This article first appeared in the January/February issue of Jobber News. It has been updated to reflect current global COVID-19 statistics. To access the digital issue, click here.
At the onset of the COVID-19 pandemic, the automotive aftermarket was deemed essential by many governments, including all in North America.
To date, the world has recorded nearly 118,000,000 cases of COVID-19, with the United States reporting the highest number of cases in the world, at more than 29,00,000 alongside nearly 528,000 deaths as of today (Mar. 10). Canada has also recently seen an increase of active COVID-19 cases, and to date has reported just over 899.000 cases and close to 22,000 deaths, according to a report by Johns Hopkins University’s Coronavirus Research Center.
One year after the initial first wave of transmission, the aftermarket continues to operate with adjusted operating guidelines, even as a second wave of the virus continues to plague the global economy. The recent ongoing rollout of the Pfizer and Moderna vaccines offer a glimmer of hope, but according to Dr. Parker Hudson MD MPH FACP, Director, Dell Med COVID Testing & Tracing, the road to a global economic recovery still has a long way to go.
“Physical distancing and masking are here for the foreseeable future in public places, pending further vaccine roll outs, more data on asymptomatic infections/transmissibility after vaccination, and evolution of variants,” Dr. Hudson said. “Between April and June, we will see much larger and more impactful vaccination coverage for adults if AstraZeneca and Johnson & Johnson/Janssen’s vaccines are approved.”
Despite the arrival of a vaccine, in the automotive aftermarket, the progression towards a global recovery is flanked by uncertainties, including the pandemic itself and how it could potentially continue to mutate over time.
A breakdown of the supply chain
Heavily dependent on supply and demand, a critical part of the aftermarket’s path to a global recovery relies on the supply chain, which has been seriously disrupted due to the COVID-19 pandemic.
“This has been one of the biggest supply chain disruptions that we’ve seen in generations and it’s been extraordinarily hard to get materials and estimate what’s needed,” said Paul McCarthy, president, the Automotive Aftermarket Suppliers Association (AASA). “Quite frankly, it’s amazing what the suppliers have been able to do through it all. There’s this odd supply and demand shift because there’s been so much uncertainty.”
As a result of increased supply chain risk, the aftermarket has seen a spike in near-shoring, which is the process of moving business operations to a nearby country, rather than one that is more distant. Prior to the pandemic, for example, many parts and products were shipped in from China. Many companies in Canada and the U.S. are looking to reduce the number of products sourced from China, as well as ways to diversify their supply chain management. “I think this has helped the overall competitiveness of North America as an automotive and aftermarket production base,” McCarthy said.
Last year, AASA conducted a landmark study which aimed to understand what kind of footprint production will have on the aftermarket. “It’s really not a simple answer or a single answer; it really varies so much by product and company category,” McCarthy said. “For a generation, we’ve had a simple answer: ‘what do you do with your supply chain?’ and the answer is that you move it to China, because it’s a lower cost. Clearly, it’s a much more complicated story now,” McCarthy said.
Different patterns of demand
According to McCarthy, the aftermarket saw different patterns of demand by category in 2020 that varied over time, such as miles driven, which, though it started off weak in the first quarter of 2020, has since made a significant comeback.
With most of the world following a stay-at-home order, consumers had extra spend and extra time on their hands. Suddenly, various markets with developed e-commerce channels were aggressively competing for consumer dollars.
“The interesting thing about the aftermarket is that if the consumer is able to spend, the aftermarket does well, because we’re extraordinarily resilient,” McCarthy said. “There’s still a lot of uncertainty over whether or not consumers will be able to spend and how that will play out in different markets. The aftermarket is all about consumer convenience, and the professional side really offers that in an extraordinary way.”
Despite disruptions to the supply chain in 2020, the aftermarket still outperformed multiple sectors, McCarthy says. In order for a global economic recovery to take shape, continued consumer economic health is by far the leading factor in making that happen.
“I think that a recovery looks like having a bit more certainty,” McCarthy said. “We go back to dealing with our general business issues, working deeper with our channel partners to do things better instead of worrying about surprises, and having that greater certainty.”
There have been many changes in the aftermarket, and while some of them are strictly related to the pandemic, others have been more persistent. A sharp decline in miles driven, for example, is one trend currently taking place, with more people working from home as commuting has decreased.
“When we look at what’s coming out of this pandemic globally, we’re seeing some structural shifts that may lead to a bigger market size and opportunity for the aftermarket,” McCarthy said. “What we’re seeing out of the pandemic is this structural shift, a dedensification; what we’re finding is a shift towards individual transportation, and a global recovery likely looks like an overall increase in automobility, and when that increases, the aftermarket tends to do better,” McCarthy said.
Paul McCarthy, president, AASA.
The role of the consumer
Consumers will play a major role in positioning the aftermarket’s global comeback in a post-pandemic world and keeping the customer in the aftermarket is key.
“If we were going to have a pandemic, we were probably pretty lucky for the timing with our industry because the industry saw this trend towards omni-channel and e-tailing and consumers wanting information,” McCarthy said. “Pre-pandemic, we were already having a huge number of decisions being influenced by the internet and the online information. If this had been five years ago, we would have been in trouble.”
While people have been buying parts and products online for years, McCarthy is convinced that it’s all a part of a larger trend. “People talk about a technology revolution, but we really see it more as a consumer convenience revolution,” he explained. “Technology is just an enabler of that. The majority of consumers still choose to go to professionals for their service and that area hasn’t been as disrupted by the internet but overtime, we’re going to have to make this easier for consumers, and that goes back to how they obtain and feel trust about the repair and maintenance being done to their vehicle. That is what we’re going to be transformed by.”
The Automotive Industries Association of Canada, in partnership with the Auto Care Association and Automotive Aftermarket Suppliers Association (AASA) in the U.S., has recently launched Your Car, Your Data, Your Choice—a campaign designed to spread awareness about the importance of consumers being able to control access to the data coming from their vehicles. Also known as the Right to Repair Act, AIA is adamant that wireless vehicle data needs to be transparent and shared with the consumer, if the aftermarket wishes to remain competitive as global supply chains go digital.
The aftermarket is very much still a relationship business, and the vast majority of consumers still prefer bringing their vehicle to a professional when maintenance is due. However, as time progresses and a revolution of consumer convenience (influenced largely by the internet) develops, the aftermarket in turn must make the value proposition for the customer easier, or risk losing their share of the market. Rather than treating technology as a threat, McCarthy urges those in the aftermarket to see its presence as a unique opportunity. Right now, McCarthy says that the aftermarket is currently supporting a unique balancing act between existing long-term demand and new innovative trends.
“The companies who balance the new and seek returns on the old will be the ones who do very well,” McCarthy said. “It doesn’t mean that existing players are at risk, but it does mean that companies that do not respond to the consumer imperative or work across the value chain to get satisfied customers will.” McCarthy says that in order for the consumer to remain in the aftermarket, rather than flock to the dealerships, both the independent side and the automaker side need to ensure that the entire vehicle life cycle needs to stay safe and affordable.
According to McCarthy, the market is holding “fairly steady” right now, and is doing better than anyone might have anticipated, everything considered.
“2020 clearly outperformed expectations in terms of what we saw back in the spring and I think that everybody is cautiously optimistic for 2021,” McCarthy said. “The nature of the aftermarket is an amazingly stable, attractive market compared to most other retail sectors. Assuming that consumers can spend, and as we re-open the economy, that growth is what we should expect to see,” he concluded.