Constant velocity (CV) drive axles is a low-growth product line for the automotive aftermarket, but it highlights an accelerating industry trend – the shift to retail, private-label brands for mechanical hard parts.
Leading parts retailers AutoZone, Advance Auto Parts and O’Reilly Automotive comprise a larger sales channel for CV drive axle manufacturers than traditional distribution groups like NAPA, Federated and The Alliance, according to recent Frost & Sullivan research.
In 2014, manufacturer-level unit shipments totaled an estimated 5.8 million across the United States and Canada, generating revenue of approximately $173.3 million. Replacement rates are declining because the improving quality of original equipment parts has made CV drive axles a life-of-vehicle component on vehicles. In addition, many CV drive axles are serviced with boot kits that extend the life of the part and defer the need for replacement.
This is partially offset by increasing average vehicle age, which puts more cars and light trucks in the prime replacement range for replacement.
However, the most compelling finding was that the retail channel accounted for almost 60 percent of sales, while wholesale distributors (WDs) came in under 40 percent for the category.
Price is probably the biggest factor. Since there is little differentiation between competing parts, and because most vehicles are late into their lifecycle by the time the component is replaced, vehicle owners and installers will almost always choose lower-priced products.
Manufacturer-level prices will increase by approximately 1 percent annually, well below the overall rate of inflation.
Large retail chains enjoy a two-step distribution channel from the manufacturer to the end-user, and can use their purchasing power to offer lower-priced private-label brands. Retailers are increasingly successful in selling parts to garages and service centers, with both Advance Auto and O'Reilly selling more than 40 percent of products such as CV drive axles to installers rather than do-it-yourselfers.
By contrast, many traditional WDs still operate in three-step channels with a jobber store between the warehouse and the service garage, and remain unknown to a lot of DIYers.
The acquisition of CARQUEST Auto Parts by Advance Auto Parts, as well as other recent moves, could increase the impact of this trend. Four of the top five U.S. auto parts distributors are retailers, and the 10 largest groups represent more than half of total sales.
Also, research suggests that up to half of all CV drive axles entering the North American aftermarket are from a small cluster of Chinese manufacturers, enhancing the ability of distributors to offer lower-priced products, particularly for fast-moving SKUs. About 90 percent of sales are covered with 585 part numbers.
Although growth rates are flat – with unit shipments forecasted to increase by less than 1 percent annually – demand will increase for new CV drive axles at the expense of remanufactured products. Also, demand remains high for certain applications, including Subaru drive axles.
CV drive axles is a category that highlights how distributor consolidation, direct sourcing and private-label brands are changing how parts manufacturers market their products. It will become increasingly difficult for many traditional distributors to sell them profitably.
Stephen Spivey is the program manager for Frost & Sullivan’s Automotive & Transportation Global Aftermarket research practice. He focuses on monitoring and analyzing emerging trends, technologies, and market behavior in the global automotive aftermarket. For more information on Frost & Sullivan’s Automotive & Transportation research, contact Clarissa Castaneda, Corporate Communications, at [email protected].
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