Aftermarket facing significant opportunities, challenges as changes brew
Distributors and suppliers who don’t like changes in their businesses are in for a rough ride during the next few years.
“Change is good. Without change, there is no profit. Change equals opportunities for profit,” said Paul McCarthy, VP, Industry Analysis, Planning and Member Services, Automotive Aftermarket Suppliers Association (AASA). McCarthy and Anthony Pratt, director of forecasting for the Americas, Polk, presented the GAAS seminar “What’s Driving Change Now to 2020? Top Trends & the Aftermarket Implications” May 22 in Chicago.
McCarthy outlined the five biggest opportunities.
1. Growth again in traditional market drivers. “Miles driven will grow over the next five to 20 years,” he said. “Key drivers are population growth, increasing disposable income and fuel economy improvement.”
2. Parc shifts. “Vehicle parc will grow again,” McCarthy said. “It was low and declining, but it will increase over 10 million units over the next couple of years.” Growth of the traditional “imports” will create opportunities for the winners. The top 5 Parc winning brands are Toyota, Nissan, Hyundai, Honda and Kia. The top three losers are Pontiac, Mercury and Buick.
3. Telematics. “Telematics creates new opportunities to create lasting relationships with customers,” he said. Service reminders will be voice driven in the car of the future. There will be repairs and upgrades by remote download.
“Diagnostics info will be received in advance so parts are waiting when customers arrive with their cars,” he said. “Telematics will create a new dialogue between service providers and end customers.”
4. E-tailing. E-tailing will create opportunities if leveraged correctly. “The industry will see 15 percent annual growth for aftermarket e-tailing from 2012 to 2018,” McCarthy said. “Over half of all DIYers start their purchase process online. That will increase to 90 percent in the near future.”
5. Better partnerships across the value chain. “The aftermarket is leaving money on the table and we are behind the curve in best practices,” he said. For example, Proctor & Gamble and Wal-Mart both have a one company operating model. “It is a pain to get there, but there will be sales gains, lower costs and improved margins for companies that do,” he said.
McCarthy also outlined the five biggest challenges.
1. Declining replacement rates will mean there will be less need for parts and repairs.
2. Parts proliferation. “With over 2 million SKUs, it is harder to get the right part to the right place at the right time,” he said.
3. Sweet spot. “The number of vehicles in the aftermarket sweet spot may decline by 20 million units over the next decade,” McCarthy said. “But this is a temporary decline.”
He defined the sweet spot as vehicles that are six to 12 years old. The sweet spot age keeps going up as people keep their cars longer, which is good for the aftermarket, he said.
4. The dealer strikes back. Dealers may become tougher competitors as they look for sources of income other than selling cars. “Forty to 50 percent of dealers’ profits come from parts and service, and they are looking to grow that number,” McCarthy said.
5. Clash of the titans. The industry has entered a new stage where large distributors, such as AutoZone and O’Reilly, are now competing for the commercial market. “There is uncertainty over who will be the winners and what that will mean for the rest of us,” McCarthy said. “The aftermarket is in for a very exciting next decade.”
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