Future looks bright for auto aftermarket

LAS VEGAS—Faced with inflation, high interest rates and steep new-vehicle pricing, U.S. consumers are continuing to hang on to their old vehicles longer, pushing the average passenger/light truck vehicle age to a record 12.5 years.

The average age for passenger cars has reached 13.6 years, and the average light truck age has hit 11.8 years, according to S&P Global Mobility.

This is good news for the aftermarket repair industry, Todd Campau, associate director of aftermarket solutions, S&P Global, told AAPEX 2023 attendees in Las Vegas in November.

He said the average age likely will continue to climb at least through 2025 due to constrained new vehicle sales, which are predicted to hit 15.5 million for the year.

The number of vehicles on U.S. roads also is growing. At the start of the year, vehicles in operation (VIO) was 284 million, and by July it had grown to 285 million.

"That is very good news that it has been growing. At the start of the pandemic, we were a little concerned that we might see a little bit of a pullback in VIO, and we did see a pullback for 2021. But the past few years, it has been growing, not rapidly, but it has been growing this year and continues to grow," he said.

"Average age typically does stay pretty consistent or climbs very slightly. The past few years, it's been climbing pretty rapidly, and it's continuing to look like it's going to climb pretty rapidly for a couple more years as we see new vehicle sales slowly start to come back to normal," he said.

"All that means is more repairs coming to our bays, more tires that need to be replaced, more brake jobs, more oil changes and everything. So good news in general for the aftermarket," Campau said.

Vehicle miles traveled is another metric that impacts the vehicle service market as it affects vehicle parts replacement. This year, drivers are expected to clock about 3.5 trillion miles, rebounding from the pandemic years of 2020 and 2021.

"Typically, historically, when it comes to vehicle miles traveled, when we start to hit a period of economic uncertainty, high inflation, high interest rates, where the cost of goods and services are higher, we typically see people pull back on vehicle miles traveled," Campau said. "And we're really still not seeing that, at least not to a significant level. So I think overall that's very good news."

According to a Circana Inc. survey, more than three-fourths (77 percent) of consumers said they plan to cut back on spending this year due to inflation, but they are not necessarily cutting back on vehicle maintenance.

"A lot of folks decided to maybe hang on to their car a bit longer. They're not going to go replace this car. In fact, I need to maintain this car so it doesn't break on me and cost me more money or I have to replace it," said Nathan Shipley, Circana executive director and industry analyst.

"So, while there may be some trade down that goes on with decisions, typical intent is pretty low for cutting back on spending as it relates to inflation for auto parts. That's a good thing for us."

The number of maintenance and repair visits through September 2023 slipped 1 percent from the same 2022 period, but the dollar value of those visits increased 4 percent, he told AAPEX attendees.

The retail tire market continued to outperform the overall aftermarket, he added, with dollar sales for the period up 8.8 percent, unit sales up 3 percent and prices up 5.6 percent.

He noted that the higher-income consumer spending in the aftermarket is offsetting the deferral of maintenance by lower-income consumers.

"That higher-income consumer, I believe, will continue to help things coast along for the foreseeable future. It's a good story for the aftermarket," Shipley said.

"The automotive aftermarket that we track is towards the top of the list of industries that we track in terms of performance. … I think the bottom line is you should feel pretty good about where things are at for the aftermarket."

Campau said the economic conditions are expected to improve next year.

"So we have seen a recovery of new vehicle sales which is our pipeline for the aftermarket. We'd like to see new vehicle sales remain relatively strong because it means that we have more vehicles to continue to repair over time. And we are seeing that, but there still are some challenges in the sales outlook over the next few years and obviously over the past few years."

Campau said the perceived pent-up demand for new vehicles has dissipated.

"We believe that the economic situation that we went through the past year has really kind of destroyed that demand rather than delay that demand," he said, noting that consumers are holding back on purchases.

While vehicle dealerships are building up inventory on their lots, they are more conservative on their inventory levels due to a change in consumer buying behavior.

"Consumers now have demonstrated that they're willing to buy a vehicle online. They're willing to build it. They're willing to wait. … So I think we're probably about at the level of inventory we're going to live with going forward," he said.

The average price of a new vehicle has surged 36 percent to $45,700 this year, compared with $33,600 in 2018, partly due to a reduction in the number and amount of rebates OEMs are offering.

Yet the sticker shock is offset by the general increase in consumer income over the years, Campau said, noting that the average new vehicle price has stayed close to 50 percent of average annual compensation over the past 30 years.

