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Longer vehicle ownership could create more opportunity for the aftermarket

Tuesday, January 13, 2015 - 09:00
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Two facts are clear about vehicle ownership. One, vehicle length of ownership continues to increase. Two, the longer consumers own a vehicle, the less likely they are to remain brand loyal.

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While these facts might seem like bad news for OEMs, who ideally would like to keep customers coming back for multiple purchases, they could mean significant opportunity for aftermarket parts and services organizations. First, if consumers are keeping their vehicles for an extended amount of time, then it’s likely these vehicles will need to be serviced. Second, if vehicle owners are likely to leave their current brand on the next purchase, it stands to reason that they are not predisposed to getting their service and repairs done at the dealership.

According to a recent analysis by Experian Automotive, the average length of ownership was 93 months, or 7.75 years. (This accounts for both purchases and leases.) The average brand loyalty rate was 49.5 percent. Furthermore, the analysis found that consumers who owned their vehicles for 12 months purchased their next vehicle in the same brand family 57.3 percent of the time. For people who owned vehicles for 12 years, their brand loyalty plummeted to 33.8 percent. The biggest drop in loyalty occurred between 36 months and 42 months, falling nearly 10 percentage points.

One reason for this trend is leasing. Due to its fixed ownership cycles, leasing typically makes a strong contribution to high customer loyalty. Manufacturers know precisely when the lease ends and typically have aggressive outreach to customers throughout the term of the lease.

When vehicle owners purchase the vehicle outright, things become less predictable. The specific trade-in date can be a little more difficult to pinpoint, and little by little consumers tend to move on from a relationship with their dealer.

The drop in brand loyalty over time also often is driven by vehicles that are no longer under warranty. Vehicles often drop out of warranty in the five- to seven-year time frame, creating what we refer to as the aftermarket sweet spot. Once the vehicle is out of warranty, much of the incentive to return to a dealership for service work dwindles, creating significant opportunity for aftermarket parts and service organizations.

A smart strategy for aftermarket companies would be to begin targeting brands that have long lengths of ownership and do not have a history of high brand loyalty. For example, Dodge and Buick led the industry in length of ownership, with an average of 113 months each. They did have divergent loyalty rates — Dodge at 22.6 percent and Buick at 38.4 percent — but both were well below the industry average for loyalty.

The next three brands for longest length of ownership included Chevrolet (111 months), Ford (110 months) and Mitsubishi (109 months). However, despite Ford having a long average ownership, the brand has bucked the dwindling loyalty trend. It had the top brand loyalty, at 61 percent. As they say, there is an exception for every rule.  

Another trend to watch over time is the lengthening of automotive loans. In Q2 2014, the fastest-growing segment for loans was the 72- to 84-month loan, which jumped by 23.78 percent from the previous year. It stands to reason that if people have longer loans, they likely will keep vehicles longer. This could erode brand loyalty further.

The key to capitalizing on these trends will be to monitor data carefully over time. The intersection between brands with long length of ownership and low brand loyalty, combined with knowing which vehicles are in the aftermarket sweet spot, can create a fertile source of new leads for aftermarket companies.

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