Automotive parts suppliers and aftermarket companies are next in line to benefit from the growth of the Chinese car market as the first generation of Chinese-owned cars head for the repair shops, according to a report from KPMG.

While car sales growth has finally begun to slow, several years of rapid growth have resulted in a sizable car parc which requires care and maintenance.

A compound annual growth rate (CAGR) of 17.6 per cent is now expected for the Chinese aftermarket and accessories segment.

The latest KPMG report on the state of the Chinese automotive sector reports on this shift in focus in the context of an overall Chinese car parc which KPMG expects to increase from 28.4 million units in 2004 to 116.9 million in 2020.

It also reports on a used car market which – although still small – should grow with an estimated CAGR of 20 per cent until 2010, helping fuel the replacement demand for aftermarket parts.

Mike Steventon, head of automotive at KPMG in the UK, said: "As well as the initial growth spurt in the Chinese car market – which effectively created the current car parc virtually from scratch thanks to several years of double digit growth – there are four key factors driving the growth of the aftermarket segment. They are a rapidly aging car parc, strong sales of small cars which create a higher demand for accessories, the emergence of the used car market and improved quality and reliability of distribution channels.

"China’s aftermarket and accessories segment is still small, compared to that of other overseas markets. By 2004, China’s aftermarket had a sales value of $3.2bn (£1.9bn), accounting for less than 10 per cent of the total parts segments; a fairly small percentage compared to the 60 and 40 per cent registered by the US and Germany respectively. That is likely to soon change, however, with more parts manufacturers turning their attention to the aftermarket to diversify earnings, improve margins and to sustain sales growth."

Leveraging China’s cost advantages to become part of the global supply chain for OEMs and parts manufacturers now appears a distinct possibility, according to KPMG, especially as many companies have been investing significantly in technology to help enhance their product quality levels, allowing them to become more competitive over time in the more high-tech, sophisticated end of the market.

Steventon said: "It’s not that long ago that parts manufacturers would have simply ignored the aftermarket, dismissing it as too small and bedeviled by knock-off parts. Now however, we even have foreign players such as Bosch and AC Delco taking much more of an interest in the segment. We also have the prospect of China becoming a major parts exporter. It is already the fifth largest supplier of auto parts to the US and is experiencing 30 per cent growth in its export volumes.

"The upswing in car sales growth was sudden and explosive. Now that this has abated, several other auxiliary services need to be developed rapidly. Car finance is the obvious one and is expected to offer huge potential in the long term, with GM, VW, Daimler Chrysler and Toyota all having established their own auto financing companies."