The Untapped Wealth of Underperformed Maintenance

cross Canada and the United States, the tough economy of the last few of years has caused many owners of older vehicles to postpone a range of needed maintenance work. This represents an untapped and profitable market for both parts suppliers and installers.

The AIA’s recent ‘Canadian Automotive Aftermarket Demand Study: Your Door to Door Opportunity’ with DesRosier Automotive Consultants Inc. (www.desrosier.ca/www.aia.ca) pegged the total retail value of automotive parts and services in 2010 to have reached $18.49 billion. If Canadian vehicle owners diligently followed recommended service intervals, however, the aftermarket would have grown to some $30.4 billion. This represents a revenue opportunity of $11.91 billion within the Canadian marketplace that is being untapped.

The study breaks this down further for the Canadian market: “Comparatively, the additional opportunity available in 2008 reached $10.33 billion. This equates to a 15.3 per cent rise in the additional potential demand available from 2008-2010 . . . Over the two-year period, vehicle registrations increased by 800,000, yielding additional potential. Further, Canada’s fleet has gotten older, and older vehicles require more maintenance. Most notably, the proportion of vehicles aged eight-12 years increased from 26.5 per cent to 28.7 per cent. This equates to an additional 693,000 vehicles joining by far the most lucrative age group in terms of aftermarket dollars. This group along saw total potential demand rise from $9.32 billion in 2008 to $10.4 billion in 2010.”

To stop any speculation this in only a Canadian phenomena, the trends are similar in the United States. The ongoing recession, in fact, has changed people’s perception of the value of older vehicles. Remember, this was once a culture where vehicles, even a scant few years old, were regularly discarded for shinny new ones, and families had three new cars sitting on the driveway.

“The way (people) think of a 10-year-old car today is different from a few short years ago,” said David Portalatin, executive director of industry analysis with the NPD Group (www.npd.com). “More consumers are saying they will keep their older cars, on average, five more years; and those consumers are more willing than in the past to spend on those vehicles in order to keep them in good repair and to keep them on the road longer. In this economic environment, it is a better value proposition than simply replacing the vehicle.”

While economic conditions have certainly shifted people’s car ownership habits, it has not necessarily meant a greater willingness to spend on regular vehicle maintenance. Tough economic times mean people cut back on expenses. One such expense, it would seem, is regular vehicle maintenance.

“The weak economic recovery and high unemployment/underemployment levels continue to impact underperformed vehicle maintenance in the United States, as vehicle owners postpone important upkeep and repairs,” said Paul McCarthy, vice-president, industry analysis, planning and member services, with the AASA-Automotive Aftermarket Suppliers Association (www.aftermarketsuppliers.org). “According to the 2011 edition of the AASA’s annual industry analysis publication, ‘Automotive Aftermarket Status Report,’ unperformed and underperformed maintenance in the United States grew by US$8 billion to a stunning US$62 billion in 2010. This tied with the second-highest level ever recorded by AASA in 2002, which was reached during the recovering from the last economic downturn.”

McCarthy continued that while the revenue totaled an estimated US$183 billion in 2010, it would be substantially more “if consumer had performed the maintenance they should (have) to keep their vehicles safe, reliable and running efficiently, the aftermarket would have totaled US$245 billion. In other words, the ‘untapped market’ represents a significant 26 per cent of total aftermarket potential – a quarter of the industry’s potential market is missing.”

NPD’s Portalatin added that while consumer may be deferring some kinds of maintenance work, there are others that cannot be deferred for extended periods. He points to such things as suspension work. When the recession began in 2008, many vehicle owners postponed suspension maintenance and replacement. One-third of owners surveyed by NPD said they knew such service was needed, but had decided to forgo doing the work right away. By, mid-2009, Portalatin said, suspension part sales were growing at double-digit rates in the United States

“The categories that will do the best are going to be the ones that are least discretionary in nature,” he added. “Batteries are one such category. If you go to your car and the battery fails, you can defer that purchase. It is just you won’t be going to work that day.”

