Editor’s Note: Cerasis is a third party logistics company who has many customers in the automotive aftermarket industry. This is the final post in our series covering the automotive aftermarket industry as we lead up to next week’s Automotive Aftermarket Product Expo where we will exhibit alongside several of our current customers. Cerasis is at booth #41021, where we will demonstrate our all new and revolutionary video platform to highlight our transportation management system and managed transportation services. If you are attending or exhibiting at the AAPEX show in Las Vegas next week and want to talk to us about effective transportation management for your business, book an appointment during the show here.
The automotive industry and automotive aftermarket industry has recovered, and as new light vehicle registrations continue to grow, it is important for the aftermarket to be aware of emerging trends happening on the roads today that will affect repair opportunities for years to come. Here are some quick insights into the trends driving the automotive aftermarket industry.
3 Macro Trends Driving the Automotive Aftermarket Industry
1. The average age of vehicles continues to climb—at least for now
The increasing age of the vehicle population has been a positive aftermarket trend for a long time, and the trend has accelerated greatly over the past six years. Today, it stands at a record-high 11.3 years for passenger cars and light trucks combined, representing a 14% increase since 2007. For the five years prior to the recession, average age rose only 4%.
Some wonder why pickup trucks tend to lag behind cars in average age. Light trucks are more likely to accumulate wear and tear than are passenger cars. Individual owners use them for towing, transporting heavy loads, and off-road fun. Many more pickups are also used in commercial situations and get exposed to high levels of use and abuse.
Over the next several years, however, the rise in average age will slow down again. The market will begin to feel the impact of the 40% drop in new registrations when the industry bottomed out at 10.3 million units in 2009. We see average age reaching nearly 11.4 years by 2015, and then the rate of growth will taper off. The acceleration in average age will slow to levels not seen since before the recession. Average age will not reach 11.5 years until 2018—as the vehicle population adjusts to the low number of 2008–12 model year vehicles.
New-to-five-year-old vehicles will grow 41% over the next five years. Six-to-11-year-old vehicles will decline 22%.
While not an encouraging trend for the aftermarket, there are definite positive signs. The overall vehicle population continues to grow. We see the US light vehicles in operation (VIO) growing by 5% over the next five years—hitting 260 million vehicles by 2018. Vehicles are also lasting longer. Over the next five years, vehicles 12 years and older will increase nearly 12%. Vehicle quality continues to improve, people are keeping their vehicles longer, and the scrappage rate continues to decline.
The aftermarket must be aware of the potential impact to the type of repairs it will see over the coming years. In general, 6-11-year-old vehicles represent more do-it-for me (DIFM)-type repairs. Older vehicles may drive more do-it-yourself (DIY) and routine maintenance, but also require larger powertrain and suspension repairs.
2. OEM globalization is quickly becoming the new norm
Growing global vehicle registrations continue to pressure OEMs to accelerate the need for utilizing global platforms and modular architecture. Global new registrations will set a record in 2013 at just over 74 million units. In 2014, the number will be over 77 million. Looking at total global vehicles in operation, the number broke 1 billion units in 2010. By 2020, the world will stand at 1.3–1.5 billion vehicles.
This rate of growth translates into expanded global production and a need for OEMs to manage costs. They are accelerating the use of global platforms and looking to produce more units per platform. Among the top-12 global manufacturers, the number of platforms will drop from 212 in 2012 to 147 by 2020. As a result, the number of vehicles produced per platform will grow. Across the same 12 OEMs, it will increase 81%. OEMs have also been introducing modular architecture. By standardizing the architecture of the engine compartment, underbodies, and driver cockpit, manufacturers achieve greater flexibility and can utilize standardized components.
Fewer platforms, more vehicles per platform, and the increasing use of modular architecture will lead to the use of similar components and the ability to market the same aftermarket product in various regions around the world—a major opportunity for the global aftermarket supplier.
3. OEM technology advances continue to provide the automotive aftermarket industry both challenges and opportunity
These advances are coming in several different ways.
