Well, as I said in my column last month, 2009 certainly turned out to be a very solid year for the aftermarket. But sometimes it becomes difficult to really look beyond the next quarter.
Although we are analysts, it is critical to stay mindful of secular shifts occurring in the OE channel. While many of the implications of a changing OE landscape will not impact the aftermarket for at least another five to seven years, we think taking a preview today should leave the industry with a leg up in years to come. Looking out over the next decade, there may not be any bigger issue with aftermarket implications than the annual rate of vehicle sales. About 10 million light vehicles were sold in 2009. What will the Seasonably Adjusted Annual Rate (SAAR) look like in five years? Will it recover to the 16 to 17 million range? We guess if you had the answers to these questions, a job in Las Vegas might be more appropriate.
After listening to senior auto executives in Detroit last month at the North American International Auto Show (NAIAS), we would characterize the automakers’ outlook as cautious optimism rather than exuberance. Clearly there was a sense of relief that the auto industry had seen its worst days, and that volumes would recover. That said, there were a number of different opinions as to how quickly sales would come back and at what level. We didn’t hear anyone mention a return to the days of 16 million light vehicles sold in the U.S., but rather a sense of realism that portends a 14 million level of recovery. If that is the “normalized” run rate, then let’s examine the implications.
We believe that additional dealerships are likely to close in the years to come, as the industry comes to grips with lower levels of unit sales. And with market share of the foreign nameplates continuing to climb higher, on top of already significantly higher throughput per dealership, there will be additional opportunities within the independent aftermarket for import specialists to flourish.
And if 14 million is the ultimate level of recovery in U.S. auto sales, it seems likely to us that the average age of vehicles should continue to rise — obviously a very positive long-term trend for the aftermarket.
But dealers will be aggressively attacking the service sector, especially if new car sales are peaking at lower levels. We stress that independent installers must have the capabilities to repair all vehicles, and customer service will remain critical because a job done correctly the first time matters to the consumer.
Even with CAFE standards set to push the 35 mpg level by 2016, the solution to end our country’s dependence on oil has yet to be agreed upon. At NAIAS, there were cases made for all types of vehicles, from advanced hybrids, to “pure” electric vehicles, those powered by more efficient internal combustion engines, and even fuel cell technology. Unfortunately, the underlying commonality for many of these technologies remains infrastructure, cost and consumer acceptance hurdles that remain problematic to varying degrees.
Make no mistake that the current administration is very “green.” In addition to the significant resources already allocated to alternative fuels/engine technologies, we anticipate an even greater amount of spending in the coming years. In order to meet the accelerated standards mandated by the National Fuel Efficiency Policy, which requires a cumulative improvement of approximately 30 percent in fuel economy by 2016 relative to model year 2011 levels, we believe that automakers and their suppliers will work diligently to extract greater efficiency from the internal combustion engine through lighter components, friction reduction, displacement and cylinder downsizing, direct injection, exhaust gas recirculation and turbo/supercharging, in addition to further R&D in the field of alternative fuel types.
In our opinion, until one powertrain and propulsion system reign supreme in the eyes of both the automakers and consumers, the rate of parts proliferation into the aftermarket is only likely to accelerate further.
