age have catalyzed rapid aftermarket development. However, the American aftermarket has complete auto parts data, standardized industry norms, obvious market concentration and scale development among leading enterprises, and they expand business systems through mergers and acquisitions.

China's automotive aftermarket is currently in an accelerated transformation period, unlike America's aftermarket which has formed a stable market pattern and mature supply chain system represented by AutoZone, Advance Auto Parts, O'Reilly, and Genuine Parts. The four major chains occupy 30% of America's aftermarket share, establishing extensive infrastructure with high concentration and integration. According to 2019 financial reports from America's four major auto parts chains, all four achieved revenue growth in 2019, with AutoZone's net profit margin reaching 18.72% and operating revenue exceeding 10 billion dollars.

America's aftermarket today's standardization, digitalization, and scale development offers valuable reference for China. As the world's largest vehicle-owning nation, China's current vehicle age is far below America's. As vehicle age continues increasing, information technology improves, and industry scale expands, the aftermarket will have even greater development potential.