The emergence of the aftermarket as a technology industry and tailwinds ahead
Editor’s note: The following is excerpted and adapted from the opening address and industry update, “The Long View: Why Be Positive About the Aftermarket,” by Bill Long, AASA president and COO, at the BB&T Capital Markets 8th Annual Automotive Aftermarket Conference, June 2, in New York.
New York—Of the key reasons to be positive about the aftermarket moving forward, the first is the economic impact of the automotive supplier industry: It is the driver of 734,000 direct jobs and 3.6 million total jobs, making it the largest U.S. manufacturing employer.
The U.S. aftermarket represents a $238 billion opportunity and is forecasted to show continual, steady growth. Globally, the aftermarket – including light, medium and heavy duty on and off-highway vehicles – offers an additional $600-plus billion parts opportunity.
In the U.S., average vehicle age – a primary aftermarket driver – continues to grow and is currently at 11.5 years. Unemployment is returning pre-recession levels, helping to drive motorists’ demand and driving habits. Gas prices may be reaching a new normal, leading to miles driven levels exceeding pre-recession milestones. There is still pent-up demand for vehicle maintenance and repairs – the 2015 AASA Automotive Aftermarket Status Report estimates unperformed maintenance at more than $66 billion.
Today the automotive industry is a high-tech industry and is sought out by software companies and developers. Innovation, new technology products and safety systems are being developed within the supplier community that is transforming the vehicle as well as mobility. It is no longer associated with “the old economy” as perceived by some just five years ago. It is a global growth industry, both profitable and innovative.
Advanced driver assistance systems (ADAS) will result in greater supplier content and professes to allow more driving by older motorists than ever before. At the same time, the improving economy put to rest the myth of the anti-automotive Millennial generation – Gen Y’ers who have jobs get cars, and they like connected cars.
Cars have now become the hot growth area in consumer electronics. A more connected car could lead to an increase in key business drivers for the aftermarket through increased awareness of:
Failure — replacement rates and location information for better demand forecasting
Prognostics that alert motorists, service providers, distributors and suppliers of pending failure
More end-consumer awareness of maintenance needs allows the industry to benefit from the increased maintenance performed.
The industry must remain mindful of the following areas of uncertainty or concern:
While the aftermarket is poised for growth, 80 percent will come from price as reported in the Joint Channel Model Forecast by IHS, AASA and the Auto Care Association. Real growth is forecasted to be 1 percent or less.
Replacement rates are declining as a result of new technology, reducing trips to service providers.
Cybersecurity, data privacy and decisions made by regulators could pose threats to the aftermarket.
The threat of rising interest rates and the unique-to-industry practice of reverse-factoring and extended terms exposes the industry to threats in the credit cycle.
The continued trend of declining inventory turns at the distributor level and the massive amount of field inventory, enabled in part through factoring, also creates industry exposure.
Transformation is also taking place in the do-it-yourself (DIY) and do-it-for-me (DIFM) sectors as a result of the strategic shifts in vehicle technology. DIFM and the independent service provider segment is projected to grow but not at the same rate as OE service outlets.
While there are areas of concerns – disruptive technology, connected cars and telematics, increased regulatory intervention – they also provide opportunities for growth and profits. Opportunity exists for a new level of customer collaboration to create real and sustainable growth. Innovation and differentiation, both in products and services, must be the drivers for increased profits. When all things are equal, price rules the day.
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