Unseasonably hot summers, hybrid influx to improve aftermarket HVAC climate

The demand for automotive heating, ventilating and air conditioning (HVAC) replacement parts is affected significantly by seasonal variations. With mild winters during 2011-12, the demand for heating components, particularly heater cores, dwindled as the number of vehicles brought in for regular HVAC maintenance declined. Many installers and repair shops estimate that sales declined by as much as 15-25 percent simply because the parts either lasted longer or provided just the adequate amount of heating that vehicle occupants desired.

HVAC system contamination can lead to costly replacement of the compressor and related parts such as condenser, heater core, evaporator, receiver-drier and expansion valve, among others. Therefore, with lower replacement demand, installers and independent repair shops that rely on HVAC felt the impact on their top line growth as well.

However, opportunities lie ahead, especially with predictions of unseasonably hot summer months ahead. Installers and repair shops see this as something that could offset the decline they faced this winter, as demand for air condition components expects to increase. Those proactive in the market are already vying for customers by educating them about the benefits of regular HVAC maintenance. Emerging best practices include videos and articles on repair shop websites recommending at least one complete HVAC check and maintenance every two years. During such maintenance routines, another opportunity is to upsell their services as a “system renewal.” whereby all related, older components are replaced, not just the affected part. The larger installers and repair shops even implement the practice of sending reminder text messages to their loyal customers of coming deals in the season and the importance of HVAC maintenance.

Another emerging trend is the increasing penetration of hybrid electric vehicles in total light vehicle population. Traditional aftermarket participants, including suppliers, distributors and installers, continue to face the typical challenge present for any new technology— the access to the technical know-how as well as tools and processes required to adequately service these new vehicles. Hybrids provide greater opportunities for sales and service of HVAC components than conventional automobiles because their air conditioning compressors are powered by electrical motors rather than belts. This results in higher repair cost and hence bringing in revenues. In addition, the heater systems of hybrids require a helper pump, which provides another potential revenue source for the HVAC aftermarket.

While overall this means greater opportunities for the market especially as the percentage of hybrids increases, more than 70 percent of the initial increase in prosperity is expected to be captured by dealerships over the next 2-3 years, rather than traditional market participants. A favorable shift towards the latter will occur within the medium- to long-term as these vehicles become more affordable to be purchased and maintained by the not-so-wealthy consumer. Currently, the average yearly income of a Chevrolet Volt electric car owner is estimated to be $170,000. When this demographic shift occurs, consumers will alter their attitudes, needs and purchasing behaviors causing many to prefer taking their not-so- expensive cars to a local repair shop rather than a dealership.

Unlike the case of gasoline vehicles, where the internal combustion engine generates adequate heat, hybrid or electric vehicles produce very little excess heat. As a result, driving range can reduce by as much as 40 percent if the same amount of heat is produced via electricity. Currently, Pacific Northwest National Laboratory is conducting research to create a new, five-pound molecular heat pump that will allow a vehicle to travel longer without compromising its heating and cooling capability.

Meanwhile, independent repair facilities must upgrade their equipment and technician training to compete in the aftermarket for repairs and maintenance of hybrids and electric vehicles. This will present the next wave of opportunity, not only for HVAC, but other systems as well. Although many of these vehicles are still covered under warranty, the first generation of hybrids will enter the independent aftermarket within the next couple of years. Frost & Sullivan’s research indicates that the required investment to prepare an independent repair facility for maintenance and repair work on hybrids and electric vehicles is approximately $10,000 to $20,000. Additionally, there are annual recurring training and equipment expenses. However, with the right set of knowledge, infrastructure and marketing, most independent repair facilities can recover their initial investment within the first couple of years.