LAS VEGASPremium is the new value in the automotive aftermarket as frugal consumers take to heart the old adage You get what you pay for.
According to the NPD Group Inc., general consumer retail spending increased 2.5 percent annually as of September compared with the year-ago period, but consumer spending on automotive products alone jumped about 4 percent. And within the automotive category, the top eight premium products (including synthetic motor oil, premium beam wiper blades, performance oil filters, etc.) surged 15.4 percent in dollar growth.
So there's obviously something different going on in our space, said David Portalatin, an industry analyst for NPD Group, who hosted an AAPEX seminar on the automotive aftermarket outlook.
He attributed growth in the automotive aftermarket since the recession to a continued increase in vehicle miles driven and a rise in the average selling price of automotive parts and products.
Average selling price is largely being influenced by the way consumers are defining value in automotive products as they continue to seek out value by not the absolute lowest price but really just the oppositeoften times choosing a higher priced item because they believe there is ROI (return on investment) in that, Mr. Portalatin said.
2015 is turning out to be another good year for the automotive aftermarket, he said. Vehicle miles driven, a key factor that impacts how soon auto parts wear out and maintenance services are needed, increased 1.8 percent in 2014, compared with the previous year, and is predicted to jump 3.3 percent by the end of 2015, thanks to lower gasoline prices. NPD predicts the surge will level off to 1.9 percent growth in 2016.
It's an overall positive environment for selling automotive products but the rate of growth probably will not be quite as robust as seen in past several months, he said
Many consumers, who had cut back on their driving during the height of the Great Recession, have been reverting back to their old driving habits.
Now every month that goes by we continue to set a new record high for total vehicle miles of travel in the United States. We're now at 65 billion miles, on an annual basis, higher than we were at the pre-recession high. So that's good news for everybody in the room, he said.
While consumers are willing to drive around more, they are still tightwads when it comes to general retail purchasesexcept in the area of automotive products.
The automotive products spend is a better value for the consumer today than some other things. So they're kind of holding on to some of that other money right now. We'll see how long that lasts.... For right now, they're holding on to a lot of it unless they are investing it into their vehicle, which they obviously see some ROI in doing that, Mr. Portalatin said.
NPD tracks retail sales in 29 auto product categories and predicts those sales will hit $14.7 billion in 2015, a 4.4-percent increase over 2014.
Average selling price for what is moving through retail continues to grow, he said, and while this helps boost the top line from a dollar standpoint, in some categories it's also suppressing the volume side a bit.
Based on NPD consumer surveys, 71 percent of consumers said reasonably priced is an important attribute in deciding what they buy. Other top attributes that impact their purchase decision are whether the product is made with quality materials, whether it increases vehicle gas mileage and whether it increases engine performance.
So the consumer mindset around looking for ways to create value with those attributes is actually on the increase.... As you think about your products and services and your consumers, there's opportunity for you to create value by offering these differentiated attributes to grow your top line through higher sales. And it's not always about being the cheapest, Mr. Portalatin said.
Based on the consumer surveys, when it comes to automotive related products, for the most part, there's a lot more weight behind the quality end of the spectrum. So that's opportunity for you guys to differentiate in the marketplace, to grow your top line dollars, to focus on what's better, what lasts longer, what performs better, what extends the life of the vehicle or has some other attribute around it that gives value to that consumer besides just saving money at the register.
There are about 500-plus segments in aftermarket automotive products that NPD tracks, and the top eight differentiate premium segments (premium beam and hybrid wiper blades, full synthetic motor oil, premium spark plugs, premium/performance oil filters and air filters, HID capsules and bulbs) added $137 million in sales in aggregate from September 2014 through September 2015, up 15.4 percent compared with the year-ago period, Mr. Portalatin said.
Would you rather grow 15 percent next year, rather than 4? Premium is a vehicle to make that happen, he said.
If I compare the price of a premium wiper blade to the price of the cheapest conventional wiper blade, it's about double. So the same value-driven consumerwho's looking to cut back on how much I drive, trying to save money by extending the life of my vehicle as long as I canis willing to pay double for the beam wiper blade. Now that's a trend. That's a mindset. That's an opportunity that you can leverage your growth.
He noted that the premium categories are priced anywhere from 30 percent to even four times higher than other like items. So the consumer is not walking in the door looking for the absolute lowest rock-bottom price all the time. They're really looking for what's best, what gives me the longest term ROI.
However, as consumers shift toward these premium differentiated segments, such as fully synthetic motor oil, they are extending their service/purchase intervals.
The very same thing that is driving the top line growth is probably suppressing some of the velocity of products moving off the shelf, Mr. Portalatin said.
What we're going to have to do as an industry, we're going to have to be very strategic and get very smart about how do we find the right balance between value and volumebecause we need both. If you don't optimize the relationship between those two, then we're leaving money on the table somewhere.
New car sales in the U.S. are expected to hit about 17 million units by year-end, Mr. Portalatin said. However, the auto aftermarket doesn't need to worry.
If there's 17 million new cars sold, there's probably 30-35 million used cars that are changing hands, too. And those are different kinds of cars with different kinds of behaviors.... It does create opportunity in the marketplace, he said.
Unlike conventional industry wisdom that new car sales are not good for the aftermarket business, I'm going to submit to you today that there is opportunity around both new cars and old cars, he said.
According to NPD's consumer surveys, the vast majority of consumers in 2016 are going to drive the exact same car that they're driving right now. Average vehicle age is moving toward 12 years old, he noted.
A 12-year-old car is not an old car, it's just an average car. And 61 percent of American drivers are going to keep driving that car in 2016. It's actually higher than that because 11 percent 'don't know' whether they're going to buy a new or used car, he said. Another 16 percent of survey respondents said they might buy a new vehicle.
Regardless of the fact that we're going to sell 17-plus million new cars this year, there is still tremendous opportunity in the aftermarket around the existing fleet, which is the majority of the market, of older and aging vehicles that the consumer values and is willing to keep investing in, Mr. Portalatin added.
In the past when consumers would buy a used car, it generally was three to four years old. Today, there is a growth in the number of consumers purchasing cars that are already 10 to 15 years oldbecause it's not an old car anymore. It's an average car, he said. Those cars are good cars, they're lasting a long time.... That's the reality these days, if you take good care of these cars, they'll last and people are demonstrating that they believe that by their willingness to invest in older cars.
The majority of those 11-plus-year-old car owners are saying they're going to keep their cars another four to six years and some even seven or 10 years, he said.
The sentiment is moving in the direction of keeping these older cars longer and longer.
He noted that these older cars are in need of replacement parts that car owners in the past never needed because they never kept the vehicle long enoughsuch as headlight bulbs, lens restoration kits, air conditioning charging kits, etc.
If you're differentiated around premium value or older cars or in some cases newer cars, you can grow your business much, much faster than the average industry rate of around 4 percent, he said.
Mr. Portalatin predicted new car sales will continue to be strong in 2016, but may not be as robust as in 2015. But even an increase in new car purchases can mean an increase in aftermarket auto product sales, he noted, as these car owners tend to buy appearance products.
They're much more enthusiastic about keeping that new car looking new. If you're in the appearance end of the business, you'll know that since the recession hit, a lot of appearance-related categories have struggled as expenditures in those categories were deemed to be discretionary.... Now we're starting to see this very trend reflected by these new car owners is also showing up in retail sales data. We're starting to see appearance categories do quite well.