“The largest divergence of the actual and potential market is seen for engine/power work,” AASA’s McCarthy said. “The engine/powertrain work category included alternators, fuel pumps, ignition wire sets, starters, constant-velocity joints, transmission filers and transmission repairs. The purchase incidence method values the 2010 market for engine/powertrain work at US$12.3 billion. Using maintenance intervals, the market should have been worth considerably more, at US$38.5 billion.”

Undercar work is another neglected area of maintenance work and revenues. These include service jobs and components as alignments, calipers, catalytic converters, exhaust pipes, mufflers, shocks/struts and steering assemblies.

“Using the purchase incidence method of estimation, undercar work was worth $US$27 billion in 2010, versus a $40 billion potential market under the maintenance interval method,” added McCarthy.

Areas of underperformed service include wheel alignments, shock and strut work, and battery replacement. “For every 100 vehicles on the road, an additional 0.6 wheel alignments, 5.4 shock or strut jobs, and 5.6 battery replacements are required. Across the whole fleet, underperformed work corresponds to (a) missed opportunity of $12.2 million, $453.6 million and $135.4 million respectively,” the AIA’s study reports.

In Canada, when comparing the recommended maintenance intervals on several key parts categories (batteries, brakes, cabin air filters, coolant, oxygen sensors, shocks and struts, transmission fluid and wheel alignments) with the actual maintenance performed, reveals similarly large sums of unrealized revenues.

According to the AIA’s study, a total of 14 million maintenance jobs that should have been performed in those categories were not done in 2010, with work either being delayed or forgone all together. It amounts to $2.43 billion in unachieved revenues, or $111 per light vehicle on Canadian roads today.

While $111 per vehicle does not sound like much, shop owners and managers should take out the calculator and simply take that figure and multiply it by how many vehicles come in the shop per day on average and then start using that figure to calculate how much is left untapped for the whole year.

To simplify things, take a hypothetical shop that worked on 10 cars that day. Using the AIA’s figures, that means $1,110 of potential revenue was possibly lost because of unperformed maintenance work.

If you are a parts supplier, that figure should give you a lot to think about for how much revenue is being lost to your business.

While the continuing economic uncertainty may cause some to despair, analysts suggest there is still a lot of hope in the aftermarket with a great deal of potential for parts suppliers and independents to generate profit and growth.

“The automotive aftermarket significantly outperformed the original equipment (OE) sector and the general economy during the last downturn and in most recessions,” said Steve Handschuh, president and COO, with the AASA. “Longer term, the new U.S. fuel economy regu
lations are good for the aftermarket, as they will reduce the cost per mile driven, serving as an economic incentive for mile driven and hence the aftermarket. Bottom line, in AASA’s 2011 Q3 Barometer, 89 per cent of automotive aftermarket suppliers predicted growth for their company in 2012.”

NPD’s Portalatin added parts suppliers can help drive parts sales and tap into this vast underperformed service market by helping educate installers on the value of aftermarket parts for vehicle owners. The reality, according to Portalatin, is today’s vehicle owner is putting a greater premium on quality than on price.

“Consumers tell us they will spend a little bit more if they believe the product will last longer or improves the efficiency or longevity of their vehicle,” he added. “This is a great opportunity for parts suppliers and installers to appeal to the consumer’s sense of value. Aftermarket suppliers and installers will have to work hard to communicate their expertise and parts availability. The overriding theme we hear from consumers is they would prefer in 2012 to go to an independent repair facility.”

For independent service shops, the challenges will not just be educating vehicle owners on regular maintenance. It will be finding new ways to get that message out through social media and other online media, to use more effectively their customer databases and software to get vehicle owners into the bays regularly.

For parts suppliers, it means getting not just having parts available, it will require providing shops with training and support on new products, sales materials and support for social media and online initiatives to reach vehicle owners to help promote maintenance, the shop’s skills and the quality of the parts available.