At the start of a new year, it’s natural to take stock of our prospects for growth and profitability. Looking back on 2012, the glass can be seen as half full, given the slight gain in consumer confidence and overall economic growth, or half empty, considering the challenges posed by a federal government intent on adding to the nation’s debt and saddling businesses and consumers with higher taxes.
Trying to draw a conclusion from the myriad factors affecting aftermarket demand isn’t easy. The automotive industry plays a big role in our nation’s economy, and the news media is relentless in reporting every bit of information they can find to “enlighten” us on everything from consumer confidence to natural disasters to political debates, you name it. In their attempts to keep us informed, they mainly confuse us. So in the interest of making sense of this information overload, I offer my take.
Consumer outlook holds steady
The economic factors influencing the automotive aftermarket aren’t changing fast. And that’s a good thing. The independent aftermarket has been healthy despite the nation’s generally lousy economy, and indications are that the industry is making all the right moves to sustain a strong status quo.
The aging of the nation’s vehicle fleet, together with the increasing length of car ownership, still points to growth for the automotive aftermarket, according to Polk research. Cars bought in the last 10 years are lasting longer, and consumers know it. For most consumers, maintaining existing cars makes more sense than buying new ones.
NPD, another research firm, confirms an overall positive outlook for the independent aftermarket. Consumers are starting to spend more money since the recession began in 2007. But not enough to encourage a lot of people to buy new cars. Most consumers are still holding onto their existing cars longer than they did 10 years ago.
This explains why the number of OEM dealers has been declining (since prior to the recession) and OE service sales have been flat.
OEs are hot on our trail
Digging into the finer details, there are conflicting indications about whether consumers expect to spend more on auto repairs in 2013. On one hand, higher fuel prices result in fewer miles driven and fewer repairs. On the other hand, used cars are more enticing in comparison to higher new car prices. And on still another hand, OE dealers are offering more liberal financing options to encourage new car sales.
One thing most observers agree is change isn’t happening fast. And this is a good thing for independent shops.
The fact that shop operating costs have been inching upward has helped stabilize the number of shops (industry research confirms this), giving existing shop owners a better chance of sustaining their profitability. Wages, benefits, materials, maintenance, and tool and equipment costs are rising. But if they weren’t, more competitors would be out there making it harder for those who are already established.
Hence, the short-term outlook remains healthy for independent aftermarket service providers.
This doesn’t mean independent shops should be complacent.
OEMs are revving up efforts to change things. Fiscal 2012 ended on a positive note for new car manufacturers, thanks in part to the federal bailout that all of us paid for. Fiscal 2012 marked the best year for car sales since 2007, even if purchases did not come close to pre-2007 levels.
Independent shops must prepare for change
Independent shops need to be ready. So far, they’ve done a good job addressing the growing demand for aftermarket services. Outlays for new tools and equipment have moved at a healthy clip in the last several years, and most forecasts see this continuing for at least another two or three years.
Automotive tools cost more because they do more. Newer scan tools, for instance, make it easier to diagnose problems faster and get cars out the door in less time.
The outlook remains positive for those shops committed to investing in technical training, competitive employee compensation, and investment in the tools and equipment needed to address a more diverse vehicle fleet.