The sluggish economic recovery and shifting demographics are changing the landscape for the automotive aftermarket. That was the message being given to jobbers and independent service providers at AAPEX/SEMA this year. Many of these changes will be permanent and the aftermarket will have to change if it wishes to remain profitable in the coming years.
David Portalatin, executive director of industry analysis with NPD Group, says the biggest drag on the aftermarket continues to be the sluggish economic recovery. If the aftermarket wants to see sustained growth in vehicle repair and hard part sales, more people need to be working; and the simple truth is that unemployment remains stubbornly high.
While the U.S. unemployment rate was 4.5 per cent in November 2007 at the start of the recession, now six years later it remains above seven per cent, with recent figures putting the unemployment rate at 7.3 per cent in October of 2013.
A result of this high unemployment is that people are driving less. While there were signs that there might have been improvement this year, Portalatin says several factors kept many people from their cars and off the road. “In September 2012, we had a sustained $4 per gallon price on gasoline and we know that when gasoline gets to that level and above, people will shut the car down,” he adds. “”Then in early 2013, we had unseasonably high gas prices. So I don’t think you will see a big revamp of miles driven.”
Currently, the miles driven is closer to what it was in 2004, and all the signs now suggest there is not going to be a change any time soon. “This has been a lost decade in miles driven,” Portalatin adds.
Mark Seng, vice-president, aftermarket and commercial vehicle with Polk, a global automotive market intelligence firm, says a closer look at the number of miles driven shows that the total miles driven has remained flat for some time and Polk sees no change happening to that.
Another significant factor that will hit the aftermarket is the generational shift now happening. As the boomers enter retirement they are fast exiting their peak driving years as the need for daily commutes to work comes to an end. Only the new generation, often called the Millennial Generation, is not taking up the slack, either in new car ownership or miles driven. Part of it is economic as both youth and early adult unemployment remains stubbornly high in North America; but there is a shift as well in how millennials view vehicle ownership and driving.
“They are deferring the start of driving in ways that previous generations did not and they are more inclined to look for transportation alternatives, living in more urban environments where there is good public transit,” Portalatin says. “So the millennials will never fully replace the miles driven by the boomers.”
Polk’s Seng adds recent studies of the vehicle buying habits of millennials and their views on vehicle ownership show many are delaying getting driver’s licenses, and many more say a top priority for them is to live in areas where they can walk to work and walk to places where they can shop.
Polks’ and NPD Group’s findings are supported by a recent study from the University of Michigan’s Transportation Research Institute (UMTRI) that finds millennials are less interested in owning a vehicle or having a driver’s license. Many cite the cost of owning and maintaining a vehicle in a tough economy, especially for many who are having difficulty breaking into the job market in a meaningful way. Others in the UMTRI study see a vehicle as simply a means of getting from point A to B and not something that either defines them — a right-of-passage from the teen years to adulthood — or what is most important for them in getting work done. Connected devices and always available WiFi are tools millennials can’t work without. Many say if they need a ride, they will often catch one with someone else or use public transit.
Still there are some trends within this generational shift that bode well for the aftermarket in the long term. The first is automotive spending is still a top priority for many.
“It is not discretionary,” says Portalatin. “It is something they have to do and this provides an opportunity for you to engage with them about products and services that will help create economic value for them by helping save money over the long haul. In general, about 34 per cent say they are trying to spend less and they are trying to cut back in most areas. But they will spend more money on vehicle repair. It is more economical to repair and keep that [older] vehicle on the road longer as it will help the family budget.”
Polk’s analysis of the average age of vehicles finds that by 2015 the average age will be 11.4 years and will remain pretty close to that up to 2018. By that same year, the number of vehicles on the road in the United States over 12 years of age will increase by 12 per cent.
Polk and NPD say this aging vehicle population means there will be increased spending on parts and services that will preserve or extend the value of these vehicles. Vehicle owners also say they will do more frequent maintenance and will replace more often such things as filters, tires, spark plugs and invest in additives and fluids; and they will spend on premium, high quality aftermarket parts.
“Automotive consumers, more than any other category, define value as more than just price,” Portalatin says. “You have an opportunity to create value that is not based on price. The lowest price is not the driving factor. People would rather pay more and get quality and have the work done right than focus on the lowest price.”
This is already being seen in unit volume sales and dollar value. Over the last few years, the unit volumes sold on parts is declining, but the dollar value on the parts sold is growing. What is happening is a shift to premium products that come with premium pricing. People are focusing on quality, durability and the value an aftermarket part or service is offering and are willing to pay a premium price to get it.