Understanding New light Vehicle Sales Trends
After spending 23 years at Federal-Mogul, Mark Seng has devoted the past seven years to studying and analyzing automotive industry trends as a global aftermarket practice leader at IHS Automotive. Seng discusses new vehicle sales trends and how they will impact the independent aftermarket
WHEN YOU LOOK AT THE PAST YEAR, WHAT IS ONE OF THE BIGGEST TRENDS THAT HAS IMPACTED THE AFTERMARKET?
Some of the key things we see happening is, number one, new light vehicle sales continue a pretty robust, strong recovery. In the U.S., we set a pace in 2015 to break the all-time record for new light vehicle sales. In all, auto makers sold 17.5 million cars and light trucks in 2015.
A lot of people think that’s a bad thing for the aftermarket. But I don’t look at it that way. Any time you’re adding more and more vehicles to the fleet, that’s a good thing. That’s our future business pipeline. At the same time, we see the vehicles in operation (VIO) growing. We see that growing about 9 percent over the next four or five years. That’s nice healthy growth in the U.S and that simply means more repair opportunities for the aftermarket in the years to come.
WHY ARE BOTH OF THOSE FIGURES INCREASING?
When we talk about new vehicle sales growing, sales trailed off following the recession. There’s some catch-up demand. But consumers are also returning to the showrooms at the same rate as they were at the record years in the early 2000s. When you look at customers ready to return to market in the next six months, that rate is running at the same rate that it was running back in the boom years. What that tells me is that it’s not just replacement demand but it’s also people wanting to buy new cars, not just needing to. The OEMs are also offering more and more options on the vehicles. The consumers are getting excited about the new models and the new technology offered on the vehicle. That’s also stimulating demand.
When you look at the total fleet and why that is going up, it’s a combination of things. Certainly new light vehicle sales being at record levels, that’s going to grow the fleet in and of itself. Also we’re seeing people hang on to their vehicles longer. That helps grow the fleet because they’re staying in the fleet longer.
WHEN IT COMES TO THE VEHICLE FLEET, WHAT DO MILES DRIVEN TELL US?
Vehicle miles driven (VMD) is a very positive trend for the aftermarket, as well. After a number of years of flat or declining number of miles traveled, we’ve recently seen some increases. That’s a great thing. Following the recession, it flattened and declined and it was the first time we saw it decline since the 1970s. The VMD has had three straight years of increases. In 2013, it was up .6 percent, and 2014 was up 1.7 percent. The yearto- date number in July 2015 was up 3.4 percent. And August 2015 was the highest recorded vehicle miles traveled for the month of August ever. When you talk about that, it’s a very positive trend for the aftermarket because that monitors wear and tear on the vehicle, which drives repairs.
Right now, it certainly relates to gas prices. Gas prices are down and there’s a correlation between that and vehicle miles traveled. The jury is still out on how long that trend will continue.
ARE THERE ANY OTHER TRENDS OCCURRING WITH NEW VEHICLES SALES?
We’re seeing, as consumers come back to the showroom, that the vehicle mix is shifting as these light vehicle sales are taking off again after the recession. What we’re seeing is a shift toward what we call CUV/small-SUV body style. When you look at that body style, that represented about 22.5 percent of all new U.S. registrations last year. The mid-size body style is also increasing, which represents another 15 percent of total new U.S. registrants.
What we think is happening is that it has to do with the powertrain. We’re seeing a big increase in 4-cylinder powertrains. In 2015, it represented about 56 percent market share. There’s new technology being added to that 4-cylinder engine—turbochargers and other technology that’s increasing the horsepower to that engine. The consumers seem to be moving up to a mid-size vehicle but not the subcompacts that a lot of people thought were going to take off. Consumers can get that 4-cylinder engine with the horsepower they want but be able to put it in a little bit bigger vehicle.
Things like this shift and the shift toward imports are important because those are the types of vehicles that will be entering the service bays.
WHAT IMPACT WILL THE INCREASING AGE OF THE VEHICLE FLEET HAVE ON THE REPAIR INDUSTRY?
The aging of the vehicle population and the impact it’s having on the traditional “aftermarket sweet spot” is a very important trend. What it means is how the aftermarket looks at the model years of vehicles that drive most of the repair dollars. In general, people think of it as the 6- to 11-year-old vehicles. The average age of light vehicles today is 11.5 years old. We saw a rapid acceleration in the average age after the recession. Light vehicle sales dropped off, people held on to their vehicles, and the average age increased greatly. We see the average age going to 11.6 by 2016.
What’s interesting for the aftermarket is not just the average age number but what it’s doing to different age groupings of vehicles. That has a direct impact on what repairs the aftermarket will get. When you look at 2015-2020, vehicles that are new to five years old, that population is going to grow 24 percent. That’s kind of intuitive. Vehicles that are 6–11 years old, that population is going to decline by 11 percent. On the surface, that looks like a bad trend for the aftermarket. The really good thing for the aftermarket is that vehicles 12 years and older are going to grow by 15 percent. That’s a great thing for the independent aftermarket because they are going to get almost all of those repairs. Not many people take their 12-year-old vehicle back to the dealership for a repair.
Let’s go back to that 6- to 11-year-old decline. Some people are saying the aftermarket sweet spot is declining. I think the sweet spot needs to be redefined. We’ve been defining it the same way for 25 years. Back then, the average age was 8.5 years old. What I think the data is telling us is that more of our repairs have to be coming from these older vehicles. I took a look at units rather than just percentages. When you look at units on the road, new to 5-year-old vehicles in 2002 represented 84 million units. In 2015, they represent 70 million. They’ve dropped because of the drop in new vehicle sales. By 2020, they are going to grow to 86 million units. As you can see, they’re only growing back to roughly where they were in 2002. People might look at that and say they’re going to grow, which is a great thing for the aftermarket, but they’re really only growing back to where they traditionally were 13–20 years ago. Now let’s look at older vehicles and the units there. We look at 16 year vehicles and older. In 2002, they represented 35 million units. Today they’re at 57 million, and by 2020, they’re at 76 million. Even though the percentages show decline, this tells me that, based on units, more of the aftermarket repairs have to be coming from these older vehicles. Our sweet spot has to be greater than what we thought it was from 6–11 years old. It has to extend up into the 14- to 16-year-old vehicles. I don’t think the sweet spot is shrinking, I think we need to think about it differently