Nearly 80 percent of all new vehicle sales over the past couple of years are CUV/SUV/light truck models.

"So people are buying SUVs and CUVs, pickup trucks and vans, and cars have really fallen out of favor," he said.

Advanced driver assistance systems (ADAS) will continue to become more common in new vehicles going forward.

S&P predicts growth in a number of safety and convenience features, including:

• Lane-keep-assist feature should be standard in 63 percent of vehicles in 10 years' time, up from about 20 percent of vehicles in operation now;
• Blind-spot monitoring will be in nearly 60 percent of the vehicle fleet by 2031, versus about 18 percent of vehicles now;
• Adaptive-cruise-control will be included in about half of vehicles by 2031, up from about 14 percent today; and
• Automatic emergency braking should be in about two-thirds of the vehicle fleet by 2031, versus about 20 percent now.

"All this points to more technology that we're going to be asked to help maintain and repair in the next few years, and we're just scratching the surface looking at four of them. There's 40 or more of them we're keeping an eye on as more and more sensors proliferate the vehicle," he said.

In 2002 passenger cars accounted for about 60 percent of vehicles on the road; now light trucks (including CUVs and SUVs) command a 63-percent market share.

Passenger vehicles' VIO share is shrinking and they are rapidly aging. They account for about 20 percent of new vehicle sales and maintain a 40-percent market share with an average age of 13.8 years, according to S&P Global.

Meanwhile light-truck vehicles are holding steady with market share as their average age creeps up to 11.8 years.

By 2033 S&P Global predicts there will be 19 million more vehicles on the road over the age of eight than there are today. This age is considered part of the so-called auto repair "sweet spot"—six to about 14 years old.

"This tells me that the sweet spot is going to continue to grow and elongate," Campau said. "If we have almost 100 million vehicles in 2033 that are over 16 years of age, number one, average age is going to continue to climb because of this. And number two, we're going to be seeing a lot more repairs on a lot more vehicles for a longer period of time.

"You are seeing more (car dealers) trying to get into repairing older vehicles, for sure. And this is why—they discovered that this work can be positive for the bottom line, and it's better than the warranty work they're stuck doing for all the recalls and things like that.

"So they're going to continue to push into trying to repair more of these old vehicles. But in general, right now, that's our sweet spot. That's where we do our best work," he said.

"But I think we're in a good spot for the aftermarket for now and in the years to come, especially the next four to five years. And it's really strong from a perspective of the vehicles that are coming into a really sweet spot for repair."

Circana's Shipley noted that as the average vehicle age has increased, there has been an uptick in DIY behavior among consumers.

"Four years ago I think most people would have said DIY will never take share back from the DIFM, and I believe it has. I think that's an interesting trend," Shipley said.

Industry analyst Jim Lang told Tire Business, a Rubber News sister publication, that independent repair shops that specialize in servicing particular nameplates or services have a better chance of competing with larger chains and car dealerships going forward.

"The independents who are doing the best job are specialists, foreign specialists," he said. "They specialize in certain nameplates, maybe all Japanese or maybe Mercedes. Or they're repair specialists where they focus on certain types of repair jobs such as oil changes or brakes or undercar so that they don't have to train a mechanic in such a broad spectrum of repair.

"And they don't have to have those tools and equipment to do all that kind of fancy stuff. Really the challenge for the independent shop now is to be able to afford the tools and equipment to efficiently do the work because of the declining number of bays," he said.

Despite the growing VIO, the number of service bays has plunged by 55,000 over the past five years, Lang said, resulting in a record high number of vehicles per service bay in the U.S.

"The bays have to become much more productive and the way they do that is to, number one, better trained technicians, and technicians using more sophisticated tools and equipment."

Noting the growth of import vehicles on the road, Lang said that shops should specialize in servicing Asian and European vehicle models.

"You've got to be able to repair foreign vehicles and you've got to have technicians who are capable of doing it and the tools and equipment to do it. So I think that's an area that independents should look at very strongly," Lang said.

He also encouraged small independent shops to increase their online presence and to partner with online tire retailers amid the growing trend of online-to-offline tire sales.

Large online tire retailers, such as Tire Rack and SimpleTire, sell tires online and then offer customers a list of authorized shops for installing the tires offline.

"I think online-to-offline is going to be a very big factor, and that's not just with tires, but with a lot of repairs because the millennials don't want to have a personal relationship with you.

"They don't want to do business face-to-face with much of anybody. They do it online," he said.