Publisher's Statement - March 2013
Shifting ‘sweet spot’ is an industry challenge
The “Aftermarket sweet spot” is an accepted concept in the industry generally agreed to be the age range of vehicles where the entire aftermarket channel, especially independent repair and maintenance, thrives. Sweet-spot vehicles range from those just out of warranty to older ones that are still worth putting significant money into maintenance and repair.
A recent AASA (Automotive Aftermarket Suppliers Association) Industry Analysis, well-crafted and written by Paul McCarthy, vice president of industry analysis, and Bailey Watson, AASA analyst, brings clarity to the concept and describes a shrinking, shifting sweet spot in an expanding vehicle parc anticipated now through 2018.
During the last few years, following the economic downturn and resulting drop in new vehicle sales, the sweet spot expanded in size to a range of six to 12 years. The sweet spot’s larger size and range provided momentum and a profitable target for the industry as a whole, but as the analysis reports, it peaked in 2011 at 104 million vehicles and is estimated to drop to 82 million by 2018. The decline of 22 million over six years is directly linked to new car sales having dropped over the last half decade. Now, an accelerated cycle of new vehicles subsequently impacting the aftermarket sweet spot has begun.
The analysis concludes this is neither a headwind nor tailwind, but rather advises that suppliers can prepare in advance for the declining sweet spot. The report states emphatically, however, “The market is not going away.” The large U.S. vehicle parc of more than 243 million vehicles in operation is not shrinking but, according to AASA projections, will continue to grow into future years.
Resist unneeded reduction of sweet-spot vehicles
The AASA analysis not only provides clarity to the concept of a diminishing sweet spot but confirmation of the challenge ahead. More, perhaps, than any aftermarket segment, the service industry thrives within the sweet spot of five to nine years. From 10 years old and older, the vehicles coming to the service industry for repair are less profitable and efficient to service. Many in the industry view much of the 10 and over vehicle population benefitting the retail parts business and “shadow” service providers outside the mainstream industry.
As suggested in this column before, other threats of influence and intervention remain to further reduce sweet-spot numbers. Industry leaders and associations will hopefully maintain vigil to resist initiatives that will compound the challenge.
The current surge in new vehicle sales is driven, in great part, by vehicle credit loans characterized by some credit agencies as almost 50-percent subprime. In this economy, “repo” will become “previously owned,” crowding the used car market and providing impetus for vehicle parc turnover.
Under the guise of “green” there is building pressure to turn the fleet faster to meet new standards. Programs such as the ill-fated “Cash for Clunkers” need to be resisted. The number of foreign buyers at vehicle auctions and the subsequent exporting of U.S. vehicles should be curtailed, too. The growing pressure toward GPS monitoring in all vehicles for insurance, registration, and location-revealing purposes will add additional pressure for vehicle parc turnover.
An empowered EPA will skirt the need for legislation and exercise its regulatory powers to thin the vehicle parc of “old technology” and determine vehicle life span for vehicles currently in the sweet spot and beyond. Similarly, preventing increased total-loss determination by insurers in collision repair shops will keep more mid-age vehicles on the road.
Reducing further, unnecessary loss to the vehicle parc “sweet spot” should remain a top-of-mind concern during the next five years.