With a record-high average vehicle age in the US, the
aftermarket is likely to see robust growth in repair and
maintenance work, as older cars will see even more miles driven
than traditionally expected, according to analysis by S&P
Global Mobility.
Two years of short supply of new vehicles has driven consumers
into the used-car market. Now, there could be a counterintuitive
shift: Surging new-vehicle supply could further boost expansion of
the used-vehicle fleet, bringing more high-mileage vehicles into
service bays.
How is this possible?
The aging car parc has already expanded the repair business
sweet spot, which we consider as vehicles from six to 11 years old.
Now 12- and 13-year-old vehicles are becoming a bigger part of the
business – even though they were originally sold during the
slow-sales years of the Great Recession.
Growth in vehicle age won’t be uniform. <span/>While the share of 7-year-old vehicles in
operation is expected to decline through 2028, vehicles more than
eight years old will swell in number,<span/> said Todd Campau, associate director for
aftermarket solutions for S&P Global Mobility<span/>. That age group is
expected to grow by more than 25 million units by 2028, according
to S&P Global Mobility projections.
“As vehicles with more electronic sophistication continue to age
and increase in overall share, the aftermarket’s role in
maintaining the aging vehicle fleet will become increasingly
critical,” Campau said. “That’s where the real opportunity is in
the aftermarket space.”
In addition, drivers of older, lower-priced, out-of-warranty
vehicles are likely to drive more miles, because they may have jobs
without a work-from-home option. During the pandemic years,
vehicles from six to 13 years old – the new aftermarket sweet spot
– will increase their share of annual miles traveled, outstripping
both vehicles zero to 5-years-old and 14-years-plus, according to
S&P Global Mobility projections.
Supply chain, inventory, and macroeconomics fuel
disparity
For several years, pandemic-related supply-chain headaches have
kept automotive production below demand. Light vehicle sales of
13.8 million in the US in 2022 – the lowest in a decade – were a
key factor boosting the average vehicle age to 12.5 years.
The situation wasn’t entirely unwelcome for automakers and
dealers. Automakers shifted their production mix to high-ticket,
high-margin vehicles. At the same time, tight inventories meant
that dealers could sell new vehicles quickly to desperate shoppers
willing to pay sticker prices – or higher.
Now that’s changing, Campau said. It was expected that as the
availability of components like semiconductor chips improved, new
vehicle sales would increase, slowing the rate of used vehicle
growth. S&P Global Mobility forecasts 15.4 million light
vehicle sales in the U.S. this year, followed by 15.8 million in
2024 and 16.5 million in 2025, based on its July forecast.
But the consumer side of the equation remains a little shaky,
despite some positive macroeconomic signs. Lingering inflation and
high interest rates are expected to weaken the recovery of new
vehicle demand just as inventory increases. The market is
transitioning from being supply-constrained to being
demand-constrained, Campau said.
One key indicator: Demand for auto loans has slipped below
third-quarter 2020 levels, according to analysis by S&P Global
Mobility and TransUnion.
The question now, Campau noted, is whether OEMs will start
building more economy or mid-priced vehicles and trims to provide
affordable options to middle- and lower-income families currently
trapped in a used-vehicle spiral, or if automakers will stick with
a mix that favors higher-margin vehicles.
“Will the consumers continue to support that premium model?”
Campau said. “The question is who’s going to blink first?”
Of course, automakers can always stimulate demand by the age-old
method of piling on incentives. The market is already starting to
see increased incentives as new vehicle inventories have risen this
year, he says. But spiffs are still at less than half of
pre-pandemic levels. That said, price cuts by Tesla and Ford on
their respective EV lines show that inventory concerns are
growing.
Older cars becoming trickier to fix
All of this suggests that a growing used-vehicle fleet will
continue to benefit the aftermarket business. But while aftermarket
repair shops should see more business coming in the door, they face
new challenges.
The vehicles in their service bays will be
increasingly loaded with sensors for infotainment,
communications, and advanced driver assistance systems like
adaptive cruise control, lane departure warning and collision
avoidance. Adaptive cruise<span/>, in particular, has been on a steady
upward penetration trend since 2015; it is projected to be in
nearly 70 percent of model-year 2023 vehicles, according to S&P
Global Mobility estimates.
“I think sensors are where the next big opportunity is for the
aftermarket,” Campau said. <span/>Likewise, as 5G connectivity becomes
dominant in new vehicles, a growing share of vehicles in operation
will be capable of receiving over-the-air (OTA) software updates.
By 2028, S&P Global Mobility projects, more than one-third of
vehicles in operation will be connected, with more than 95 percent
of those OTA-ready.
As the used vehicle parc grows in technological sophistication,
right-to-repair issues will come to the fore, as automakers wrestle
with wanting to maintain control over intellectual property while
their service bays become more crowded.
“For consumers, the option to have the choice to maintain their
vehicle in a timely fashion where convenient will be increasingly
important,” Campau said. “The volume of the vehicle fleet will make
cooperation between OE aftersales service and aftermarket service
shops a requirement to keep the nearly 300 million-vehicle
population working as safely and efficiently as possible.”
AVERAGE AGE OF VEHICLES HITS RECORD HIGH
ADAS SYSTEM CALIBRATION CHALLENGES AND OPPORTUNITIES
FOR MORE ABOUT TECHNOLOGY VEHICLES IN OPERATION
FOR MORE ABOUT VEHICLE MILES TRAVELED
FOR MORE ABOUT PARTS DEMAND AND FITMENT
This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.
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- Source: http://www.spglobal.com/mobility/en/research-analysis/as-america-becomes-a-nation-of-old-cars-mechanics.html
