It’s good news that more trucks and SUVs are headed into that three- to eight-year aftermarket sweet spot, especially considering that parts for these vehicles cost considerably more than parts for smaller vehicles.
But a recent motorist trend to look toward more fuel-efficient and compact vehicles in the face of high fuel prices could weigh heavily on the industry’s future success.
Unfortunately, it’s too early to say whether this push for gas sippers is a short-term or long-term occurrence.
Trucks and SUVs should continue to represent a significant portion of the aftermarket, says Jonathan Steinmetz, lead auto analyst at Morgan Stanley, who once again shared a Wall Street perspective at this year’s Global Symposium.
“All those SUVs and all those pickups that we sold in the industry between 1998 and 2004 are starting to roll into the aftermarket and that’s a good thing,” he says, adding another benefit to the proliferation of larger vehicles is that trucks cost more to maintain. “Overall maintenance costs in the first year of ownership is higher and through year five it’s higher.”
Whether current fuel prices will affect the long-term driving habits of motorists, which could throw a wrench into current speculation from Wall Street, is still an unknown.
“Last year, large SUV sales were down 18 percent; middle SUV sales were down 9 percent,” Steinmetz says. Conversely, luxury pickup sales were up, he adds.
The total number of vehicles sold on the OEM side hasn’t really grown, but that doesn’t mean the aftermarket doesn’t stand to prosper, as every year for the next five years the aftermarket should have more and more larger vehicles rolling into repair bays. “The overall number coming into the aftermarket sweet spot isn’t growing so much, but the composition of that mix should be pretty good from the aftermarket’s perspective,” he says.
Though all drivers are affected by fuel price woes, those most affected tend to be domestic vehicle owners, says Steinmetz.
The average annual income of a domestic car buyer is $64,000, while the average yearly income for a European car buyer is $128,000, and the average income for the buyer of Asian makes is $73,000.
Steinmetz takes issue with existing data that quantifies how much of a family’s disposable income is spent on fueling up their vehicles. The wealthiest 20 percent of the population tends to obscure that data, he adds. AFTERTHOUGHTS | Getting a taste of the fuel price factor
Jonathan Steinmetz, in a follow-up interview, says, “The most acute impact (from high gas prices) is the more discretionary type of parts and accessories and light maintenance that has to be deferred.”
In other words, drivers will likely curb the spending on unnecessary items, at least for now. It’s difficult to say if this symptom of the current gas price spike is indicative of a larger trend, he adds.
What is known is that gas prices are “a concern,” he says. “It’s a tax on the lower-end consumer.”
Another interesting trend to note is the release of subcompact cars almost simultaneously with fuel price increases. Many of these vehicles are the result of years of planning. Though it may seem coincidental that the increase of gas sippers is perfectly timed to recent gas price increases, “We did see gas prices go up a few years ago,” Steinmetz adds. Also, a number of these smaller models are being developed for other parts of the world, he reminds us. And in many of these countries, smaller vehicles are the norm rather than the exception. |
While government data show that the disposable income spent on gas is 3 or 4 percent, if you look at a two-vehicle family that makes about $40,000 a year and whose vehicles get about 20 miles per gallon and are driven about 13,000 miles a year, the amount of disposable income spent on fuel then rises to about 8 percent, says Steinmetz.
“It affects the do-it-yourself customer more than it affects the do-it-for-me customer,” he posits. “It will hurt consumer spending. I’m not saying it’s going to kill consumer spending, because that is not our belief.” ‘It’s still rough out there’
From an investor standpoint, the aftermarket is stable and reliable yet slow. “It’s still rough out there,” Steinmetz warns.
OEM woes will continue to affect the aftermarket, as units sold hover below projected trends. While the Big Three has encountered problems, the “J Three,” or Honda, Nissan and Toyota, continues to gain market share, though the group only holds about 30 percent of the market, according to Steinmetz.
“J Three share gains over the last five years matter and will matter for the aftermarket,” he says.
OEMs also are facing a cost disadvantage with warranties and health care. “It’s critical to understand where (OEMs) are fighting their own battle,” he remarks.
Despite concerns, Steinmetz says private investors are still looking to aftermarket suppliers as a stable investment source.
For the aftermarket, SKUs and model counts will continue to rise, driving home the need for sophisticated inventory management, especially within smaller companies. Model proliferation is going to mean more parts, more inventory to manage and the need, more than ever, for more robust inventory management systems, he says.
SKU count can be as much as 400,000, depending on how you measure it, a stat that weighs on distributors large and small, alludes Steinmetz.
“It’s a challenge for the larger players, so it’s certainly a challenge for smaller players,” he says.
Vehicle complexity continues, and the more electronics involved in repairs is an occurrence that favors the do-it-for-me market over the do-it-yourself market, he says, adding the retail side of the industry is in a better position than the supplier side.
Another wild card for the aftermarket is raw material prices.
“This is a challenge that will affect aftermarket manufacturers (and) retailers. I’m betting the consumer will bear some of it and the manufacturer will bear some of it, (but) the retailer and wholesaler will bear somewhat less.”  | | Jonathan Steinmetz (second from left), addresses attendees between sessions of the Global Automotive Aftermarket Symposium, including Brian Malson (third from left), from Robert Bosch Corp., and Jack Creamer (right), from Distribution Marketing Services. |
Steinmetz once again shared a labor index with Symposium attendees.
Where Sweden ranks highest at 100, the United States is at 63, which means that paying an employee in the United States would cost 63 cents to the dollar when compared to Sweden. Mexico ranks at 10 and China’s index is 5.
Any company with a labor-intensive product cannot overlook the labor index numbers when thinking of outsourcing.
“If you’re not going to a low-cost country, somebody else will,” says Steinmetz. “If you bury your head in the sand, it’s probably not going to work out well.” |
