LAS VEGAS — The U.S. vehicle fleet demographic is changing, so tire dealerships and repair shops would be wise to follow shifting vehicle sales trends that will impact the types of parts and repairs they'll need down the road, according to research firm IHS Markit.
Going forward, there will be more vehicles on U.S. roads, they will be getting older and they will more likely be imported makes and CUV/SUV models.
U.S. new light vehicle sales were predicted to dip 1.4% to 17.1 million in 2019 versus 2018, according to IHS, but 2019 still will be the fifth year vehicle sales topped the 17 million mark, and it will rank as the seventh-highest sales year in the U.S.
IHS predicts that new vehicle sales will plateau at around 17 million units, but the number of vehicles in operation (VIO) in the U.S. will continue to increase.
"I think we win both ways," Mark Seng, IHS' global aftermarket practice leader, told attendees at the recent Automotive Aftermarket Products Expo (AAPEX) in Las Vegas.
"I think anytime we're adding this many vehicles to the fleet every year, we're just adding to our business pipeline in the future and that's a really good thing. And what this is driving, if you add high vehicle sales going forward with the scrappage rate that's remaining relatively stable, it's driving VIO growth," he said.
IHS reported that VIO grew 2% over 2018 and expects VIO to increase about 6% over the next five years.
"That's pretty good growth for a mature market," Mr. Seng said. "Not as great as we see globally. We're seeing about a 13% growth rate globally, but still a pretty strong growth rate for the fleet in the U.S., for a mature market. I look at it as more cars and light trucks to repair than ever before. A great trend for the aftermarket."
While VIO continues to grow, the type of vehicles that offer repair opportunities going forward is changing and will continue to be dominated by SUVs and CUVs, Mr. Seng said.
More miles driven
After the Great Recession of 2008-09, there were about seven years of flat or declining VMT (vehicle miles traveled), Mr. Seng noted.
During the 2014-15 period, VMT exceeded 3 trillion miles and that has been increasing ever since, setting a record every year. But year-over-year increases are declining — in 2018 VMT increased 0.4% and in 2019 VMT was expected to grow 0.9%.
"We are continuing to increase vehicle miles traveled, but that rate of increase is really beginning to decline. And obviously oil prices have a lot to do with this, gas prices and things like that," Mr. Seng said.
"But what this is really telling me is that even though we are increasing vehicle miles traveled, I think with the vehicle miles traveled per vehicle, you and I are probably driving less. A lot of this growth is being driven by the total VIO."
Changing vehicle mix
The type of new vehicles coming into VIO, and eventually independent repair shops, will shift to SUVs/CUVs and away from sedans in the coming years.
In 1985, cars and light trucks were a 75/25 split of market share of new vehicles; in the early 2000s light trucks (which include SUVs/CUVs) overtook cars for market share for the first time, according to IHS research.
Last year 71% of new light vehicles sold were light trucks — a trend driven by CUV popularity. By 2026 the pendulum will have swung the other way with light trucks expected to claim 76% of new vehicle sales, according to IHS.
SUVs and CUVs are now the "family car" of choice and are expected to peak at 9.8 million units in 2024 or 53% of total North American vehicle sales, according to Mr. Seng.
Pickups are expected to capture 19% of sales in 2024.
Likewise the vehicle parc in the U.S. is shifting from predominantly domestic models to import models.
By 2026, new light vehicle sales are predicted to be 44% domestic makes and 56% import models, according to IHS.
In 2002, imports represented 28% of the VIO, today they are 46% of the market; by 2024 they will represent nearly half of vehicles on the road in the U.S., about 49.5%.
Mr. Seng predicted that 8.7% of the import models will be European, 40.7% will be Asian makes and a little over 50% will be domestic vehicles.
When it comes to a breakout of sedans vs. light trucks: between 2002 and today, "Detroit 3" cars dropped 20 VIO market share points while Detroit 3 light trucks edged up 1 share point; import cars gained 6 share points while light trucks jumped 13 share points.
