Future looks bright for automotive aftermarket

LAS VEGAS — The automotive aftermarket is in a healthy place — vehicles are getting older and in need of maintenance and repair; consumers are driving more and putting wear and tear on their vehicles; and the number of vehicles on the road continues to grow, according to Todd Campau, aftermarket practice lead for S&P Global Mobility.

He and other industry analysts at the recent AAPEX event predicted a healthy outlook for the industry based on current consumer trends.

The average vehicle age, now at 12.6 years, continues to climb; people are driving more miles per year; and younger consumers are starting to buy and maintain vehicles.

"With new vehicles being expensive, … I think we have a lot of runway for average vehicle aging, for vehicles staying on the road," Campau said.

The number of vehicles on U.S. roads exceeds 280 million, Campau said, more than 7 million above the low point after the pandemic. That volume is expected to continue to grow.

"It seems that even though we've seen some hybrid work, some work from home and other things, consumers are still making the decision with their purchase that they want to have vehicles in the driveway. And so, in general, that's good news for us," Campau said.

Nathan Shipley, executive director, industry analysis-automotive, at Circana Inc., noted that as retail prices have increased, he expects lower-income consumers to continue to defer or stretch out maintenance next year and to trade down from top tier products.

New vehicle sales are expected to reach about 15.9 million units this year, compared with 15.6 million last year. Over the next few years, S&P Global expects new vehicle sales to reach 16 million to 16.5 million units — what's considered a normal range.

Dealership lots are full of vehicle inventory after several years of supply-chain disruptions, so some OEMs may be offering incentives to move inventory.

"We're still at $44,400 on average for a new vehicle sold in the United States, which is pretty substantial when you think about it," Campau said, noting that figure is up 32% from 2018 pricing.

He noted that the average cost of a vehicle has remained at about 45% to 55% of average household income each year for the past 20 years.

"We kind of expect that to continue in the future," he said.

Fleet growth is being driven by new registrations and low scrappage rates, Campau said. "So pretty much a normal flow of vehicles coming in and going out."

Campau expects average vehicle age to continue to grow but then plateau in 2026.

The average age for passenger cars is 14 years old, while light trucks are averaging 11.9 years old.

The average age of crossover vehicles is now 8.7 years, considered within the aftermarket repair sweet-spot age.

New vehicles sold during the pre-pandemic years — when annual sales eclipsed 17 million vehicles — are now showing up in aftermarket service bays.

"I think the really good news for the aftermarket is in those new vehicle sales years from 2015 and 2019 when we have five years of 17 million new vehicles sold. It was the highest five years ever. It was the only time we got five years of over 17 million in U.S. history for new registrations," Campau said.

"All those vehicles between now and 2029 are going to begin to drop into what we would call our aftermarket sweet spot, that six to 12-14 years old, depending on what your product is. All those five years of new vehicle sales are going to drop into our laps, and we're beginning to see it now."

The VIO will also have more older vehicles, in the eight- to 10-year age group and the 12-and-older age group, going forward.

"We're going to see 20 million units in the 12-plus (age) cohorts, a 20 million increase in that cohort in the coming five to 10 years," he said.

"The good news here is there's so many more vehicles that are coming into our sweet spot for repair. The opportunity should be really strong for the aftermarket for the next five years, really through the end of the decade."

He noted that, in general, a car can stay on the road about 207 months (over 17 years), aggregating all the vehicles coming off the road. For a truck, it's about 214 months (17.8 years).

By 2030 S&P Global expects the number of vehicles on the road to eclipse 300 million, with about 5% of vehicles entering the fleet and another 5% that are scrapped.

After the pandemic, analysts speculated as to whether the vehicle miles traveled (VMT) metric would drop as more people continued to work from home.

"We actually very rapidly saw people return to driving their vehicles. They might not have been driving them to work like they did before, but they were finding reasons to get out," Campau said. VMT in 2022 was essentially on par with the rate prior to the pandemic.

VMT has continued to increase, despite inflation, high interest rates and increased gas prices.

S&P Global is predicting VMT to be about 13,000 miles per light vehicle, for a total of about 3.7 trillion miles traveled on U.S. roads by passenger cars and light trucks this year.

The number of sedans on the road is declining amid the continuing popularity of larger CUVs.

Cars represent about 34% of the vehicles in operation (VIO), while utility vehicles account for 41%, with pickup trucks staying flat at about 21%.

