Auto Service World
News   May 17, 2023   by Adam Malik

How a slower economy will affect vehicle usage

Todd Campau of S&P Global speaks during the ‘3 Dragons’ session with Jeffries’ Bret Jordan and Liz Clark from the International Trade Administration from MEMA Aftermarket Suppliers Vision Conference last month in Chicago

Hot economy or not, people still need to use their vehicles for various needs so any worries about people parking their cars shouldn’t be very high, according to industry experts.

People don’t generally stop using their vehicles in down economies, said Bret Jordan, managing director at Jefferies, a consulting firm that works in the automotive aftermarket. That proved true during the Great Recession towards the end of the first decade of the 2000s and continues to prove true today.

Not only is that good news for the automotive aftermarket in terms of the need for services in an economy where purse strings are tightened and inflation and interest rates are high, but vehicle age is also going to keep increasing.

“Lack of new vehicle sales in the last several years is driving higher average vehicle age,” Jordan observed during the 3 Dragons: A View from an Economist, Wall Street Analyst and Aftermarket Analyst session at the MEMA Aftermarket Suppliers Association Vision Conference in April. “And that when combined with vehicle utilization drives the underlying spend on repair and maintenance.”

Todd Campau, associate director of aftermarket solutions at S&P Global, pointed to challenges in the new vehicle segment. Supply challenges first put the kibosh on hopes that new sales would rebound last year after a dismal performance in the COVID years of 2020 and 2021. Then economic challenges hit.

“We saw a little bit of a pullback, obviously, because of the pandemic [and] the supply chain,” he said as part of the panel. “And now it’s shifting to a pullback due to demand for new vehicles having to do with interest rates and inflation and things like that.”

In the U.S., expectations are new sales will come under 15 million units, far below pre-pandemic sales numbers in the 15.5-17 million range. In Canada, DesRosiers put the seasonally adjusted annual rate at just 1.475 million as of April. Pre-pandemic, numbers pushed — and even crossed — two million units in Canada.

“So we’ve definitely seen far fewer new vehicles coming into the fleet over the past four or five years than the four or five years prior,” Campau observed.

“The main thing that is continuing to drive VIO right now is the fact that people are just staying on the road longer; they’re being forced to stay in service just a little bit longer,” he added. “That means more repair opportunities for all your organizations, which is great news for the aftermarket.”

Campau also pointed out that vehicles with better gas mileage are the ones accumulating the most road usage. These are the vehicles that are going to be in need of more frequent servicing.

“Electric vehicles — from battery to hybrids — are on the upper tier of mileage accumulation, along with internal combustion engine vehicles that get top-tier gas mileage,” he said. “These are the folks who are more insulated from rising gas prices.”

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