Gas and Hybrid Cars Continue to increase Market Share
Through August, gas and electric hybrids represent 3.6% of all new registrations—an all-time high. Diesels were right behind at 2.9%. Electric vehicles, while on the rise, still represent only 0.3%. Over the past five years, however, diesel registrations have remained flat while hybrids have increased their share by 64%. One reason for this is simply the number of hybrid models now available. The consumer has 45 different hybrid models to choose from today. Between 2008 and 2013, the number of models with diesel engines increased 21% while the number of hybrid models increased 125%. Because not all makes and models offer these powertrain options in every vehicle and trim level, their popularity may be limited because of the lack of universal availability. Nonetheless, while OEMs are investing in various options, the internal combustion engine remains the leading candidate for clean, efficient propulsion for at least another decade. However, the automotive aftermarket industry must prepare for new technology surrounding this traditional powertrain. There will be increased use of gasoline direct injection and turbochargers. Start-stop capability, cylinder deactivation, and all-wheel drive disconnect are all coming on strong.
OEMs continue to increase the interval between recommended oil changes
They are using technology—the oil service indicator light—to replace standard recommended maintenance intervals.
While most vehicles on the road have some type of oil service indicator light, the issue is how often OEMs are using the light as the only means of recommended service. Today, 52 million vehicles in the US use the oil service indicator light as the recommendation for when to change the oil. This represents 21% of the total VIO and has grown at a compounded annual rate of 14% over the past five years. New powertrain technology and the growing use of synthetic oils have extended oil change intervals as well. The average recommended interval for all light vehicles now stands at over 7,500 miles.
What does this mean to the independent aftermarket? Most repair opportunities are discovered during routine maintenance. Oil changes are, by far, the most common service opportunity for vehicles of all ages. This lengthening of intervals has the potential to affect repair opportunities in two ways.
By recognizing these trends early, the aftermarket can innovate and develop ways to communicate with the driver in much the same way the OEMs are planning.
The aftermarket certainly has what it takes to not only adjust to these coming trends, but take advantage of them as well. This industry has always proven its ability to react and innovate in the face of change. Leverage those strengths to their fullest, and the automotive aftermarket industry will continue its legacy of success.
Issues facing Automotive Aftermarket Industry in 2020
Of the many insights in AASA’s recent landmark study, Automotive Aftermarket Industry Outlook 2020, the biggest issue identified facing aftermarket suppliers – and their ability to survive and thrive in the future – was the lack of a level playing field along the aftermarket value chain. Key findings of Aftermarket Outlook 2020 included that, though the market itself isn’t expected to see radical changes, business and relationships along the value chain have and will continue to change dramatically.
Full service automotive aftermarket suppliers have seen low-cost country competition, incredible concentration among our customers, eroding margins and a shift of power downstream to the channels – as have manufacturers in many other industries in the post- Walmart era. Many aftermarket manufacturers have not responded effectively to these shifts and need to find new ways to create value in order to be able to deal with changed channel partners as peers. The alternative is a decline in relevance and returns for aftermarket suppliers, analogous to the devastation seen among OE suppliers in the last decade.
As the Aftermarket Outlook 2020 study found, aftermarket suppliers face many issues in the next decade. The graphic below captures just some of the many dynamics and change agents at play in the aftermarket
industry. These include:
- the impact of the Internet;
- manufacturer versus channel brands;
- OES versus independent repair shops, especially in an era of increasingly complex vehicles; and
- new regulations, including fuel economy and safety
The Aftermarket Outlook 2020 study covers each of the issues in more detail. However, as the study progressed, three key trends “popped” as the most important ones facing manufacturer executives:
- Parts complexity – The industry is seeing a massive increase in parts complexity, both in the number of vehicles and parts and the technical sophistication of those parts.
- Channel consolidation – During the last 10-15 years, channel partners have responded to market pressures and consolidated massively, changing the balance of power in the industry.
- Low-cost countries – Low-cost country imports have had a tremendous impact on traditional North American suppliers, eroding the addressable market; conversely, the emerging markets these parts come from represent a tremendous growth opportunity.
As AASA and Booz & Co. discussed these findings at the 2011 AASA VisCon with aftermarket executives, it became clear that there was a single overarching issue that tied the other issues together of most importance to manufacturers: the lack of a level playing field across the aftermarket value chain.
A Winning Aftermarket Aftermarket Industry Model
So what does all of this add up to in the automotive aftermarket industry? What does Aftermarket Outlook 2020 and follow-up analysis in the industry reveal as a winning automotive aftermarket industry model? A summary of key elements is seen in here:
Those in the Automotive aftermarket industry will know they’ve arrived when they experience:
- Discussions with retailers as equals
- Improved profits across the aftermarket value chain through value creation, not value migration
- Halt or reversal of the erosion of full-service suppliers’ market share by low cost country competitors
Achieving these objectives is not only necessary, but possible for the automotive aftermarket industry.