Publisher's Statement - May 2017

U.S. vehicle fleet will soon reflect an accelerated transition

     Vehicle sales, new and used, have always impacted the entire parts and service industry. Fortunately, despite a drastic drop in new vehicle inventory at the beginning of the decade and the resulting reduction of five-year-old vehicles entering the aftermarket mid-decade, the extended aging of the fleet helped balance the number of vehicles to be serviced.

     Following several years of 17-plus million new-vehicle units sold, sales are now slowing and higher levels of new vehicle inventory have created record oversupply resulting in increased discounts, incentives, and increasingly easy credit.  Used-car prices remained high through this period, due to lack of supply, and helped boost new car sales. Because prices for new vehicles increased and expected trade-in value remained high, leasing also became more popular. So, too, did extended terms.

     Now, used-car prices are beginning a period of significant decline. JP Morgan recently released a study suggesting a possible decline between now and 2020 of 20 to 50 percent creating a real, potential problem for the new-vehicle segment.  There is an expected glut of used vehicles caused by a number of factors including off-lease supply, sub-prime loans going delinquent and repossessed, and changes in the over-fleeted rental car market. 

     According to J.D. Power data, dealerships will have 14.5 million used vehicles on their lots by 2018, 22 percent more than in 2015. And, about 3.7 million vehicles are expected to come off leases in 2018, a 61-percent increase from three years earlier.

     The net result from this oversupply is expected to be an increase in used-car sales and a reduction in new-car sales.  But, the vehicle manufacturers need to sell new vehicles so what can reverse the situation and improve their selling environment?

 

Threats to reduce the aging fleet

     The automotive industry is facing the most radical changes in its history. Technology is changing the industry, led by advanced driver assistance systems (ADAS), electrification of mechanical systems leading to autonomous vehicles, and connected vehicles. By 2020 most vehicles will have connected features while ADAS features are already appearing in new vehicles.  Expect the manufacturers to accelerate the development and presentation of those new technologies in all new vehicles to separate from the used-car inventory and aging fleet.

     The selling of connectivity and safety, in addition to style and performance, will separate the new from the old.  Connected vehicles will become integral in new, “connected” cities and infrastructure. Insurance rate adjustments benefitting the next generation of vehicles and penalizing pre-ADAS vehicles may offset price differences between old and new.  Hopefully no “Cash-for-Clunkers” programs are legislated to “purge” the older, pre-connectivity, pre-ADAS vehicle fleet and used-car inventories.

     Again, vehicle manufacturers need to sell new vehicles and the over-supply of used vehicles and the aging fleet is detrimental to that end and it will need to be reduced.  Additional factors that may reduce the aging fleet include rising interest rates and “border-adjustment” taxes that may affect parts prices and availability for older vehicles. The aging fleet will be threatened with obsolescence. 

     Bottom line, the transition timeline from existing vehicles to connected, ADAS vehicles may be shorter than now perceived.  The aftermarket needs the aging fleet to remain viable during the transition, remaining active to deter, delay, at the least monitor, attempts to purge the existing fleet while it prepares for the next generation of vehicle parts and service challenges.       

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.