Tough Times and Aftermarket Resiliency
By Philip Atkins, Director, Strategic Research and Planning, Automotive Aftermarket Suppliers Association (AASA)
The U.S. automotive aftermarket continued its strong growth through 2021 and is projected to hit the $400 billion milestone by 2025. For this information I wish to thank Shane Norton at S&P Global (formerly IHS Markit) for this update to our annual Channel Forecast of market size.
This growth has been an incredible sales rebound in the face of a pandemic that crippled so many other industries. With the benefit of Shane’s update, we can see that the aftermarket year-over-year change was only -5.3% in 2020 instead of the -8.8% we initially feared. And the rebound in 2021 was even more robust than predicted, growing 14.8% instead of the originally forecast 11.2% (see Figure 1). Now, looking ahead, we are forecasting above average growth through 2025.
“The automotive aftermarket once again shows its resiliency with a stronger than expected recovery from the pandemic,” commented Paul McCarthy, president and CEO, AASA. “The automotive aftermarket rose nearly 25% in the past two years despite ongoing headwinds, and we are excited to see the landmark market size of $400 billion in 2025.”
This resiliency has been built on a strong and sustainable foundation of consumer demand, market drivers and economic conditions. Highlights for each of these are described below.
Throughout the past two post-pandemic years, the aftermarket has been supported by the underlying economic conditions:
- Consumer demand improved immediately after Q2 2021 and stayed strong through 2021, even in the face of an inflationary environment;
- Consumers benefited from high employment and federal stimulus payments — more money in more pockets;
- With money in our pockets, households spent and spent. The Personal Consumer Expenditure index rose month after month and will stay strong through the rest of 2022, even as consumer confidence has fallen victim to rising energy prices and soaring prices for our vehicles’ fuel.
On top of the economic conditions, market fundamentals that underlie and drive so much of our growth have all helped grow the market and the good news is that they have the capacity to continue to do so:
- 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 5 million cars between 2019 and 2022, getting to 283 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 2022 is 12.2 years, lifted by the households that held onto their cars rather than trading them in for new.
- Vehicle Miles Traveled (VMT). This is the best story of all, as VMT, which usually has the most influence on sales in the aftermarket, will reach 3.5 trillion miles in 2022, soaring past even pre-pandemic levels. As Shane Norton wrote: “One thing that does seem clear is that while many workers won’t be resuming their pre-pandemic commuting patterns, miles driven in total seems to have rebounded very well.”
- Price inelasticity. Price inelasticity 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 repair shops and service centers have increased labor rates, households have happily paid (scratch that, I cannot say “happily”) these prices to keep their vehicles running.
With the support of the economy and traditional market drivers, aftermarket sales have been strong through 2021 and the first quarter of 2022. Indeed, with money piling up in bank accounts and few options for spending it, consumers did not hesitate to invest in the upkeep and repair of their vehicles.
AASA’s own survey of members confirmed this in their reports on total sales and new orders. Figure 2, below left, shows that AASA members began registering moderate and substantial year-over-year gains early in 2021 that rolled on through Q1 2022. And replies also showed new orders recovering late in 2020 and continuing strong through Q1 of this year (Figure 3).
In fact, demand has been so strong that in many instances the supply chain issues prevented suppliers from meeting demand and making them contestants in a battle of availability. But once the supply chain issues are solved and the battle of availability is over, then suppliers will need to be ready to resume the battle for share.
COVID-19, of course, is still a risk but new outbreaks and surges don’t seem likely to lead to the lockdowns and stay-at-home behaviors that crushed miles-driven in 2020. Instead, suppliers, distributors and retailers will deal with the other threats and headwinds, including:
- Inflation levels that eat into households’ disposable income and ultimately lead to actions from the Federal Reserve Bank that could, if they go too far, lead to a recession;
- Ongoing shortages in raw materials that have forced producers to spend more time finding what they need and to pay higher prices for them;
- Supply chain issues that are delaying inbound materials and outbound finished goods, with the result that suppliers are missing fill rate objectives;
- And finally labor shortages – suppliers continue to struggle to stay fully staffed in their plants and shipping centers.
So, with these headwinds and uncertainties, there will be plenty for industry execs to talk about at AAPEX this November.
AAPEX – THE LARGEST GATHERING PLACE CONNECTING BUYERS AND SELLERS
As we bring 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 JOINT FORECASTS
This blog features new market size data from the 2022 Joint Channel Forecast (JCF). The JCF is prepared annually by S&P Global as part of a collaboration between AASA 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 2022 in Las Vegas this November.
July 5, 2022