MOTUS AFTERMARKET PARTS: The Right Reaction Drives Global Growth

sudden emergence of the Covid-19 virus in 2020 and its seemingly unimpeded march across the world brought unprecedented changes to businesses worldwide. Within months, regular trade was being held hostage by the virus. In the face of draconian regulations and government interventions, the availability of raw materials stuttered and then stopped. The multiplier effect soon saw production capacity failing and distribution channels becoming clogged and closing.

Seemingly overnight, businesses around the globe that had relied on international suppliers for raw materials and products found themselves dealing with a reality in which the world’s manufacturing powerhouses, including China, were unable to meet their commitments for an extended period. 

As pointed out by Malcolm Perrie, CEO of Motus Aftermarket Parts (MAP), the emphasis moved almost immediately from ‘business as usual’ into crisis management mode, the focus from growing business to consolidating it and then adapting strategies to identify potential areas where MAP could still make market gains.

MEETING CHANGED DEMAND FOR PRODUCTS

The challenges presented involved developing approaches that would satisfy the needs of a diverse market requiring the original equipment and generic brands distributed by the company.

In addition, MAP had to grapple with issues involving demand for its accessories and tools products for the ‘Do it Yourself’ and ‘Do it for Me’ markets. Both these segments, which rely on the discretionary disposable income available to customers, faced falling demand from buyers forced to conserve their incomes.

The response by MAP, says Perrie, was to examine its business critically. This introspection included examining local operations and the benefits of its looking internationally for growth opportunities, driving volumes through centralised distribution and exploring alternative supply chain options.

In South Africa, coping with the pandemic has realised some hidden benefits. MAP has found that it can operate remotely with staff operating from home and with only employees working in warehouses and frontline retail positions being needed at their usual places of employment. A rethink about working roles has also sparked investigations into the necessity of retaining some rented office space. 

MAP has survived the vagaries of the Covid-impacted market and is now back on solid financial ground. Although lost sales can never be recouped, the emphasis now is on moving forward and identifying new opportunities.

NEW DIRECTIONS

Using its other strategic focus points, the company has taken several innovative steps that Perrie is confident will ensure a buoyant future for MAP. Plans include benefitting from economies of scale by driving volume through a central distribution centre (CDC) in Shanghai, China, and acquiring a UK-based business with exposure to the European market. 

Perrie views investment in Shanghai as a logical development and does not share the concerns of some business leaders who are wary of potential future supply chain issues emanating from China.

The MAP Chinese footprint will remain important as there is little doubt that China will strengthen its output of automotive products in the long term. MAP’s faith is reflected by the establishment of its warehouse in Shanghai.

The Motus Trading Shanghai (MTS) facility will be central to MAP’s strategy of increasing volume throughputs and enabling the company to develop markets it can supply elsewhere in the world. A wholly owned Motus subsidiary, the distribution hub, established in collaboration with a foreign investment company, is located in a free trade zone in the Port of Yangshan.

Although there were some constraints, including funding and borrowing requirements and transfer pricing attached to the MTS deal, ultimately, China and MAP benefitted from relocating the central distribution facility from Johannesburg to Shanghai, says Perrie.

ACQUIRING ‘LIKE-MINDED’ BUSINESSES

Supplementing this drive by acquiring qualified businesses with similar product profiles to MAP that will spur volume growth, improve pricing, increase profit margins, and enhance competitiveness recently became a reality when MAP made a strategic investment in FAI Automotive.

The UK-based company, which has much in common with MAP, is a brand leader in the automotive parts distribution aftermarket. It has an annual turnover of about £35 million. It operates primarily in the UK and in established European markets from which it draws about 50% of its customers. Countries of operation include Poland, the Czech Republic and Russia.

Central to MAP’s acquisition strategy is the belief that businesses should be bought to exploit synergies and add value rather than to be restructured. The factors that MAP examines when assessing a purchase are whether there are opportunities to expand product portfolios, increase supply chain, improve logistics, and where new market opportunities can be found.

FAI illustrates this approach as the entire management team has been retained, and their strategy remains in place. The emphasis, says Perrie, is how both MAP and FAI teams can leverage off the operational strengths of both businesses, including the emerging market expertise of MAP.

INDUSTRY ISSUES

Turning to broader industry issues, Perrie comments that the immediate aftermath of the pandemic will only be entirely ascertained when the virus is no longer a threat to people and business.

However, several issues impacting business have been identified and still have to be measured and solved. They include a lack of shipping containers to cope with resurging production volumes, containers resting in the wrong ports, and limited shipping lanes out of China that has caused costs to escalate.

Compounding these problems is Chinese concern about environmental issues that have seen some factories compelled to reduce outputs.

THE FUTURE FOR AFTERMARKET PARTS IN SA

In South Africa, the aftermarket parts industry is still dominated by importers. However, with about 12.7 million vehicles in the country, there is still room for agile local players to grow their customer base and contribute to an industry that is crucial to South Africa’s economy.

As long as vehicle numbers in South Africa increase, there will be demand for parts, states Perrie.

As the industry serves both the new and used car sectors, demand remains reasonably steady, making it exempt from the factors that can occur and result in parts of the automotive market being subjected to cyclical changes.  

With the world moving away from fossil fuel-powered vehicles, the MAP product range may ultimately require some adjustment. However, the days when electric vehicles dominate the roads are still far off and are not of immediate concern to the company, says Perrie.

He points out that with about 700 million traditionally powered engines globally, it will be some time before they vanish entirely. Adoption of new technologies will be driven mainly by legislators who will ultimately dictate how rapidly the change to electricity occurs.

It is also unavoidable that change in some countries will lag others. New export markets will flourish when petrol and diesel-driven vehicles become redundant in some countries. The result will be an explosion of cheap cars being exported to less-developed markets in  Asia, Africa, and elsewhere worldwide.

Even though the motor manufacturers project 2030 as the year when internal combustion engines will stop rolling off production lines, seeing traditional cars vanish altogether could take up to 20 years. Eventually, however, concedes Perrie, the time will come when MAP will begin changing its offerings.

When it does happen, he says, the company will be ready.