LAS VEGAS—New vehicle sales are on the rebound, old cars are getting older and CUVS are growing in popularity—all trends that likely will impact the automotive aftermarket and auto repairers in the coming years, according to IHS Automotive.
“It gives us the opportunity to do what we do best in the aftermarket, and that's adapt and innovate and be able to come up with new ways to serve these new-generation vehicles. We've done it before, all we have to do is do it again,” said Mark Seng, global aftermarket practice leader for IHS who provided his annual synopsis of five trends in the automotive industry during a seminar at the recent AAPEX event in Las Vegas.
He noted that low gasoline prices have fueled an increase in vehicle miles driven in the U.S. since the Great Recession: up 1.7 percent in 2014, compared with 2013, and up 3.4 percent just during the first seven months of 2015. August 2015 generated the largest recorded VMT (vehicle miles travelled) for the month.
Mr. Seng said he doesn't expect gasoline prices to increase significantly anytime soon. However, VMT could be negatively impacted by baby boomers retiring and younger generations favoring “walk-able” neighborhoods, thus reducing the amount of driving for work and errands.
He outlined five trends involving consumer buying habits and OEM vehicle designs that will impact the types of parts and services auto repairers will need to focus on in the near future:
*Light vehicle sales continue to grow.
New vehicle registrations in the U.S. reached 16.5 million units in 2014, the first time the market broke 16 million since 2007. IHS predicted 2015 registrations would break 17 million for the first time in 10 years and total about 17.3 million units.
“We have an opportunity to break the all-time record in new light vehicle sales ever in the United States, which was set back in the year 2000, when we hit 17.33 million units,” Mr. Seng said. He predicted sales to reach 17.8 million units in 2016 and peak at more than 18 million in 2017.
“People want to go out and get that second vehicle, that third vehicle, and that's really what's driving light vehicle sales through the roof.... They also want to get the new technology that's on the vehicle as well,” he said.
But aftermarket auto repairers shouldn't be dismayed by the increased number of new vehicles on the road, he said.
“I look at it as our future business pipeline. Anytime you are adding vehicles to the fleet, there's just more opportunities for repair going forward. So it's a great trend for the aftermarket,” he said.
*U.S. vehicle mix continues to shift as consumer preferences evolve.
Non-luxury segments are dominating the new vehicle market, representing more than 58 percent of all new U.S. registrations in 2014—compact CUVs accounted for 15.7 percent; traditional mid-size cars and traditional compact cars, 15.1 percent each; full-size pickups, 12.2 percent; and mid-sized CUVs, 7 percent.
Mr. Seng said the same trend continued through 2015, with a shifting within those four segments toward CUVs.
“You can see since the recession the CUVs have made a huge increase and are way past the pre-recession levels. Other body styles haven't made it back to pre-recession levels. So it's a huge shift to the CUV body style,” he said.
Part of the allure of the smaller vehicles is the new powertrain technology that “allow consumers to take a four-cylinder engine, put it in a little bit bigger vehicle that they'd like to have, but still get the fuel efficiency that they want and need. And we're seeing a huge growth in these powertrains,” Mr. Seng said.
He also noted that repair shops will be noticing more import vehicle models coming into their bays in the near future.
Of the vehicles in operation in the U.S. in 2015, import model cars represented 27.3 percent of VIO, up 4.5 points; and import light trucks 15.7 percent, up 5.5 points. Domestic models made up 19.6 percent, down 8 share points from 2007, and domestic light trucks accounted for 37.4 percent, down 2 share points.
*The aftermarket repair 'sweet spot' is changing as vehicles continue to age.
Average vehicle age in 2002 was 9.6 years and it has been gradually increasing as technology improves and getting a big boost during the recession. The surge in vehicle age during the recession was mainly due to a 40-percent drop in new vehicle sales, Mr. Seng said.
Average vehicle age was expected to reach 11.5 years in 2015.
“We've seen a huge increase, as you can see, in the average length of ownership that people are just hanging on to their vehicles longer. So this, combined with a light vehicle sales drop that we saw following the recession, caused that massive increase or that acceleration in average age,” he said.
Going forward, the number of vehicles that are new to 5 years old is expected to grow 24 percent between now and 2020, Mr. Seng predicted, while the number of vehicles 6-11 years old is expected to decline 11 percent due to the lack of 2008-2010 model year vehicles on the road.
The latter group had been considered the aftermarket “sweet spot” because most vehicles this age are due for repairs.
Mr. Seng said the new sweet spot will be older vehicles, those 12 or more years old, which are increasing by 15 percent in the VIO. He called this a “huge positive trend for the automotive aftermarket.”
“I think we need to think about that sweet spot a lot differently. We've been defining the aftermarket sweet spot, those years where most of our repairs come from, pretty much the same way for the 25 to 30 years I've been knocking around the aftermarket. And that was back when the average age was about 8 years old....”
Vehicles 16-plus years old represented 35 million units in operation in 2002; in 2015, they accounted for 57 million; and by 2020 there will be 76 million units, he predicted.
About a third of these vehicles are import models and they will become a larger and larger portion of these older vehicles, Mr. Seng noted.
“Our sweet spot is not shrinking at all. I think we need to start thinking about that sweet spot differently. We have to be getting more and more of our repairs from these older vehicles and for me, this average age trend is a great trend for the automotive aftermarket.”
*OEM 'mega platforms' are emerging and will drive global vehicle equivalents.
“There's going to be more and more vehicles being made on these large platforms. Fewer platforms overall but more and more vehicles being made on these platforms...,” Mr. Seng said, meaning that more vehicles around world will be using similar parts.
In 2013, 38 percent of global new vehicle production used global platforms, increasing to 55 percent in 10 years, Mr. Seng predicted.
“So 55 percent of vehicles made around the world by 2022 are going to be made on these global platforms. There's going to be fewer platforms but much more volume per platform.”
*Technological complexity is coming quickly—on multiple fronts.
OEMs are trying to increase fuel efficiency to meet federally mandated targets and are focusing on such technologies as start-stop capability, cylinder deactivation, all-wheel-drive disconnect and automatic transmissions with more speeds.
Mr. Seng said that stop-start and gasoline direct injection are two dominant, cost-efficient technologies OEMs are investing in.
The stop-start feature is expected to be included in half of all vehicles and GDI in two-thirds of all vehicles manufactured by 2021, he added.
Also, by 2022, about 73 percent of all new passenger vehicles sold will have onboard OEM connectivity.
“We need to help maintain consumer control of the onboard software and data. There's going to be a huge obvious Washington push...to make sure that data remains available for the consumer to make decisions about who gets it and how repair decisions are going to go forward. So obviously it's very important for all of us to not only pay attention but take active roles in that,” Mr. Seng said.
To reach this reporter: kmccarron@ crain.com; 330-865-6127; Twitter: @kmccarr