Aftermarket Trends: Identifying Future Growth Opportunities

Double-digit growth in light vehicle sales, the continued rise in average vehicle age, plus the globalization of OEM platforms and technology-driven advancements in vehicle designs are creating new aftermarket growth opportunities for jobbers, according to a recent report by R.L. Polk & Company.

Mark Seng, VP aftermarket and commercial vehicle and global aftermarket practice leader at Polk, kicked off the annual AAIA Town Hall meeting at AAPEX this year with Polk’s annual perspective on five key trends affecting the automotive aftermarket over the next few years.

Here’s the full list of trends:

1. OEMs are becoming more aggressive, as light vehicle sales more than recover.

Consumers have returned to the showroom, according to Seng. And that’s given carmakers a burst of energy and optimism that is amping up their dealer operations. The final tally of light vehicle sales last year came in at 14.7 million units – a 13% year-over-year increase, and the third consecutive year of double-digit growth. The expectation is that the industry will sell 15 million units in 2013, capping five years of industry recovery.

2. Age of vehicles continues to rise.

There are a growing number of vehicles on the road that are of an age that make them likely to be repaired in the independent channel of the automotive aftermarket. By the end of last year, the average age of vehicles stood at 11.3 years. Over the last 10 years, the life of passenger cars has increased by 14%, and light trucks by 17%.

“Quality of the vehicle is a big driver in that,” says Seng, “but this trend is really accelerating.”

He says consumers are hanging onto their cars. “In this economy, length of ownership has been increasing dramatically.”

Hand-in-hand with the age of vehicle statistics are the scrappage statistics. Over the last 60 years, the scrappage rate has come down by about 50%, which has a huge impact on age of fleet.

3. Crossovers (CUVs) and midsize sedans are driving vehicle sales.

Crossovers have gone from 15% in 2007 to 25% of new car registrations in 2012. Midsize cars have gone to 20%. Together that’s 46% – a huge shift toward that size of vehicles.

These mid-size cars and CUVs give families the size they need, and fuel-efficient four-cylinder engines, which are more powerful than they were in the past. That means four-cylinder engines are definitely on the rise, up 20% at the expense of other size engines.

Four-cylinder cars as a percentage of new vehicle registrations in the U.S. are up from 32% in 2007 to over 50% of all new vehicle registrations in 2012. Six-cylinders are down by 40% to 32%. Eight-cylinder vehicles are down 21% to 14%

In terms of Vehicles-in-Operation, the change is much less dramatic, but the trends definitely hold. You can see the six and eights start coming down in 2008/2009, coinciding with the recession.

There has also been a major shift from domestic vehicles to import models. In 2010 there were more import cars on the road than domestics. They’ve only increased their position since then. The trend is similar for trucks, though, in terms of vehicles on the road, domestics are much stronger. Korean, European, and Japanese vehicles are all up, while U.S.-built vehicles are down 8.5% over the past 10 years in terms of VIO.

This is particularly important to the aftermarket, because of the need to keep track of shifting vehicle demographics and engine types. That will affect the kind of cars that are pulling into our shops in years to come.

4.Globalization of platforms and model families is accelerating.

The ongoing trend, seen over the last few years, is continuing. Carmakers are making more models on single platforms.

Global production of vehicles is expected to grow 44% over the next 10 years, to 114 million units globally. The expected growth in NAFTA countries is 7%, 9% in Europe, and 62% in Asia Pacific.

Globally, the 10 largest platforms now account for 24% of all vehicle manufactured. By 2023, that percentage is expected to rise to about 28%.

The largest global platform now is the Nissan B, with 2.5 million units. By 2020, Polk expects it will be the Volkswagen MQB, with 10 million units – four times larger. This is important to the aftermarket because it may lead to reducing tooling and inventory costs. Understanding platforms is smart.

In the short run, parts proliferation will continue to grow. Over time, however, globalization of vehicle platforms is expected to result in reduced proliferation.

5. Technologically advanced vehicles offer increasing aftermarket opportunity.

The automotive aftermarket is impacted by things like the CAFE standards, telematics, and the decline in diesel power compared to the rise in hybrid power.

“We believe the aftermarket needs to be aware of these trends, and react to them. They bring their own challenges, but they also bring opportunity,” said Seng.

“The aftermarket needs to have properly trained technicians. The number of those alternative powertrains is relatively low, but for the first time ever, hybrids are on pace to outsell diesels in the U.S.,” he said. “We’re bullish on the aftermarket. We believe it has what it needs to win in the long run.’

SIDEBAR————-

How The Connected Car Will Raise The Bar For Jobbers

There has been a substantial increase in in-vehicle electronics. Additionally, audio and video applications such as camera-assisted parking with advanced driver assistance systems and traffic light recognition is growing, according to a recent report by Frost & Sullivan. While this trend will drive significant growth for electronic replacement parts, it will also create new hurdles for jobbers.

Proven IP-based Ethernet technology now allows OEMs to use a single-network platform that significantly reduces connectivity cost and cabling weight. Additionally, it is scalable and flexible enough to be used in multiple vehicle segments.

For example, BMW, in partnership with Freescale Semiconductor Inc., is the first OEM to commercialize the Ethernet for a 360-degree camera assist parking system on the X5 this year. BMW is expected to offer the same for other models in the future. Other OEMs are now working to bring Ethernet into their future models to fulfill all kinds of telematics and infotainment demands of end users.

According to Frost & Sullivan, Ethernet could be the catalyst in bringing the automotive industry a step closer to connected vehicles. With its capability to simplify networking architecture, higher uptake rates are expected in the near future. Frost & Sullivan estimates that the total number of Ethernet ports globally will reach 300 million by 2020. The number of nodes or ports is expected to range from more than 100 in luxury cars to 50-60 in mass market segment cars and less than 10 nodes in entry-level vehicles by 2020.

In addition, diagnostic and repair/maintenance services can be offered to customers using connected telematics. Supporting customers with proactive monitoring of vehicles and services will serve to strengthen original equipment dealership customer relationships post-warranty, and provide new hurdles for aftermarket suppliers and service providers to overcome.

For example, BMW has gone a step ahead by extending the coverage of BMW Assist for 10 years, which is virtually the life of the car. Hyundai has also come up with Hyundai Assurance connected care, where the Bluelink is an essential pillar providing features such as auto recall notifiers, auto diagnostics fault detection, etc., free for three years, with a clear intent of providing a seamless after-sales experience for the user.

This technology-driven trend towards integration of multiple consumer electronic devices, offering connected services, and maintaining brand identity, has led to a situation where OEMs are shifting towards higher connectivity options that cater to varied consumer needs. This paradigm shift towards connected cars and associated services like automotive-app stores and connected location-based services is going to raise the bar significantly on the level of competition between OEM dealers and aftermarket suppliers and service providers as they compete for replacement parts and service dollars.