The headlines in the early part of this year have been dominated by the slowdown in the automotive industry.
Across North America, automotive assembly and component plants have been idled as the market to the south seeks to recover from the ravages of a record year in sales. There are a great number of reasons why this has happened, but the simplest is that the new car industry did a great job of getting people in the U.S. to buy cars, and now they are paying the price. Something like 60% of all American households bought a car in the last four years. Combined with the dot-com collapse and other areas of economic and political uncertainty, many Americans simply opted to hold off just a bit before they put that new SUV in the driveway. Economists are predicting this to last through the year.
The irony is that the U.S. is still expected to put up some pretty good numbers this year, probably in the 16 million vehicles range, but when you’ve come down a million vehicles from the year prior, something’s got to give.
And what is giving is the suppliers. In Canada, primarily in Ontario, where one in six workers is connected to the automotive industry, this is being felt particularly keenly. If ever there were a lesson from NAFTA it is this: when times are good in the U.S., the Canadian economy benefits. When things even begin to look like they’re tailing off even slightly, those who rely on that industry get crushed.
When the U.S. sneezes, Canada gets pneumonia. Or, maybe more accurately, when our American friends go on a high-flying economic binge, we get the hangover.
For those businesses located in regions heavily reliant on auto manufacturing, it must seem like the migraine to end all migraines. The party is indeed over.
Past wisdom would have you believe that this type of economic downturn would be good for the aftermarket. That if people were to become less confident in their economic future, that they would hang on to their vehicles longer and would end up seeking the services of the independent aftermarket. While there is some truth to this, it should also be noted that for the thousands of men and women who will be out of work, having reliable transportation may just be an optional extra. After all, if they’re not working, how much driving are they going to be doing? At the very least, massive layoffs threaten to severely depress the average number of kilometers driven.
The biggest danger for the aftermarket is that it will believe the former, but act on the latter; that the first point will be taken as a matter of faith and will be prayed for, but will not form the basis of a concrete marketing plan.
This would be a massive mistake that will play into the hands of the large chains and the dealer networks. I guarantee to you that they will not be curtailing their marketing efforts. Quite the opposite, they will see the softness in the new car market as an opportunity to push even further into the service business.
The fact is that most people have been untouched by the admittedly large cutbacks at the OE level. It will affect many towns and communities and it will surely be the topic of discussion among those who know someone who has been hurt by it. I’m not asking you to ignore that fact. But I’m asking you to make sure you don’t ignore the fact that, although one in six workers may make their living from the automotive industry, five out of six do not.
April’s issue will bring you the details on the AIA’s annual convention and we’ll bring into focus developments in Steering, Chassis and Driveline parts and planning for Car Care Month.