Independent repair shop operators and tire dealers should grab the opportunity to bolster service sales and their client base even though consumers are expected to remain cost-conscious for the next several years, according to Frost & Sullivan, an industry research firm.
“(Consumers) will push away from the perceived high-cost services of the OE channel toward lower-cost providers,” said Mary-Beth Kellenberger, global aftermarket program manager for Frost & Sullivan.
“Consumer interest in trying new services is extremely high. They are looking for a means of saving costs. They're looking for new opportunities more than they ever have before. They're willing to try new services and so that has opened the door for a lot of aftermarket providers who consumers may not have traditionally tried,” she said.
The economic situation in the past two years “created some really unique circumstances such that consumers were forced to make dramatic changes in their consumption behavior,” Ms. Kellenberger added. But the hypothesis that the automotive aftermarket would come through relatively unscathed because of the belief that as long as people were driving, they would continue to repair their vehicles “was not entirely correct.”
While consumers were holding on to older vehicles, they delayed repairs and maintenance. “Consumers shifted their behavior dramatically in 2008,” Ms. Kellenberger said, noting vehicle owners held off on repairs, cut back on the type of repairs and scaled back on the quality and price of parts.
This presents both opportunities and challenges for service shops, she said.
The opportunities will come in the form of larger repair bills later as consumers delay and thus compound a repair issue. The challenge is that the changes in consumer repair demand cycles wreak havoc on shops' employment planning and revenues.
The last couple of years were a transitional phase for the aftermarket: There were less commercial vehicle repairs as trucks shipped lighter loads; employee layoffs meant less wear and tear in the vehicle population; and consumers delayed repairs and deferred parts purchases.
“Consumers sought out lower quality parts to save money and price dominated nearly every decision, including location choice,” Ms. Kellenberger said. As consumers are willing to try other service shops, dealerships have the opportunity to forge new relationships with a new client base, she added.
However, as consumers shift to the aftermarket, repair shops will need to broaden their skills and equipment to support all vehicle makes and models. This year, 63 percent of vehicles in operation in North America are Fords, General Motors and Chrysler models. But Frost & Sullivan predicts 13 percent segment growth in foreign models during the next few years.
Repair work five years out is expected to decline due to a lower vehicle population as fewer new cars were sold in 2009 and 2010.
Last year there were nearly 250 million vehicles on the road in the U.S., according to Frost & Sullivan, and it predicts that population to only grow 0.1 percent over the next several years. About 78 percent of those vehicles are model year 2005 and older.
About 86 percent of vehicles on the nation's roadways are in the post warranty phase. After the new car warranty period expires, “consumers abandon the dealer channel to 'perceived' lower alternative services. I say 'perceived' because (car) dealers are doing a great deal to improve their competitiveness on parts pricing,” Ms. Kellenberger said. “During the warranty, consumers are not required to stay with the dealer but feel compelled to because the vehicle is new and they want the best attention for the vehicle they believe only the maker can provide.”
She noted there has been a steady increase in the number of independent and franchise tire dealerships, gas stations with service bays and lube/oil outlets. This offsets the steady decline in specialty repair shops, retailers with service bays and collision repair shops and the “dramatic drop” in the auto dealership channel in 2009.
The closure of numerous auto dealerships had a negative impact on the aftermarket because this segment has the highest concentration of bays and skilled techs, and it is the largest consumer of premium equipment and training, according to Ms. Kellenberger.
The loss of car dealerships has a greater overall affect on the aftermarket than the loss of independent outlets because of the difference in the number of bays and amount of customers—a 4-to-1 ratio, Frost & Sullivan noted.
As the auto dealership count declines, the firm predicts a trend toward consolidation of service shops as they align themselves with name brands and banners to boost consumer awareness and capture new customers.
There were 18,348 tire dealerships in the U.S. in 2009, among the total of 257,975 light vehicle repair locations nationwide.
“We see a consolidation toward franchise brands or flying a banner to associate themselves with a well-known brand becoming a common practice in the independent channel,” Ms. Kellenberger said. This trend likewise will create fewer customers for suppliers, she added.
The parts distribution channel also is facing challenges because of the declining number of service outlets. There has been a shift to private brands and the devaluation of national brands, according to Frost & Sullivan. The decline in the number of car dealerships will challenge the tool and equipment industry, which is faced with fewer outlets that require leading edge equipment to service new OE models.
“The dealer channel is the most likely to have the most current equipment, the most likely to have the highest level of technician training and the historically highest level of technicians with the highest levels of certification,” Ms. Kellenberger said.
“Technicians who leave the dealer channel are not likely to receive the same level of additional training. Overall knowledge and skills are expected to decline because the dealership portion declined.”
So when it comes to advanced repairs and diagnostics that newer vehicles require, “consumers are expected to lose out,” she added.
“There is a potential for stratifying services where you have low-cost services and premium services delivered by experts,” she said. “Pay scales will reflect the repairability skills of the technicians.”
In 2009 there were an estimated 870,000 auto technicians—38 percent of which were ASE certified.
“Despite the efforts in the industry to improve skills and standardization, most technicians don't carry any form of ASE certification,” Ms. Kellenberger said, noting that during the past four years, the certification rate has actually declined by nearly 8 percent.