Consumers trend toward higher quality products over price; vehicle age remains ripe
Las Vegas—The automotive industry’s market is performing, on average, better than the majority of other markets, experiencing growth where others have remained largely flat, said David Portalatin, of The NPD Group Inc., during a presentation at AAPEX, in Las Vegas.
“There’s a positive outlook for the aftermarket and it’s headed in the right direction,” he said. “The American driver now is divided between new and old vehicles, and there are unique opportunities around each one. Businesses should be asking themselves which opportunity is best for them and how they can leverage it. Today’s consumer is motivated to extend the life of their vehicle by investing in its care and regular maintenance.”
Portalatin discussed consumer and industry trends for 2016 that will continue to influence sales for the foreseeable future.
As of July 2015 numbers, miles-driven has reached 65 billion miles annually, which is higher than the previous pre-recession apex, and continues to grow, largely due to low gas prices, he said. “The U.S. consumer has bought 4 percent more gallons in 2015 than in the previous year, but has spent nearly $100 billion less to get it. Some of those savings are being placed toward car care, because consumers are realizing a return on investment and there’s opportunity to capitalize on that.”
In 2014, miles-driven increased by 1.8 percent, and 2015 numbers are anticipated to increase 3 percent. “We’re expecting that rate to continue in 2016, but at a slightly slower pace.”
Premium products on the uptick
Consumers today are changing the way they define value, and there’s increasing evidence that value is less about the lowest price and more about ROI. “In the automotive products world, there are numerous examples of consumers willing to pay a little more for higher quality product that will last longer, extend vehicle life, or perform better, which are all tangible improvements in the consumer mindset,” Portalatin said, adding that quality of materials, improved gas mileage and engine performance are metrics that have scored higher in consumer surveys in 2015 than the previous year. “Not only has a higher value on premium products taken root, but it’s also continuing to grow, and it’s holding true in maintenance categories, fuel and oil additives, and accessories.”
Examples of popular premium products are wiper blades, synthetic motor oils, spark plugs, air and oil filters, and full synthetic heavy-duty oil. “Heavy-duty oil is a small market, but it’s growing in general as more diesel platform vehicles are being targeted to consumers,” he said. “If you want to grow faster than everybody else in the marketplace, then focus on premium differentiation.”
He noted, however, that the longer-lasting premium products will “permission” consumers to extend their maintenance intervals, which is part of their ROI. “We have to be smart as an industry in finding the proper balance between volume creation and value creation. Business plans moving forward should examine the optimal point for growing the top-line dollars through a premium-priced differentiation, but, at the same time, not sacrificing too much volume.”
New car sales for 2015 are projected to be approximately 17 million (2016 predictions are still strong, though less robust), which typically is not greeted as good news in the aftermarket regarding service opportunities. But Portalatin said there are opportunities in retail.
“We’re starting to see positive growth in the appearance accessories, which are up 6.3 percent in 2015,” he said, adding that appearance chemicals are up 4.3 percent. “That might not sound like a large number, but looking back at the data from six to eight years ago, appearance chemicals were in the red. New car owners are clearly intent on keeping their cars looking good.”
When it comes to consumers buying used cars, there has been a shift toward older cars in the 10-year-old range, as manufacturing has gradually improved and they are lasting longer, Portalatin said. “People are willing to invest in them. The consumer has figured out that as long as they take care of their car, they can drive it as long as they want to.”
Data shows that replacement tendency of someone driving a 15-year-old car is more likely than ever before to be with another used car between nine and 12 years old, he said. “The buyers of new cars or cars up to three years old are consumers that already are driving a relatively new car — there’s old-car people and new-car people, which are two ends of the spectrum that both create opportunity in the aftermarket.”