After Hardware Shipments Drop 28% in 2020, Automakers Look to Niche Applications for the Aftermarket's Lifeline

Sales and revenues in the aftermarket for automotive applications have been threatened by almost ubiquitous OEM embedded systems, free smartphone applications that replace automotive hardware (e.g., Waze), and inadequate retail strategies. After a drop of 28% in 2020, fostered by the COVIID-19 pandemic, aftermarket hardware shipments will grow by only 12% until 2026, finds global tech market advisory firm ABI Research.

"The aftermarket landscape is undergoing a transformation. Multi-application devices struggle to deliver value to the consumer and are dying out, giving place to low-cost dedicated hardware that fulfills niche customer requirements not addressed by OEM embedded systems or smartphones. Naturally, niche applications have a lower market opportunity. Thus, the aftermarket will experience market shrinking in the coming years, with more favorable circumstances in emerging economies,” explains Maite Bezerra, Smart Mobility & Automotive Research Analyst at ABI Research. “With the dire projections, a portion of the market will stop shipping hardware to become Telematics Service Providers (TSPs) instead, specializing in data crowdsourcing and selling data to B2B players via data marketplaces, especially in Europe with the Extended Vehicle Concept."

Stolen vehicle tracking solutions, which accounted for 51% of aftermarket connections in 2020, vary from vehicle recovery-related services only, coupled with other telematics services, or associated with an insurance policy. They have the highest adoption among all aftermarket connected car applications and are perfectly suited for countries with a unique combination of a growing economy and high theft rates, such as Brazil. The application is expected to reach 88 million subscriptions by 2026.

Consumer infotainment devices accounted for 32% of all aftermarket subscriptions and all aftermarket shipments in 2020. Unlike UBI and stolen vehicle trackers, these solutions are mostly sold via MNOs channels, such as AT&T, T-Mobile, and Verizon, and are easier to sell as they can be integrated into existing clients' data plans for a small monthly added cost. Nevertheless, shipments are in decline due to the increase in smartphone apps and embedded systems. 

Insurance telematics made 17% of all aftermarket connected vehicle subscriptions in 2020, with a flat growth from 2019. A timid and steady rise will perpetuate in the next years because the UBI segment is yet to achieve maturity. While TSPs such as Octo Telematics and IMS use their data analytics expertise to offer insurers tools to improve driver behavior, insurers' business models lack the required level of customer engagement to secure customer loyalty, resulting in unsatisfactory ROI.

Despite the challenges, there are opportunities in the aftermarket, especially concerning data monetization. There is a consensus that valuable driving and driver data generated from diverse data collection methods are not being used to its full potential to generate new revenue streams. Apart from notable examples such as Arity, most TSPs and insurers are still very traditional and lack the marketing approach required to create solid business models. “The transformation of the data collected into actionable knowledge that delivers value to the final consumer or increases profit, such as accurate customer churn prediction or data-driving cross-selling, is the main industry challenge. Moreover, dedicated solutions for underserved players in the value chain, such as keyless services for dealers that enable contactless test drives of vehicles pre-selected online, are a profit-making opportunity," Bezzera concludes.

These findings are from ABI Research's Automotive Aftermarket Technologies and Business Models application analysis report. This report is part of the company's Smart Mobility & Automotive research service, which includes research, data, and analyst insights. Based on extensive primary interviews, Application Analysis reports present in-depth analysis on key market trends and factors for a specific technology.