Five trends to watch

Jan. 1, 2020
Mark Seng with R.L. Polk, presented the top five trends that will impact the automotive aftermarket at the NCMA Knowledge Exchange conference last week.

The changing mix of vehicles on the road and increased competition from OEM dealerships are two of the top trends impacting the aftermarket over the next few years. Mark Seng, global aftermarket practice leader at R.L. Polk, presented the top five trends that will impact the automotive aftermarket at the National Catalog Managers Association (NCMA) Knowledge Exchange conference last week.

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Seng first covered the state of the economy as it relates to vehicle use. This has been the worst GDP retraction since 1973, and the recovery has been much slower than the U.S. experienced during the last two significant recessions. "There's been a major impact on consumers, and big changes in DIY behavior," Seng said. "This has affected what [consumers] drive and how much they drive."

Apart from the massive loss of wealth and hit to GDP over the past several years, several other factors are impacting vehicle owner behavior:

Miles Driven: Although miles driven increased more than 50 percent since the late 1980s, miles driven has been relatively flat since 2008. There were also decreases in miles driven in 2008 and 2011 -- the first time such decreases have happened since the late 1970s.

Gas Prices: There has been a nearly 40 percent increase in gasoline prices in the last 14 months, and current forecasts have average prices exceeding $4 after 2014.

High Unemployment: Unemployment is hovering around 8.2 to 8.5 percent, and at the current rate of growth, it will take another four years to return to 2008 employment levels. "People aren't driving to their jobs, and that has had a major impact on vehicle miles traveled," Seng said.

"We won't see [vehicle miles traveled] come back until gas prices stabilize and the jobs market improves," Seng said.

Given that backdrop, here are the five trends Seng identified that will be important to he aftermarket:

1. New light vehicle sales are recovering. While the auto industry has reported increasing sales, new registration counts are also improving. According to Seng, prior to 2007 registrations were at 1.4 million per month; after the crash, they dipped below 900,000. Now registrations are back up to 1.2 million and continuing to grow.

At the same time, the number of vehicles per household has flattened, as fewer people maintain more than two cars. The type of vehicles being purchased is also shifting. The "lower medium" category of cars (which Polk identifies as vehicles like the Chevy Malibu and Ford Focus) is growing rapidly, and will hold nearly 40 percent of the market by 2015. Larger cars are falling as a percentage of the light vehicle market. The small/medium-sized SUV category will also grow quickly, from less than 30 percent of the market to nearly 60 percent by 2015.

2. More light vehicles are in the aftermarket sweet spot. With fewer new vehicles on the road and more people holding on to their older vehicles longer, the aftermarket stands to gain an even greater share of the service market. In 2011, dealerships were only serving 28.1 percent of the non-warranty service sector, and only 12 percent of the vehicles on the road were still under warranty (down from 21.3 percent in 2000).

"That's a tremendously good sign for the aftermarket," Seng said.

3. The vehicle mix is changing rapidly. Again, the vehicles on the road are older, and consumers are holding them longer -- in fact, the average length of ownership has increased more than 20 months in the past 10 years. That's in part because of longer lease and loan terms, but also because vehicle quality has improved.

Domestic models are aging faster than imports, and in 2010, for the first time, imports lapped domestic car models in the U.S. They are also gaining ground in the truck sector. That has been led, in part, by the growth in Korean imports form Hyundai and Kia, which have seen massive triple-digit growth in the past ten years.

In terms of powertrains, there has been a shift toward 4-cylinder engines, which have gained 18 percent in the past six years. Hybrid vehicles, although they generate a lot of hype, hold less than 1 percent of the market.

4. There's no end in sight for parts proliferation. OEMs continue to announce new models, with 200 announced model changes in 2011; OEMs are on pace to reach 250 model changes in the 2012/2013 period. Seng said that, according to data from MOTOR Information Systems, there are 80,000 unique OEM part numbers per year, and in 2010, 24 percent of those were new parts. "That's a huge explosion in SKUs that have to be maintained," Seng said. "The companies that can handle that inventory management challenge will thrive."

5. OEMs are an awakening giant. Despite losing market share on the service side, OEM dealerships are ramping up to fight even harder for post-warranty service work to help boost their profits. The leaner dealer population is flush with cash from record profits achieved the past few years (despite the decline in new vehicle sales), and they are turning more of their attention to growing their aftermarket business.

"They have spent a lot of money to understand customer loyalty on the sales side, and they are now applying that loyalty knowledge to service," Seng said. Among their strategies: prepaid service plans, more aggressive service programs, and more electronic engagement with customers. "They are well-funded, focused on parts/service, and they are much more efficient," Seng said.

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