Alibaba accelerates into car spare parts sector

Alibaba Group Holding Ltd is elbowing its way into the car spare parts and supply chain market by forming a new joint venture with a local firm that it hopes will become the "unicorn" of the country's emerging automotive aftermarket.

The internet giant, which tapped into the auto sector almost four years ago, said late on Wednesday that it will team up with Zhejiang Jingu Co Ltd, a vehicle parts supplier to the likes of General Motors, Volkswagen and Ford, to raise China's auto service level.

Under the agreement, Alibaba, the largest shareholder, will inject an undisclosed amount in the new entity, while Jingu will consolidate its subsidiary supply chain vendors, known as Carzone and Qccr, the parties said in a news release.

Thanks to the tie-up, over 80,000 auto spare parts vendors stand to benefit from a massive digital upgrade, where bar codes will be attached to a selected number of core spare parts and allow users to scan with their mobile phones for source tracking and authenticity verification.

Boasting nearly 600 warehouses scattered across the country, the new company promises to deliver vehicle parts to some 70,000 car repair shops in 30 minutes within a radius of five kilometers.

The auto aftermarket are providers of vehicle spare parts and classic auto repair and maintenance services. According to market research firm Ipsos, the average age of vehicles in China is expected to reach five years by 2018.

This marks a threshold year, based on international experience, that is likely to witness exponential growth in the aftermarket segment. Ipsos estimated that the market in China will enjoy a compounded annual growth rate of 12.7 percent from 2015 to hit $214 billion by 2020.

E-commerce is poised to become a "game changer" to the traditional brick-and-mortar franchise model, according to Markus Scherer, a consulting director at Ipsos who led a study on China's auto aftermarket.

"Consolidation and standardization will take place in the short to mid-term through the proliferation of e-commerce platforms ... business-to-customer e-commerce presents high growth potential, especially for on-demand maintenance products and auto accessories," he said.

Such estimates were echoed by the latest report from global consultancy Accenture, which pointed out that invisible service－frictionless aftersales driven by digital means－is something most drivers are willing to pay for.

Ideally, customers can switch to their service with a swipe via an app on the phone or through cars, said Ben Wang, managing director, Accenture China automotive lead.

"Aftersales should not be 'afterthoughts' for customers looking for service. They need to be top of mind, instead of having passive online sites that only provide information during opening hours," he noted.

Wang also pointed to the importance of data, which can open up opportunities for predictive maintenance, just-in-time repair and a more satisfied driver.