IHS sees optimism for automotive aftermarket

LAS VEGAS—Things continue to look up for the automotive aftermarket as more and more vehicles on U.S. roadways continue to age, requiring more repairs and maintenance, according to IHS Markit.

Automotive aftermarket sales are expected to grow 3.6 percent annually over the next six years, according to IHS Markit, a market research firm that presented its market forecast during the 2016 Automotive Aftermarket Parts Expo in Las Vegas.

Meanwhile, the surge in new vehicle sales is expected to level off, and even decline a bit, said Mark Seng, global aftermarket practice leader for IHS.

Even though there will be more new cars on the road, compared with recent years, the average age of light vehicles grew to about 11.6 years last year, up from 11.5 years in 2015, and it is expected to reach an average of 11.8 years by 2019, he said.

Other trends Seng said the auto aftermarket should prepare for are: the continued saturation of imported vehicle brands in the U.S. market vs. domestic brands; the growing popularity of small CUVs; and the continued increase in miles driven by U.S. motorists, thus adding to the wear and tear on their vehicles.

Seng noted that the automotive aftermarket will enjoy increased dollar sales growth due in part to three vehicle parts—wiper blades, fuel pumps and wheel bearings—which have increased component value and thus yield higher price tags.

For example, low-profile wiper blades are three times more expensive than regular blades that were sold several years ago.

A key industry driver, as in the past, is the total miles driven in the U.S., which fell measurably after the recession but rallied to set a record of 3.1 trillion miles in 2015. The U.S. was expected to maintain that rate in 2016 thanks to low gas prices.

U.S. light vehicle sales set a record with 17.5 million units in 2015, the first time sales exceeded 17 million units since 2001, and then slightly exceeded 17.5 million in 2016 to set a new record. IHS predicts vehicle sales will remain at about 17.5 million units in 2017.

"It's all relative," he said. "Again, we're leveling off at record levels of U.S. light vehicle sales. So very healthy light vehicle sales in the U.S.," also adding that this trend is not considered a detriment for the aftermarket.

"I think all we're doing is we're feeding our business pipeline, if you will. Any time you're adding vehicles to the fleet that we can repair, that's a good thing for the aftermarket. I think we win either way."

He said that during the recession in 2008-09, the industry lost 40 percent in light vehicle sales. "We've just come off of five to seven years of nice steady growth and gotten back to where we were prior to the recession."

As far as sales by vehicle types, passenger cars dropped 8.2 percent, in contrast to light trucks, which increased nearly 7.7 percent, driven heavily by the CUV/SUV body style.

"Within this, we are seeing a big shift with domestics and imports. This year (2016) in a down market, imports are going to actually increase by 1 percent in light vehicle sales. Domestics are hard hit. They'll be down (about 2 percent)," Seng said.

In 2000, domestic vehicles represented 66 percent of all new light vehicles sold; in 2015 domestic vehicles were down to 46 percent. By 2021, imports will represent nearly 57 percent of all light vehicles sold, IHS predicts.

As for all vehicles in operation in the U.S., the imported vehicle share is expected to increase by 118 percent by 2021, while domestic vehicles will lose 9 percent of the market.

Overall vehicles in operation in the U.S. are expected to increase 10.4 percent by 2021, to 291 million units, compared with 264 million light vehicle units on the roads today, IHS said.

This denotes steady growth in vehicles on the road because of record vehicle sales, longer-lasting vehicles and people driving their vehicles longer. "There are simply more cars and light trucks for the aftermarket to repair—a great trend for aftermarket business," Seng said.

Consumer preferences are quickly impacting the vehicle mix which drives repair opportunities, Seng noted.

Four segments of vehicles represent about 58 percent of all new U.S. registrations in 2015—compact CUV (17.3 percent), traditional compact (14.1 percent), traditional mid-size (14 percent) and full-size pickup trucks (12.3 percent).

Those four segments have dominated new vehicle sales for the past several years, he said. "However, we see a huge shift within those four segments to that CUV body style," said Seng, noting that CUVs have taken share away from compact and mid-size body styles.

The fifth largest segment is mid-sized CUVs—all five segments represented 65 percent of new vehicle sales in 2015, he said. Pickup truck sales have remained steady over recent years.

"What we see happening is a big shift toward the ability of consumers to buy four-cylinder engines that have much better technology and are more powerful, more turbocharged. You can take that engine and put it in a little bigger car, rather than go down to the compact or mini-type vehicles that people thought would really take off after the recession," Seng said.

Vehicles with four-cylinder engines have gained market share in the U.S., from 41 percent in 2008 to 56 percent in 2015. By 2025, nearly two-thirds of all engines produced around the world will be less than 2 liters in displacement, he said, noting the popularity of these smaller engines that offer more horsepower and more fuel efficiency.

"It's important for the aftermarket to really be aware of what's happening in what is selling, what the consumer preferences are, because the vehicles we're selling today, the shifts we're seeing in the VIO, that's all impacting the potential vehicles coming in the repair bays now and in the future," Seng said.