Detroit—Martec Group loves an investigative challenge! Noted for its discretion in guiding high-profile clients in solving complex matters, Martec will dispatch its research team and data experts when clarity is needed for actionable outcomes. Chief Marketing Officer Chuck Bean opens to a high-level conversation with Aftermarket Business World about the inflationary pressures and sticky supply chains that have tested the automotive aftermarket’s resiliency this past summer.
Which categories are you seeing impacted by inflation right now?
The volatility of prices within the supply chain has particularly impacted sectors like lumber, raw materials, and hardware. Within the automotive industry, inflation is not only evidenced by price increases, but shortages, too. The global semiconductor shortage continues to affect manufacturers and their production capabilities. The hardest-hit sectors in the aftermarket face spikes in specialized raw materials needed for spark plugs and converters. Precious metal prices continue to spike, which is causing dramatic increases in these categories.
What are the financial implications facing the supply chain because of these increases?
Currently, many materials are scarce and are increasing in price, primarily because of recent demand surges. Consumers are now waiting longer and paying more for parts and services for their vehicles. If the repairs are not critical, some consumers are waiting for the market to stabilize until they can make larger purchases, especially as prices remain volatile.
What do you believe is driving these price increases and other changes?
Pandemic-driven shifts in supply and demand have contributed mainly to the current economic environment. Several raw material markets have faced significant declines in capacities coming out of the pandemic. Also, capacity has been slow to match the spike in demand.
The most significant contributor to inflation comes from products and services now in high demand with the reopening of the economy. Rising prices, particularly within the used vehicle market, have had a lasting effect on resell values. The cost of used cars and trucks increased 10 percent in April and 7.3 percent in May, accounting for approximately one-third of the total market uptick in expenditures. The supply chain is less apt to flexibility. The pandemic has certainly tested economic stability.
Talk about any evidence of shortages and backorders in the supply chain that you are hearing about lately.
Manufacturers are hesitant to buy as prices climb amid increased demand and decreased supply in the overall market. Raw material prices are particularly volatile right now. Buyers for lumber, semiconductors, and resin (primarily for use in electric motors) are seeing shortages across the board, making a profound effect on product availability, vehicle prices, and service repairs.
How are the industry’s manufacturers—and customers—coping? What steps are they taking?
Customers are shifting to alternative channels, often to e-commerce, to source products in short supply at the lowest cost. Manufacturers have had to embrace these channels. They are working more closely with their traditional channel partners to allocate supply according to demand.
How long do you think inflation will last?
At minimum, inflation will last through 2021, perhaps easing by next year. A “hangover effect” may follow, but it depends mainly on market demand fluctuations as the economy reopens. It also depends on whether additional spikes in COVID-19 restrictions will come back and disrupt supply chains. The automotive networks will likely restabilize with the availability of necessary materials. But disputes over how long that will take remains in question. The supply chain needs time to recalibrate following these unprecedented events.
Do you remember anything like this as more impactful than what you’re seeing?
While some comparisons could be drawn to other financial anomalies, the market finds itself coping in uncharted territory as it recovers from COVID-19 and the world becomes vaccinated.
The last time we remember seeing something even close to this magnitude was during the economic decline of the 2000 dot-com Bubble and the ’08 Great Recession. However, the circumstances of the world are on pause and have culminated into an abnormal tightening of the supply chain. Meanwhile, key economies have opened up as demand has spiked.
