Published on January 9, 2014

Aftermarket facing challenges — and some opportunities

Tire Business photo by Kathy McCarron
Mark Seng, vice president, global aftermarket practice leader for IHS/Polk, outlined five aftermarket trends during a presentation at the 2014 AAPEX in Las Vegas.

LAS VEGAS (Jan. 9, 2014) — As the automotive industry recovers from the recession of the past few years and vehicles on the road continue to age, the aftermarket faces some opportunities as well as challenges this year.

These trends — along with a changing vehicle mix and expanding OEM globalization and technology — are among five major trends for 2014 that IHS Automotive/Polk identified during last year's Automotive Aftermarket Parts Exposition in Las Vegas.

Trend #1—Auto market continues its recovery

New light vehicle registrations will break the 15 million mark for the first time since a devastating 2007. Polk expects new vehicle registrations to hit 15.5 million in 2013, an increase of 8.5 percent over 2012, and reach 16 million this year.

Most OEMs are experiencing strong growth, according to Polk, fueled by a dramatic increase in new models and redesigns.

Mark Seng, vice president, global aftermarket practice leader for IHS/Polk, noted the industry introduced 150 new models and redesigns between 2010 and 2012. Between 2013 and 2015 that number is expected to be 260.

"This represents over 70 percent growth in the number of new options and choices for the American consumer," he said.

Trend #2—Vehicle age keeps climbing

The average age of vehicles continues to climb "at least for now," Mr. Seng noted.

Today the average age stands at a record high — 11.3 years for passenger cars and light trucks combined, a 14 percent increase since 2007. For the five years prior to the recession, the average age only rose 4 percent.

"Over the next several years the landscape could change," Mr. Seng said. "The market will begin to feel the impact of a 40-percent drop in new vehicle registrations when the industry bottomed out at 10.3 million units in 2009."

Polk expects the average vehicle age to hit 11.4 years by 2015 and then slow down in its growth rate over the next three years. The average age won't reach 11.5 years until 2018 as the vehicle population adjusts with the low number of 2008 to 2012 model year vehicles that work their way through the system.

The aftermarket will notice a shrinking "sweet spot" — vehicles due for maintenance and repairs. Vehicles 6-11 years old will decline 22 percent by 2018 while vehicles new to 5 years old will grow 41 percent; vehicles 12-plus years old will increase nearly 12 percent.

Yet the number of vehicles in operation (VIO) will grow by an estimated 5 percent over the next five years to 260 million by 2018, Polk predicted. And the vehicles are lasting longer than ever before.

"There are simply more cars and light trucks for the industry to service than ever before," Mr. Seng said,

However, the changing ages in vehicles on the road will impact the type of repairs the aftermarket will perform, he noted. He predicted there will be more DIFM repairs for vehicles 6 to 11 years old and more DIY repairs and maintenance for the 12-plus-year-old vehicles, a category that also will require more suspension and powertrain repairs.

Polk also noted that the length of ownership for new and used vehicles has increased by 22 months over the last 10 years to an average of 60.9 months in 2013.

Trend #3—Major shifts in vehicle mix

Polk predicted that the major shifts in vehicle mix will impact repair opportunities for years to come.

Four core segments are emerging to dominate the market, making up 60 percent of all new vehicles: mid-size sedans, representing 17 percent of all new vehicle registrations; compact sedans accounting for 16 percent of new registrations; compact CUVs at 14 percent; and full-size pickups at 12 percent. The truck segment is not growing as fast as it once did, but still remains a strong market segment, according to Polk.

Large vehicle segments are on the decline, except for large pickups, with the popularity of 4-cyclinder engines providing consumers with the desired power and fuel-efficiency, Polk said. In 2012, these engines represented a 50-percent market share, growing to 55 percent of all new vehicles purchases in 2013.

"These shifts in the size of vehicles and powertrains will impact aftermarket coverage and inventory decisions for years to come," Mr. Seng said.

Trend #4—Growing OEM globalization

OEM globalization is quickly becoming the new normal, according to Polk, with global VIO growth to set a record of 74 million units in 2013 and another 77 million units in 2014.

Between now and 2020 the annual growth rate is expected to be nearly 4 percent and reach global VIO of 1.5 billion vehicles.

Polk noted that the OEMs are accelerating the use of global vehicle platforms—among the top 12 global manufacturers, the number of platforms is expected to be reduced from 212 in 2012 to 147 by 2020. Ford Motor Co. is leading the way by reducing its number of platforms by 50 percent while General Motors Co., Volkswagen A.G. and Hyundai are coming out with 40 percent fewer platforms.

"As a result, the number of vehicles produced per platform will grow substantially," Mr. Seng said.

"Increasing global vehicle registrations with fewer platforms, more vehicles per platform and increase in the use of modular architecture is a major opportunity for the global aftermarket. This will lead to the use of similar components and the ability to market the same aftermarket products in various regions around the world. Understanding this trend and the complexities of the ever-growing nature of automotive production is key.

"It will lead to lower production, inventory and even cataloging costs for the independent aftermarket supplier."

Trend #5—Technology challenges

OEM technology advances inside newer vehicles will continue to provide the aftermarket with both challenges and opportunities, according to Polk.

OEMs continue to pursue alternative powertrain development. Through August of 2013, gas and electric hybrid vehicles accounted for 3.6 percent of all new vehicle registrations, an all-time high, according to Polk. Diesel vehicles claimed a 2.9-percent share of new registrations during the same period, while electric cars held a 0.3 percent share.

"Both diesels and hybrids have become much more attractive and acceptable to consumers," Mr. Seng said. "Over the past five years, diesels registrations have remained relatively flat, while hybrids have increased their share by 64 percent. One reason for this is simply the number of hybrid models now available. The consumer has 45 different hybrid models to choose from today. Between 2008 and 2013, the number of models of diesel engines increased 21 percent while the number of hybrid models increased 125 percent."

Internal combustion engines still dominate the market, "however, the aftermarket must prepare for new technologies surrounding this traditional powertrain," he said, noting advances in transmissions and fuel injection designs.

He also noted that OEMs' use of the oil change indicator light on the dashboard of newer vehicles will impact the aftermarket's ability to snag additional repair work.

About 52 million vehicles in the U.S. use an oil service indicator light as recommended indication of when to change the oil, representing 21 percent of total VIO, according to Polk. New powertrain technology and the growing use of synthetic oils have extended the oil change interval overall to an average 7,500 miles.

"The days of changing your oil every 3,000 miles are over," Mr. Seng said. Only 0.2 percent of VIO, about 400,000 vehicles, still have 3,000 miles as the recommendation. More than two-thirds of the VIO today, about 165 million vehicles, have recommended intervals of about 5,000 miles.

Repair opportunities are discovered during routine maintenance, Mr. Seng noted, and oil changes are by far the most common service opportunities.

"This lengthening of intervals has the potential to impact repair opportunities in two ways: Not only does it extend the time between visits to a repair facility, but the technology provides an avenue for the OEMs to communicate with the consumer behind the wheel. When the light goes on, the dealer can use telematics to send voice or text messages telling the driver to stop by and take advantage of an oil change special that is available that week, providing an opportunity to find other items to repair as well.

"By recognizing this trend early, the aftermarket can innovate and develop ways to communicate with the driver much the same way the OEMs are planning."

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To reach this reporter: kmccarron@crain.com; 330-865-6127.

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