Key automotive trends outlined at industry gathering are mostly good news for the aftermarket. But there's a threat on the horizon: the waking giant that is the automotive OE dealership.
A prominent analyst says automotive trends are largely headed in a favourable direction for the aftermarket.
Tim Rogers, president of automotive consulting company Polk, outlined five key trends at the industry’s 2011 “Town Hall” meeting in Las Vegas last month.
1. Light vehicle sales are trending upward… but not quite as fast as they were expected to rise.
“They’re heading in the right direction,” he said, “but after a strong start, sales lagged over the summer.
He said the U.S. appears to be on pace for 12.7 million units sold in 2011. That would be 10% higher than last year. Light vehicle sales should recover to 16 million units by 2015. That’s 10% higher than last year, and is due largely to a slower economic recovery than anticipated. Light vehicle sales should recover to 16 million units by 2015, he said.
2. There are more cars in the aftermarket sweet spot than in the OE sweet spot.
Due to declining auto sales, the number of cars three years old and newer has declined 15%. It has declined by 15 million units in the past six years alone. In the same time period, vehicles 11 years and older have increased by 13 million units. That accounts for a nearly 20% gain in the population of older vehicles, over those being covered by a three-year warranty.
“That provides new opportunities for aftermarket service providers,” he said.
3. The average age of vehicles in operation continues to rise fairly rapidly.
It has risen about 10% in the last five years. This is driven not only by a decline in new vehicle sales, but by a trend in vehicle ownership. Length of ownership continues to increase. There’s been an 18-month increase in the length of ownership in the past 10 years. This is aided by the difficulty of getting credit and the decline in new vehicle sales in general.
“And we’ve also seen a dramatic decline in the scrappage rate in the last 8-10 years. It has declined 50% in the last six years,” he said. “Now that’s a trend!”
As light vehicle sales recover, this will slow down. The makeup of vehicles in operation has also changed. There are now more import vehicles on U.S. roads than domestic. (Imports are defined by nameplate not country of manufacture.)
4. “We see no end to the parts proliferation problem in the aftermarket.”
He said the growing number of automotive parts is one of the biggest challenges for distributors who must devise intricate strategies to make available what auto repair shops need.
5. OEs and their dealer networks should be considered the awakening giant.
The OEMs are not unaware of the profit and revenue opportunities represented by the aftermarket. Despite softening new-vehicle sales and declining revenue per vehicle, dealer profits hit a 24-year high last year.
The average dealership profit rose 60% last year. Surging used vehicle prices helped. But much of it came from increased parts and service sales. And it didn’t come from taking share away from the aftermarket. Dealer share of service has declined steadily since 2000, dropping nearly 5% in the past decade. Rather, OEs are living off business that had been orphaned by the 15% reduction in the number of dealerships in the past three years.
“Their new focus on service loyalty should be taken very seriously,” Rogers said. “In the past loyalty strategies aimed at keeping new-car buyers in the family (making sure they bought another car at the dealership next time). Now they’re applying this principle on retaining loyalty of car owners during the life of the vehicle, not just during the first four years when they have their attention.”
“The goal is to keep customers from switching to the aftermarket when the warranty period is up at four to six years of age. This effort is directed directly at the aftermarket sweet spot. They’re using special deals, as well as increased use of communication technologies that leverages vehicle ownership data between the sales department and the service department,” he said.
Dealerships are using predictive models to deliver personalized messages to car owners, alerting them to recommended maintenance schedules, recalls, and other maintenance opportunities specific to their make and model of vehicle.
“It’s the right message to exactly the right person at exactly the right time,” he said. “And they’re using e-mails texts and mobile communication to do it. They’ve collected the communication preference of the owner at the time of purchase. They’re using websites to encourage consumers to register their vehicle and track maintenance online.”
They also offer special coupons, rebates and special offers through the website to forge a long-lasting relationship between the vehicle dealership and the vehicle owner. Growing vehicle technology like telematics are also being employed.
“The ultimate goal appears to be direct two-way communication between vehicle ownership and dealership,” he said. “A key strategy is to keep non-warranty work within the dealership. Owners will be able to schedule regular service while sitting in the car.”
Rogers concluded his presentation on a note of optimism, saying he believes the aftermarket has what it takes not only to adjust to these trends but to take advantage of them as well.
“The independent aftermarket has the advantage of a long-standing relationship with the car owner,” he pointed out. “Consumers have always perceived the independent market as more trustworthy, more convenient, and providing more value than the OE alternative.”
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