AASA Analysis Increasing technology — complexity, lightweighting, friction reduction, ADAS, electrification, sensorization, etc. — will increase parts value. (Source: AASA/ACA Joint Channel Forcast by IHS Markit)

Market slows pace, sets stage for new growth

While base conditions remain strong, aftermarket must be nimble to adapt to change

Las Vegas—Two industry experts recently offered their perspectives on the aftermarket outlook for 2018 and beyond during independent presentations at Industry Week in Las Vegas. The following are a few of the takeaways as the calendar turns to the new year.

At the annual Gabelli Aftermarket Symposium, which was prior to the opening of AAPEX, Bill Long, president and COO of AASA, cited market fundamentals that remain “very strong” for the aftermarket:

•    VIO is “big and growing” in the U.S. at 279 million. However, the growth rate is decelerating.

•    Average vehicle age is high and increasing at 11.7 years — at a record age — but is at a slowing rate of increase.

•    Miles-driven is at record levels with 3.22 trillion, though it is experiencing a slowing rate.

•    Fuel prices remain low with an average $2.38 per gallon, but they are unlikely to “supercharge” growth.

•    The economy is growing at 2.2 percent.

•    Unemployment is at a 16-year low at 4.3 percent.

All of those figures have led to a “strong, stable and attractive $277 billion aftermarket,” which has doubled in size in the last 20 years from $139 billion in 1997 to today’s number. Long added, however, that the aftermarket has recently experienced above trend growth.

“We enjoyed large, unusually positive ‘deltas’ in key market drivers such as VIO, vehicle age, miles driven, employment and fuel prices, but those might lead to unrealistic expectations. While the market fundamentals are at a high, strong level, they may not accelerate in the same way that drove the above-trend growth in recent years. Sales aren’t declining so much as growth is.”

 

Miles-driven

Nathan Shipley, director of Industry Analysis for The NPD Group, who presented “2018 Aftermarket Outlook” at AAPEX, also stated miles-driven has recently been on the upswing. In 2016, it was trending up 2.6 percent, and at present it’s 1.7 percent.

“While we’re driving more in the U.S., the growth rate has slowed dramatically, which is having a major impact on the industry. However, miles-driven in 2018 is predicted to be 1.5 percent, which is good news for the industry, because it means the slowdown in the growth rate is bottoming out and there will be a new normal that will help stabilize the industry in order for it to grow.”

 

Higher priced replacement parts, less volume

Long noted that one particular headwind facing the aftermarket is that replacement rates for many parts have declined from 2006 to 2016. However, as the replacement “sweet spot” bottoms out, it is poised to resume growth as post-recession new vehicle sales will move into the aftermarket sweet spot in 2019, joining the increasing number of cars older than 12 years.

At present, Shipley said there’s a slump in vehicles between seven and eight years old, which can be directly related to the recession when new vehicle sales dipped. “It will self-correct over time, but right now presents a challenge to the industry.”

Long stated that new growth in replacement parts will come from the price of higher technology parts — such as increased complexity, lightweighting, friction reduction, ADAS, electrification, sensoritization, etc. — which will increase parts value, rather than from volume.

 

Challenges for filling bays

Longer oil change intervals are resulting in fewer shop visits, Shipley said. Also, as cars come off the manufacturing line with newer technology that requires less maintenance, it will have a long-term impact, but it also represents opportunity with a migration from DIY to DIFM.

“The shift from DIY to DIFM ties into new vehicle technology and the complexity to work on those cars,” he said, though independent shop owners should remain ever-vigilant in keeping and attracting customers, as dealerships are “doing a very good job at the point of sale to bring them back to the dealership for the first few years of maintenance, typically by offering free oil changes.”

 

New mobility trends offer new opportunities

New mobility trends — shared mobility, data connectivity, apps, remote service and upgrades, etc. — may lead, over time, to a “golden age” for the aftermarket with increased opportunities for new “aftermarket services” and significant growth, Long said. Mobility and automation will also lead to a significant increase in miles-driven, from three trillion up to five trillion miles driven by 2030.

As Boomers begin to retire and Millennials enter their peak driving years, the industry must shift its focus to a much younger target as a core consumer, Shipley said.

“It’s important to think who our consumer will be for us down the road. If shared-vehicle ownership is realized, for example, like owning a time-share property, the industry must think about who their customer is during that time, and who is making the maintenance and purchase decisions for that car. Considering tomorrow’s mobility model will be very important. Wondering what the competitor is doing ‘across the street’ can be a concern from a tactical standpoint, but the most interesting innovations will come from outside the industry, not within it. The challenge is to think differently and who the next end-consumer is going to be in coming years and what you’re going to do about it.”

 

Parts & People

Parts & People is published monthly by Automotive Counseling and Publishing Company, Inc., a Colorado corporation, P.O. Box 18731 Denver, CO 80203, 303-765-4664. President-Lance Buchner. Founded by Lance Buchner and Dave Lucia.

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