The belief that the automotive aftermarket can withstand recessions and economic challenges faced by the average consumer may be out of date, according to a new report.
The aftermarket has the reputation of being ‘recession resilient’ — when the economy is performing poorly the industry does well. The logic, generally speaking, is that people will avoid buying new vehicles and choose the lower-cost option of repairing their current vehicle instead.
“However, the aftermarket’s product mix has undergone significant changes over the past 25 years, and today it is less recession-resistant than ever,” said a recent Aftermarket iReport from Lang Marketing.
The recession resilient reputation mostly comes from the belief that the aftermarket’s primary source of business comes from products that are non-discretionary — items that are necessary for a vehicle’s operation.
“However, for a number of years, discretionary products, which are not necessary for vehicle operation, have expanded their aftermarket share,” Lang said in its report Recession Impact on the Aftermarket. “This will affect how the next recession (likely this year) will impact the car and light truck aftermarket.”
Indeed, Lang is predicting a recession in the near future as “one is long overdue.” Recessions generally happen every six to eight years and it’s believed one is coming, if not already here. It doesn’t consider the COVID-19 pandemic a recessionary time, meaning the last one was in the Great Recession from 2008 to 2009.
So with one expected, Lang looked at what the impact could be on the aftermarket.
During the Great Recession, it noted that car and light truck product volume in the aftermarket declined, along with the sales of new vehicles, which plunged 35 per cent. Miles driven also dropped, taking six years to reach pre-recession levels.
“The next recession will cut discretionary automotive product purchases (such as accessories) and could reduce overall aftermarket product growth by more than 80 per cent from its 2021 recovery pace following the impact of COVID-19,” Lang predicted.
“However, the aftermarket’s product mix has undergone significant changes over the past 25 years, and today it is less recession-resistant than ever.”
During the pandemic, accessories sales surged while other product lines saw lower sales volumes. In the U.S., stimulus cheques encouraged consumers to spend money. Without similar measures, accessories may not see the same sales volume. Coupled with an expected reduction of sales in other product lines, aftermarket sales overall could take a hit.
Lang sees three significant impacts on the aftermarket when the next recession hits.
The first would be in discretionary purchases. A sales reduction in this area will impact aftermarket sales overall. “The next Recession will cut the strong recovery recorded in 2021 by more than 80%, especially if it hits this year,” Lang said.
Secondly, new vehicle sales could be impacted even further. With supply chain issues already suppressing sales, a recession could keep sales even lower.
Finally, miles driven could take a hit as people look to save money by cutting out road trips and other travel.
“The aftermarket impact of the next recession will be intensified by supply chain issues (some of them directly related to the recession) that will play havoc with new vehicle production and various types of vehicle repair, as parts take much longer than usual to reach repair sites or are not available at all,” Lang said.