Near-term Trends Influencing the Automotive Aftermarket
Global Aftermarket Practice Leader, IHS Automotive
The automotive industry has recovered, and as new light vehicle registrations continue to grow, it is important for the aftermarket to be aware of emerging trends happening on the roads today that will affect repair opportunities for years to come. Here are some quick insights generated from the data we gather, our close relationship with every OEM around the world, and our long involvement in the aftermarket industry.
The average age of vehicles continues to climb—at least for now. The increasing age of the vehicle population has been a positive aftermarket trend for a long time, and the trend has accelerated greatly over the past six years. Today, it stands at a record-high 11.3 years for passenger cars and light trucks combined, representing a 14% increase since 2007. For the five years prior to the recession, average age rose only 4%.
As an aside, some wonder why pickup trucks tend to lag behind cars in average age. Light trucks are more likely to accumulate wear and tear than are passenger cars. Individual owners use them for towing, transporting heavy loads, and off-road fun. Many more pickups are also used in commercial situations and get exposed to high levels of use and abuse.
Over the next several years, however, the rise in average age will slow down again. The market will begin to feel the impact of the 40% drop in new registrations when the industry bottomed out at 10.3 million units in 2009. We see average age reaching nearly 11.4 years by 2015, and then the rate of growth will taper off. The acceleration in average age will slow to levels not seen since before the recession. Average age will not reach 11.5 years until 2018—as the vehicle population adjusts to the low number of 2008–12 model year vehicles.
New-to-five-year-old vehicles will grow 41% over the next five years. Six-to-11-year-old vehicles will decline 22%.
While not an encouraging trend for the aftermarket, there are definite positive signs. The overall vehicle population continues to grow. We see the US light vehicles in operation (VIO) growing by 5% over the next five years—hitting 260 million vehicles by 2018. Vehicles are also lasting longer. Over the next five years, vehicles 12 years and older will increase nearly 12%. Vehicle quality continues to improve, people are keeping their vehicles longer, and the scrappage rate continues to decline.
The aftermarket must be aware of the potential impact to the type of repairs it will see over the coming years. In general, 6-11-year-old vehicles represent more do-it-for me (DIFM)-type repairs. Older vehicles may drive more do-it-yourself (DIY) and routine maintenance, but also require larger powertrain and suspension repairs.
There are also major shifts coming in vehicle mix that will affect repair opportunities for years to come. By tracking new vehicle registrations, it is easy to see which vehicles will impact parts and service opportunities over the next 10–20 years. Most segments within the population are shrinking, and four core segments are emerging as dominant:
- Mid-size sedans—representing 17% of all new vehicle registrations
- Compact sedans—at 16%
- Compact crossovers or CUVs—at 14%
- Large pickups—at 12%
These four segments make up nearly 60% of all new vehicles being added to the road and have increased market share by 5% over the past five years. At the same time, all large vehicle segments are in decline—except large pickups: half-ton, three-quarter-ton, and one-ton trucks are not growing as fast as they once did, but the segment remains strong.
Every other segment is losing share. The economy and government regulations are having an impact and are driving consumers to the three smaller compact and mid-size vehicle segments while pickups remain popular with trades and resource-based workers as well as many homeowners and outdoor enthusiasts.
Why not the subcompacts that everyone thought might thrive in this new environment? Because consumer cost savings are being satisfied by the powertrain rather than by body style. The new 4-cylinder engines are providing consumers the desired fuel efficiency without having to switch to the smallest vehicles. In 2013, these engines represent 55% of all new vehicle purchases. Not only do these engines appear in more than half of all new vehicles, but on average they will operate under higher load conditions than the larger displacement engines they replace, and hence may need more service, on average, than the larger engines.
Another trend is that OEM globalization is quickly becoming the new norm. Growing global vehicle registrations continue to pressure OEMs to accelerate the need for utilizing global platforms and modular architecture. Global new registrations will set a record in 2013 at just over 74 million units. In 2014, the number will be over 77 million. Looking at total global vehicles in operation, the number broke 1 billion units in 2010. By 2020, the world will stand at 1.3–1.5 billion vehicles.
This rate of growth translates into expanded global production and a need for OEMs to manage costs. They are accelerating the use of global platforms and looking to produce more units per platform. Among the top-12 global manufacturers, the number of platforms will drop from 212 in 2012 to 147 by 2020. As a result, the number of vehicles produced per platform will grow. Across the same 12 OEMs, it will increase 81%. OEMs have also been introducing modular architecture. By standardizing the architecture of the engine compartment, underbodies, and driver cockpit, manufacturers achieve greater flexibility and can utilize standardized components.
Fewer platforms, more vehicles per platform, and the increasing use of modular architecture will lead to the use of similar components and the ability to market the same aftermarket product in various regions around the world—a major opportunity for the global aftermarket supplier.
Finally, OEM technology advances continue to provide the aftermarket both challenges and opportunity. These advances are coming in several different ways.
Through August, gas and electric hybrids represent 3.6% of all new registrations—an all-time high. Diesels were right behind at 2.9%. Electric vehicles, while on the rise, still represent only 0.3%. Over the past five years, however, diesel registrations have remained flat while hybrids have increased their share by 64%. One reason for this is simply the number of hybrid models now available. The consumer has 45 different hybrid models to choose from today. Between 2008 and 2013, the number of models with diesel engines increased 21% while the number of hybrid models increased 125%. Because not all makes and models offer these powertrain options in every vehicle and trim level, their popularity may be limited because of the lack of universal availability. Nonetheless, while OEMs are investing in various options, the internal combustion engine remains the leading candidate for clean, efficient propulsion for at least another decade. However, the aftermarket must prepare for new technology surrounding this traditional powertrain. There will be increased use of gasoline direct injection and turbochargers. Start-stop capability, cylinder deactivation, and all-wheel drive disconnect are all coming on strong.
There is another growing technology trend coming with major aftermarket implications. The OEMs continue to increase the interval between recommended oil changes. They are using technology—the oil service indicator light—to replace standard recommended maintenance intervals.
While most vehicles on the road have some type of oil service indicator light, the issue is how often OEMs are using the light as the only means of recommended service. Today, 52 million vehicles in the US use the oil service indicator light as the recommendation for when to change the oil. This represents 21% of the total VIO and has grown at a compounded annual rate of 14% over the past five years. New powertrain technology and the growing use of synthetic oils have extended oil change intervals as well. The average recommended interval for all light vehicles now stands at over 7,500 miles.
What does this mean to the independent aftermarket? Most repair opportunities are discovered during routine maintenance. Oil changes are, by far, the most common service opportunity for vehicles of all ages. This lengthening of intervals has the potential to affect repair opportunities in two ways.
First, the time between service intervals will more than double if one assumes most drivers used to comply with the conventional wisdom to change oil every 3,000 miles. Second, not only does it extend the time between visits to the repair facility, but the technology provides an avenue for the OEMs to communicate with the consumer and divert service to the dealers and away from independents. When the light goes on, the dealer can use telematics to send voice or text messages telling the driver to stop by and get an oil change—providing an opportunity to uncover other repairs as well. By recognizing these trends early, the aftermarket can innovate and develop ways to communicate with the driver in much the same way the OEMs are planning.
The aftermarket certainly has what it takes to not only adjust to these coming trends, but take advantage of them as well. This industry has always proven its ability to react and innovate in the face of change. Leverage those strengths to their fullest, and the aftermarket will continue its legacy of success.
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