How The Recession Has Affected Aftermarket Filter Sales

Frost & Sullivan released a report last September entitled Selected North American Filter Aftermarket, which in its own words provided “a market-segmented breakdown and analysis of revenue and unit sales.” The report was comprehensive, examining six filtration systems across three vehicle classes, but two particular market indicators stood out as notable trends driving the filter market in North America. The first is that heavy-duty vehicle filtration will lead aftermarket growth; the second, that a decrease in new vehicle sales is expected to bolster growth as well.

Then October came, and it hit hard. The economy hit the fan–most strongly in the United States, but the ripples have certainly been felt in Canada as well–leading to company closures, unprecedented job loss, and a cautious public unwilling to spend as much money as it once had. A lot has changed, to say the least. So too has the filter aftermarket, always a product category sensitive to economic changes. What’s changed since then, and what can we expect in the months to come?

Heavy-Duty Vehicle Filtration Aftermarket

Back when Frost & Sullivan’s report was released, analysts forecasted that growth in heavy-duty operations would lead to growth in the North American filtration aftermarket with the main factor underlying growth being “sustained and increased fleet mileage.” While road transport has the luxury of remaining the preferred method for freight delivery, what we’ve seen since October is a scaling back on the number of heavy-duty vehicles on Canadian roads, with high diesel prices and company closings cited as the main reason for this change.

“I think all manufacturers are rethinking their operational strategies due to the economic times. Globalization of our industry has changed where we manufacture our products, the cost of raw materials, the fluctuation in freight, not to mention the fluctuation in currencies,” says Affinia Canada director of marketing Brian Fleming. “The demand for more and more inexpensive parts has manufacturers developing ways to eliminate cost while maintaining quality. None of this has anything to do with wanting to offer heavy-duty product lines. Expanding your lines is usually more in step with a healthier manufacturing environment.”

While experts predict Canadian aftermarket sales of light vehicle filters will increase, sales for heavy-duty filters will likely drop as a result of this decreased fleet mileage. It should also be noted that heavy duty is not synonymous with industrial (i. e., filters for construction, mining, or farming equipment applications). However, that doesn’t mean the heavy-duty market for filters is exempt from the downturns in these sectors as well.

“The heavy-duty market has definitely declined with the slowdown in manufacturing. Chapter 11 for many previously striving companies has been fuelled by the recession,” continues Fleming. “They are all indicators of less manufacturing, mining, or farming equipment being used, all resulting in less freight and therefore less fleet activity. That means less maintenance of vehicles and equipment, which translates into fewer parts being required.”

Decrease in New Vehicle Sales Expected to Bolster Growth

According to Statistics Canada, nearly 1.7 million new vehicles were purchased in 2008. A graph of Canadian monthly vehicle sales shows a sharp drop in the fourth quarter, where new sales fell a record 15% to 109,831 units. For North American new vehicle sales, 2008 marked a 10-year low, coming in at roughly 15.8 million units sold.

With the recent announcement of GM dealership closures in Canada (240 out of 705, while Chrysler dealerships in Canada have been spared for the moment, compared to 800 closings in the U. S.), coupled with declining new vehicle sales overall, this means not only are consumers holding on to their vehicles longer, but the need for regular repair and maintenance will also be required, making the jobber’s role (as well as the aftermarket’s) that much more important.

“Filters are a relatively inexpensive and easy item to replace versus other aftermarket products, so the downturn has had somewhat of a restrained impact versus other aftermarket replacement items,” says Purolator director of filtration Ramon Nuez. “As a result of a tight economy, an increasingly greater number of motorists are understanding the value of changing their vehicle’s filters regularly and are actually doing it, so they reap the benefits. Shop technicians, too, are playing a significant role in reminding vehicle owners to replace their filters when their car manual indicates they should.”

Economic pressures are forcing motorists to hold on to their cars and postpone any new car-buying decisions until there is more stability and predictability in the market.

Not only will sales for aftermarket filters likely increase as drivers hold on to their cars longer as a result, but an increase in both consumer awareness of aftermarket filters and their significance will add also to the preventative care and maintenance of these vehicles.

“While the filter market has not been unaffected by the downturn, we feel that people are being more diligent about changing their vehicle’s filters in order to keep their vehicles running smoothly,” continues Nunez, “and as far as vehicle maintenance goes, this is the cheapest insurance one can buy.”

“The U. S. has been hit much harder, [whereas] the Canadian economy has not been nearly as affected by the recession,” notes Fleming. “The light vehicle market seems to have maintained its volume, but unlike the heavy-duty vehicles that are being used less, people (although driving less) tend to be repairing their current vehicles, curbing that new car purchase until a more economical time. That means increased aftermarket sales to keep those older vehicles rolling.”

———

Facts & Figures

According to the Selected North American Filter Aftermarket report released by Frost & Sullvan in September 2008, steady growth is expected for oil filters (US$1.3 billion in 2008 to US$1.6 billion in 2012), air filters (US$0.6 billion in 2008 to US$0.75 billion in 2012), coolant filters (US$0.21 billion in 2008 to US$0.24 billion in 2012), and cabin air filters (US$0.07 billion in 2008 to US$0.16 in 2012), with relatively steady sales for the fuel filtration category as well.

“The North American selected filters aftermarket for light, medium, and heavy-duty vehicles generated an approximate US$1.63 billion in 2007. This filtration market is experiencing short-term growth challenges as a result of decreased miles driven in that year,” says Avijit Ghosh, automotive aftermarket industry manager for Frost & Sullivan. “Economic malaise lasted through 2008, and high oil prices have decreased vehicle usage and increased consumer choice for vehicle maintenance deferrals.”

In 2008, filter revenue sales by vehicle classification for all filter categories were as follows: for light vehicles (class 1-3) US$1,650 million, for medium-duty vehicles (class 4-5) US$94 million, and for heavy-duty vehicles (class 6-8) US$941 million.