CUVs for the first time accounted for 50% of new vehicles sold in 2023 and that percentage is expected to grow for the foreseeable future, Campau said.

"It's no secret that the crossover utility vehicle is the prevailing choice for consumers in the United States over the past decade. What's really interesting here, I think, though, is when you look at trucks. Traditional pickup trucks are just steady, as the data is long, accounting for about 20% of new vehicles sold year after year after year," Campau said.

Campau noted that there used to be some concern that young people were not interested in driving and in owning cars.

"I would say from what we're seeing, it's not that they weren't interested in driving, it's just that it was delayed, and they're starting to pick up, as they get into that late 20s and early 30s range, with buying more and more vehicles. So I think that bodes well for the health of our industry."

He noted that there are 5 million more vehicle owners under the age of 35 now than in the past 10 years.

So while owning a car at age 16 may no longer represent a rite of passage for the younger generation, they are still pursuing car ownership as they get older, have jobs and start families, he said.

Campau also noted that on average a vehicle is owned by three or four people over its lifespan, so there are different personas maintaining the vehicle over its life. And as the vehicle ages, the third or fourth owner is going to make different decisions on repair and maintenance than the original owners, he said.

Prices have surged on many consumer goods, tires not withstanding, which has impacted lower tier brands, according to Circana's Shipley.

Rising tire prices create more of a shock on consumers than products bought on a weekly basis.

"This is tires. That's a category where maybe you haven't bought in three or four years, and you walk into a store to buy tires, and all of a sudden there's a 50% price increase on the tires we bought four or five years ago. It's absolute sticker shock.

"And so we're seeing tremendous trade down in that category among others, but it's affecting all things related to the aftermarket," he said.

Circana has tracked a shift to lower-priced tire brands.

"We've seen tier four brands overtake tier one brands in terms of their unit share," Shipley said.

He said it will be interesting to see future purchases of consumers who traditionally bought tier one tires and switched to buying a tier four tire for economic reasons: Will they continue to buy tier four tires?

"Now they've tried a tier four tire. What's that experience like? Is that experience better than they were expecting? Maybe they're quiet. Maybe they last just as long. Whatever that experience is, what does the next purchase look like?

"So I've always thought during times like this and we're seeing consumers trade up or down, is there a point in the future where it does go back or does it stick?"

According to a Circana survey, 80% of consumers who said they switched to a private label did so for a better price.

"Almost a quarter of them told us better quality, which is absolutely counterintuitive to what private label has traditionally been. But private label in our industry, for a lot of categories, is not what private label was 20 years ago."

Shipley also said the automotive aftermarket still has strong in-store sales versus online.

Consumers still research online before making a purchase and they make sure the store has the product in stock, but they often then go to the store to pick up the product.

According to a consumer survey, 60% of respondents said they buy in store because they can get it faster and they want to see they are getting the correct item.

"So those two reasons, speed and being able to see it, those are ones that, as an industry, we've always hung our hat on as kind of an ecommerce defense, and it still holds true," Shipley said.

Car dealerships are becoming a bigger competitive threat to independent shops for several reasons, according to industry analyst Jim Lang.

"With technology increasing and a lack of technicians — I think dealers are able to retain technicians, maybe easier than the independent side. They have more benefits and so forth. But the real issue is the profit structure of the dealership has changed, that is, the two main profit providers are used vehicle sales and service. …

"I think that dealers will become more competitive in the aftermarket simply to maintain their profit structure from their base, and they're open longer. Many of them have added quick lanes and so forth, so they recognize the importance of providing longer service, more dependable service, and they become more price competitive, too."

He said many car dealerships are also selling tires as a way to attract more add-on vehicle service business.

"If you get that tire business at the dealership, and you've got a quick lube lane there as well, you can gain more repair business, plus you get business from people other than your own name plate. A fairly large percentage of that quick lube business at the dealership is for name plates other than what they sell new."

Lang suggested independent shops should specialize on certain nameplates or types of vehicles, especially when different nameplates require specialized tools and training.

"So I think specialization is becoming more and more necessary to the survival of shops. Become a brake specialist, become an undercar specialist, become a foreign specialist. Work on just Japanese cars, or whatever.

"I think specialization, because that reduces the tool and equipment investment. It also reduces the need for training because you're getting trained just on a certain set of vehicles or a certain kind of repair. So I think specialization is easier to advertise. 'I'm a brake specialist.' 'I'm an undercar specialist.' 'I work on Japanese cars. That's who I am,'" Lang said.