Vehicles in operation reach record heights in fourth quarter 2015, Experian says

April 28, 2016
While strong 2015 vehicle sales is good news for the industry and bodes well for the aftermarket’s future, the automotive aftermarket is still feeling the aftershock of the recession. More specifically, the hangover from the recession is still being felt rather acutely by the aftermarket sweet spot.

The United States loves to drive. In fact, the number of light-duty vehicles on U.S. roads jumped to an all-time high of 258 million in Q4 2015, up 2.7 percent from 251.1 million year over year.

How did it get so high? The growth was fueled by sales of 17.25 million light-duty vehicles during the calendar year, while only 10.3 million vehicles netted out of operation.

While this is good news for the industry and bodes well for the aftermarket’s future, the automotive aftermarket is still feeling the aftershock of the recession. More specifically, the hangover from the recession is still being felt rather acutely by the aftermarket sweet spot.

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What is the sweet spot?

The aftermarket sweet spot is composed of vehicles between six- and 12-years old (model years built between 2004 and 2010). These vehicles are often newly out of warranty, but it’s still important to their owners to keep them on the road. Because owners are still likely to invest significant money into maintenance and repairs to keep them running, these vehicles make up a big piece of the pie for automotive aftermarket companies. Especially, considering that these vehicles are often due for expensive repairs, such as shocks, struts, engine timing belts, etc. Gaining insight into the trending size of the sweet spot is important for aftermarket retailers, as it can help them manage inventory and make smarter business decisions.

There are currently 88 million vehicles that fall into this category, but the sweet spot is projected to get smaller over the next two years. Why, you ask? The 2004 and 2005 model years currently have 13 million and 14 million vehicles in operation (VIO), respectively. As those model years drop out of the sweet spot over the next two years, they will be replaced by the 2011 and 2012 model years. These model years had slow new-vehicle sales impacted by the recession and today have only 12 million and 13 million vehicles in operation, respectively. This means the sweet spot likely will bottom out around 85 million vehicles in 2017.

Due to the residual effects of the recession, we cannot expect the sweet spot to grow until 2018, when the 2013 model year (14.5 million units still in operation) replaces the 2006 model year (13.5 million units still in operation).

Imports gaining on domestics

Perhaps one of the biggest changes to the sweet spot on the horizon is the shift in share between import and domestic brands. Currently, the sweet spot is composed of 52.4 percent domestic brands and 47.6 percent import brands. This share is likely to shift in favor of import brands over the next three years.

New vehicle share for imports began to exceed domestic share in the 2008 model year and has been higher ever since. As the domestic-heavy years of 2004 and 2005 fall out of the sweet spot, they will be replaced by 2011 and 2012, which currently have VIO import share of 54 percent and 55.8 percent, respectively.

CUVs to overtake pickup trucks

There also will be a shift in the share of various VIO types in the aftermarket sweet spot in coming years. Currently, there are 15.2 million pickup trucks and 12.7 million crossover utility vehicles (CUVs) in the aftermarket sweet spot. Today in the pre–sweet spot (model years 2011 to 2016), CUVs outnumber pickup trucks 16.7 million to 10.3 million.

Midrange cars, which currently are at 22.2 million in the sweet spot, should maintain the top spot, as there are 18.4 million of these vehicles today in the pre–sweet spot.

Full-size pickup trucks (15.1 percent), midrange cars — standard (11.5 percent), small cars — economy (9.2 percent) and midrange cars — lower (8.5 percent) were the top four segments in total VIO in this range. All gained share year over year.

Fuel-powered vehicles will grow VIO share

Despite the auto industry’s efforts to develop and sell electric vehicles (EVs) and hybrids, the number of fuel-powered vehicles in operation grew by nearly 6 million units. Of the 17.25 million vehicles sold in the United States last year, only 2.8 percent were EVs or hybrids (down 18.2 percent from a year ago). That means 16.8 million vehicles had traditional fuel-powered engines. Given that only 10.3 million vehicles fell out of use during the year, total VIO increased by approximately 6 million vehicles.

This might make ardent environmentalists cringe, but it is a good reminder to the automotive aftermarket that fuel-powered vehicles likely will keep growing in total VIO for many years to come.

Monitoring trends sets up future success

All these trends will impact operations for automotive aftermarket companies over the next several years. Understanding the industry data on a product or regional level is an important part of the overall planning process that could make or break profitability.

Companies that use data and analytics to better understand these trends will be able to maximize profits in a potentially down market over the next two years and to set themselves up for success as the aftermarket sweet spot roars back in 2018.

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