If it were up to the fundamentals of the aftermarket, we would enjoy strong parts sales for the rest of the year and would only need inflation for a little extra boost. As it is, though, the fundamentals – the number of vehicles, their average age, and the miles they travel – are battling economic conditions to control near-term sales. The result is moderate increases in volume sales and a large boost in revenue from the high levels of inflation that continue to linger. I wish to thank Shane Norton at S&P Global (formerly IHS Markit) for this information, available in the update to our annual Joint Channel Forecast of market size. 

Through the pandemic, the supply chain problems and the latest period of economic uncertainties, the automotive aftermarket has shown extraordinary growth.  With the benefit of Shane’s update, we can see that the aftermarket grew 9.7% in 2022 and is estimated to grow 8.1% to $389 billion in end-consumer dollars by the end of this year (see Figure 1). Looking ahead, we are forecasting above average growth through 2026.

“The automotive aftermarket continues to prove that it can succeed on two fronts – the longstanding production and manufacturing that gives the aftermarket its strong foundation and the innovation that is required with the bourgeoning technology changes and opportunities in transportation,” commented Paul McCarthy, President and CEO, MEMA Aftermarket Suppliers.

But to achieve above average growth, the consumer demand will need to outduel economic factors.

Economic Conditions

During the recent post-pandemic years, the aftermarket was supported by favorable economic conditions. But so far in 2023 and in the near term, the aftermarket must deal with choppier waters. Most economists are paying extra attention to the rate that new jobs are being created because this signals how robust the economy is. Continued robustness leads to increases in interest rates which increases the risk of a recession. Other factors at play:

• Inflation is cooling but still at elevated levels, providing noticeable lift to aftermarket revenue;
• Consumer confidence remains very low as they worry about a possible recession, losing their job, inflation, war (Ukraine), the threat of war (China, Taiwan, U.S.), etc. etc. etc.
• Removing inflation from consumer spending data will reveal real spending growth of just 1.6% for 2023.

These are conditions that dampen retail sales but history shows that households make maintaining their vehicles a priority for their budget. 

SOLID FUNDAMENTALS

Offsetting economic factors are the market fundamentals that underlie and drive so much of our aftermarket growth. Most fundamentals will continue to drive demand for maintenance and repair. 

• Vehicles in Operation (VIO). Each year we add more vehicles to the road and the next few years are no different as the U.S. is expected to add 7 million cars between 2023 and 2026, getting to 292 million VIO.
• Vehicle Age. Of course, the aftermarket appreciates older cars with their wear and tear and the good news here is that the average vehicle age in 2023 has climbed to 12.5 years from 12.2 last year, lifted by the households that held onto their cars rather than trading them in for new.
• Vehicle Miles Traveled (VMT). VMT, which usually has the most influence on sales in the aftermarket, will continue to drive sales as travel rebounded strongly last year to solidify volume at pre-pandemic levels. 2023 travel, however, will be little changed or possibly down slightly. 
• Price inelasticity. Price inelasticity continues to be important to supporting market demand. This is a simple concept that means that we, as consumers, disregard rising prices for products that we cannot do without. The automotive aftermarket is a beneficiary of this because we are a nation where so many households rely on their vehicles for their everyday lives. As suppliers and retailers have increased prices on aftermarket parts, and as repair shops and service centers have increased labor rates, households have continued to invest in their vehicles.

Market Risks

Will there be a recession or not? How long will inflation remain at high levels? These are but two of the issues that make planning difficult – long term as well as short term. Supply chain concerns haven’t completely gone away, what with the possibility of a UPS/UAW strike in August. Trucking is dealing with labor and capacity issues. And geo-political and sourcing issues are making us assess our partnership with China. 

So, with these headwinds and uncertainties, there will be plenty for industry execs to talk about at the AAPEX show this November. 

AAPEX – THE LARGEST GATHERING PLACE CONNECTING BUYERS AND SELLERS

As AAPEX brings together the full supplier, customer and service value chain under one roof, once again we will be able to discuss how to help manage current growth and secure future growth, and join together to solve problems, innovate and get better. Only together can we conquer change, disruption, and continue to elevate the strength of the aftermarket. 

A NOTE ABOUT OUR JOINT FORECASTS

This blog features new market size data from the 2023 Joint Channel Forecast (JCF). The JCF is prepared annually by S&P Global as part of a collaboration between MEMA Aftermarket Suppliers and the Auto Care Association and serves as the single, most reliable estimate for the industry. The JCF is joined by two other collaborations, the joint forecast on the electric vehicle (EV) market, prepared by PwC; and the joint forecast for e-commerce, prepared by Jefferies. Their next annual update will be released and discussed at AAPEX 2023 in Las Vegas this November.

Philip Atkins is Director, Strategic Research & Planning, MEMA Aftermarket Suppliers. He has been analyzing research data, identifying trends and making recommendations for over 30 years for companies in the automotive industry, high tech and consumer package goods. In his current role, Atkins is charged with providing insights about where the aftermarket has been, where it is now and where it is going.

Prior to joining MEMA Aftermarket Suppliers, Atkins was at the Data Decisions Group, managing the research accounts for Advance Auto Parts, Kroger, BCBSNC, and other well-known, high-profile consumer brands. Prior to that, he was at The Hatteras Group where he managed research for IBM, BB&T and other Fortune 500 companies. After graduation from the University of North Carolina, Atkins worked in New York City on the advertising accounts of Nabisco and Campbell Soup Company brands.

July 24, 2023