Where is the Aftermarket going?

This year’s AAPEX show in Las Vegas was not only an opportunity to see new automotive technologies and services, it also featured several excellent forums for understanding the trends that will impact independent service providers and aftermarket parts makers over the next several years.

This year’s forums focused on several issues, both economic and demographic. David Portalatin, executive director of Industry Analysis with The NPD Group Inc. said his company’s most recent survey of consumer trends suggests the continued uncertainty surrounding the economic recovery is still making itself felt in how people are spending disposable income. While there are signs that consumers are growing more optimistic about the overall economy, they are still reluctant to spend too freely because they are worried about their personal economic security.

“But consumers do expect to spend more on gasoline, vehicle repair and vehicle purchases than they were a year ago,” Portalatin added.

This is to be expected as many vehicle owners cut back on vehicle maintenance for the last four years and there is now a pent-up demand that will make itself felt in the independent aftermarket. Vehicle maintenance can only be postponed for so long.

Another trend that will play into the upward pressure on vehicle maintenance spending is the growing age of the vehicle fleet. Portalatin said while new vehicle sales will rise, the numbers will never reach the 17 million vehicle sales per year that was common before this recent recession.

“The reality is that even if we sell 15 million new cars this year, there are still 47 million vehicles on the road right now, so the reality is that the vast majority of Americans are going to drive the same car next year as they did in 2012,” he added.

Mark Seng, vice-president, Sales and Client Services and Aftermarket and Commercial Vehicle Solutions for Polk said the average age of vehicles “stands at about 11.3 years right now.”

This growing number of 10 year-old-plus vehicles on the road indicates an important change in consumers’ feelings about older vehicles. Driven by a growing economy and easy credit and financing options, many pre-recession vehicle owners were quick to dump their cars after a few years to purchase or lease a new vehicle. Few people were interested in investing in an older vehicle.

“We need [as an industry] to focus on this eight-to-10-year-old-plus segment of the vehicle market as consumers have now started to revaluate how they feel about that 10-year-old vehicle,” Portalatin said. “Where five years ago, [consumers] would not have invested in such a vehicle, they are now willing to do so … so the eight-to-10-year-old vehicle cohort will become the largest vehicle cohort out there on the road. We now have a segment of consumers who will invest in their older vehicles and this group will be a major source of growth for the aftermarket. We will need to identify who these people are and what their needs are, as they will become the major source of aftermarket growth for the next several years.”

Investment in Quality

What is unique about this cohort of vehicle owners is while they are careful with how they are spending their dollars – worried as they are about their personal economic situations and the overall economy – when they are going to spend dollars on their vehicles, they want to make sure they are getting the most for those investments. They are looking for quality parts and services that will add value to their vehicle and keep it on the road.

“These vehicle owners are much more likely to do more frequent maintenance, they will use fuel additives, premium motor oils and other premium automotive products,” Portalatin added. “Premium means offering greater value on that part, oil or additive. It has to last longer, perform better and keep the value of the vehicle.”

One of the more interesting discussions at this year’s AAPEX show is the impact of the Millennial Generation on the aftermarket. This group, born between the early 1980s to the early 2000s, has been much commented on recently, specifically for how they are impacting vehicles sales and long-term vehicle ownership. One worrying trend for the automotive industry is that this generation are expressing very little interest in owning a vehicle. Millennials’ feelings of economic uncertainty, especially with many holding down high student debt loads and looking at poor job prospects, is making many turn away from wanting to own or maintain a vehicle. However, surveys done by several research firms show that this generation, when some of them do go out an purchase a car, tends to overwhelmingly purchase a used, older vehicle. And that buying group does say they are willing to spend good dollars on premium aftermarket parts and service to keep the vehicle running. The challenge will be in how to effectively communicate with them.

Where the Baby Boom generation could be reached by traditional methods of communications — personalized reminder letters, phone calls or advertising in traditional print publications — today’s Millennials use smart phones and social media to communicate. If the aftermarket does not leverage these new communications tools, they are going to find it difficult to bring the Millennials into independent service operations or to sell them aftermarket premium parts and services.

The Connected Car

One of the most significant challenges facing the aftermarket is the growth of telematics. In this issue of SSGM Magazine, Noelle Stapinsky offers an in-depth look at telematics and the impact on aftermarket service providers. Several AAPEX seminars tackled this issue, warning that independent service professionals need access to advanced telematics in order to work on today’s newest vehicle. The problem is OE car makers and dealer operations are jealously guarding the keys to that information, looking to lock out the aftermarket from profitable repair and maintenance work.

Fred Blumer, chief officer with Vehcon Inc., a developer of telematics solutions and services, said telematics is about creating an eco-system where the car maker builds “a lifetime relationship with the consumer … and creating an eco-system where [the vehicle owner] never has to go to an independent every again.”

People may already be familiar with telematics through mbrace for Mercedes Benz, General Motors’ OnStar, BMW’s ConnectedDrive and Hyndai’s blueLink. These systems tie critical vehicle performance and location information back to the dealer operations, allowing dealer service writers to monitor the ‘health’ of the vehicle.  The service writer can notify owners about upcoming maintenance work or send a message, via email or text, for example, about a problem noticed by the vehicle’s telematics system and book the needed service appointment at a time convinient for everyone.

“The key is creating high consumer satisfaction and to keep the customer tied to this eco-system,” Blumer said. “[Car makers] believe that this connectivity will create trust with them because there is now a permanent connection and that connection will strengthen the dealer relationship and drive income to their service operations. It is a great way of emphasizing [vehicle and service] quality by detecting early warranty work to be done.”

Scott Lucket, chief information officer with the Automotive Aftermarket Industry Association (AAIA) said 62 per cent of all new vehicles to be manufactured in the next two years “will be tethered to the ‘Mothership’ – the dealership – through telematics. This is a strategy to keep that vehicle coming back to the dealer service operations.”

Jim Dykstra, president of Aftermarket Telematics Technologies, added telematics is really about the vehicle selling service to the owner, telling them what the car needs and tying the vehicle owner to the shop and the technician.

“For example, new telematics technologies will be able to monitor battery health, and if there is a problem, such as a power drop, you will get an alert,” Dykstra added. “If the battery fails, the shop will be notified and a tow truck can be sent to the get the vehicle out of trouble. It is about customer retention and competing with the OEs. Customers love the fact that they are being told ahead of time where there is an issue and when they come into the shop they know what the problem is and the work that is going to be done.”

“OEMs are using this technology to drive a wedge between the aftermarket and the consumer, and the aftermarket needs to embrace this technology and provide innovative solutions,” added Polk’s Mark Seng. “[The aftermarket] has a lot of advantages because of the relationship with the vehicle owner. Success in the aftermarket is not just going to be based on understanding a torque wrench and a tire gauge anymore. Understanding 4G is just as important as understanding a four-cylinder engine.”