"So the battle right now between imports and domestics is all about the CUVs and the SUVs," he noted.
The shift in VIO market share between domestic and import vehicles (IHS expects a gain of 15 million import units by 2024) is due to a combination of the shift in new vehicles sales to import makes and the increasing scrappage of older vehicles, which tend to predominantly be domestic models.
Mr. Seng said repair shops should follow which models are popular because that impacts what parts/lubricants and repairs will be more common going forward.
The average age of vehicles on the road has been increasing since cars were first produced, due to improved quality and better technology, Mr. Seng said.
Today, the average age of cars and light trucks in the U.S. is 11.8 years, according to IHS.
The aging vehicle population is impacting the automotive aftermarket sweet spot in a good way, Mr. Seng said. The "sweet spot" is the model years that drive most of the repair business and most of the revenue.
The 40% drop in new vehicle sales during the recession created a huge acceleration in average age, Mr. Seng said.
In 2002, with a vehicle parc of 231 million vehicles, 36% were new to 5-year-old vehicles; 33% were 6-11 years old; and 31% were 12 years and older.
In 2019, 30% of the 278 million vehicles in operation were new to 5 years; 25% were 6-11 years old; and 44% were 12-plus years old.
IHS predicts that by 2024 the share of new-to-5-year-old vehicles will decrease 2% while the 6- to 11-year old share will increase 28%.
Meanwhile, the VIO share of vehicles 12 to 15 years old is predicted to drop 27% due to the 40% slump in sales of 2008-2011 model year vehicles during the recession.
"They are simply working their way through the system and they are going to be impacting the 12- to 15-year sweet spot," Mr. Seng said.
However, the share of vehicles 16 years and older is expected to grow 17% by 2024.
"We have to be getting more and more of our repairs from these older vehicles. That's what I mean by thinking about our sweet spot a little differently," he said.
By 2024 there will be an estimated 86 million units of 16-year and older vehicles, compared with 73 million in 2019.
"There will be more vehicles 16 years old or older than in the new to 5-year vehicle range. New to 5-years by 2024 will be 82 million units. About 24 million units will be 25 years or older by 2024," Mr. Seng predicted.
Vehicle age impacts the type of consumer, types of repairs and the total cost of vehicle ownership, he said.
"When these vehicles are older, there will be more repair opportunities coming from these older vehicles, but we will no longer be dealing with necessarily always with the second, the third, maybe the fourth owner. We could be dealing with the fourth, fifth, sixth, seventh owner of the vehicle for all we know.
"And they are going to make different decisions about how much they want to pay for a repair. They're going to want to keep that vehicle on the road because maybe it's just past halfway through its life but they might not want to pay as much for that repair. …
"A good-better-best branding strategy, a pricing strategy, could become much more important going forward as you begin to match the repair to the type of consumer, the person behind the wheel, who's bringing these older vehicles in. Anyway you look at it, it's a great trend for the aftermarket," Mr. Seng said.
ICE still dominates
Despite all the hype about the electrification of vehicles, the internal combustion engine (ICE) will be around for the foreseeable future, according to Mr. Seng.
ICE vehicles are going to remain a "very good" repair opportunity well into the future, he said, but electric vehicles are gaining a little ground in the VIO.
"It's coming. It's not a question of 'if,' it's just a question of 'when' and timing and things like that," he said.
He said most of the OEMs are investing in multi-energy vehicle platforms, such as hybrids that include an ICE. "So that's why we see the ICE staying around for awhile."
In 2019 about 91% of vehicles produced globally were ICE-only engines. By 2035, ICE vehicle production is expected to drop to 48%; but with hybrids included, 88% of vehicle production will involve ICE.
By 2050, 31% of new vehicles will be ICE-only but 62% will be equipped with ICE, according to IHS.
"We still see the ICE, the traditional combustion engine, being a major part of repair opportunities going forward for quite some time," Mr. Seng said.