Welcome to the first installment of the HMI Blog’s “New Year, New Challenges” series! Each week, we’ll take a look at one of the industries our clients deal in and see what lies ahead for them in the new year: the good, the not-so-good, and the unknown.
Our first industry: the automotive aftermarket.
As the secondary market to the auto market, the aftermarket provides products and services for everything that might take place after the sale of a car: accessories, repairs, replacements, and so on. Here’s what we’re seeing in store for the automotive aftermarket in 2019.
We’ll start with the obvious. It shouldn’t surprise you that one of the biggest changes the automotive aftermarket (and other industries) is going through right now is the increasing prevalence of eCommerce and the digital world. We’ve covered this topic a lot.
More and more, auto parts buyers choose to put in the work online first before they think about entering a store. According to Hedges & Company, 93 percent of auto parts buyers do online research before they buy, and 82 percent at least partly base their decision on a company’s online presence. Maintaining an online identity isn’t just good business—it’s become a necessity.
And, of course, there’s always that Dark Lord of the Internet, Amazon, calmly building up its online empire. The power and appeal of Amazon, especially the new Amazon Business, means heavy competition for sellers in the B2B world now as well as B2C. Those distributors who have held fast to the purely brick-and-mortar lifestyle should be seriously considering ramping up their eCommerce options right about now.
There’s an interesting give and take between an industry and its aftermarket. Both the automotive and auto aftermarket industries depend, of course, on the ability and willingness of the buyer to spend money. But while the auto market needs people who want to buy new, the aftermarket is the opposite: it needs people with older cars who will pay for replacements and tune-ups.
Since 2015, the American auto industry has seen a historically high level of new car sales, with each year closing out with at least 17.2 million cars sold. In its 2019 Forecast and Trends report, Edmunds.com projected similarly high sales for the coming year (if slightly lower at 16.9 million) based on positive economic factors like low unemployment, high consumer confidence, and the currently cheap price of gas.
All that being said, it seems the industry is holding its breath to see what kind of year 2019 will turn out to be. In fact, the Wall Street Journal reported that some industry execs and analysts are anticipating a market downturn soon. There are a lot of reasons for this: interest rates are at their highest since 2009, new cars cost more now than they ever have before, and new tariffs breed uncertainty across the board. (Yeah, don’t worry—we’re coming back to the tariffs.)
Put together, all of it has the potential to push consumers to buy used, or to focus more on maintaining their current cars. Either way, you end up with older cars, which means more business for the aftermarket.
And, in fact, it seems cars are getting older. The age of the average American car has increased 17% over the past decade to around 11.5 years. Vehicles are lasting longer, and their drivers are ready to pay for the upkeep. The global auto aftermarket industry is expected to exceed $1 trillion by the year 2022.
There’s another reason to think the aftermarket industry might continue to grow: millennials. That’s right—for once we’re not to blame for killing an industry, we’re helping it. According to the market research company NPD Group, millennial drivers are on the road twice as much as those in their sixties. We’re also more likely to be driving an older car, and to have bought it used. You’re welcome, auto aftermarket.
(Ok, so the millennial trend is probably not the only factor in aftermarket growth. But, hey, I’m a millennial. I like to make it all about me.)
If there’s one hot topic on our minds right now, it has to be the tariffs. Last year, President Trump’s administration began imposing a series of new tariffs on hundreds of imports, particularly those from China. Chinese-sourced auto parts were slapped with a 10% tariff in September that was set to increase to 25% with the new year. That’s on hold for now, but uncertainty still abounds.
Your mileage may vary with the auto parts tariffs, depending on whether you’re a manufacturer who’s glad to see a drop in overseas competition or a supplier who now has to decide between eating the cost of the tariffs or raising your prices. But industry leaders and organizations have not kept quiet about their opposition to the tariffs, arguing that the globalized nature of the market doesn’t leave room for a trade war.
The Automotive Aftermarket Suppliers Association (AASA) argued that the health of the auto parts industry relies on overseas partners: “Supplier jobs are up 19 percent over the past five years, growth made possible because suppliers operate in an integrated, complex global supply chain. Access to worldwide markets is critical for the supplier industry to remain competitive.”
In a formal statement, the Motor & Equipment Manufacturers Association (MEMA) likewise argued that “industries like ours, which require long-term investments in facilities and employees, depend on regulatory and market stability. These actions have thrown all of that up in the air.”
Whether or not these concerns will be heightened or alleviated will depend on the next few months. President Trump travelled to China this week in hopes of bringing the trade war to a positive conclusion. If no deal is reached by March 2, the 25 percent tariffs that had been originally intended for January 1 will be imposed.
Tariffs or no, we’re anticipating good things for the automotive aftermarket. With the uncertainty of the next few months, it’s hard to tell exactly what lies on the horizon. But in the end, every industry sees its share of market growth and contraction, even the ones with the brightest futures.
A growing market is a good thing, but there’s one challenge left we haven’t mentioned: how to differentiate your business. In an industry populated by dozens or hundreds of similar companies, how can you stand out among the competition?
(Yes, this is the part where I talk about incentives. Did you really think I wasn’t going to bring up incentives?)
As an incentive provider, it’s our goal to help you become the best you can be within your industry. Incentives help businesses increase their market share, improve brand awareness, build customer loyalty, and so much more. In a busy industry with an uncertain future, incentives guarantee that you’ll stand out in the crowd.
We love the industries we serve, and we love talking about what lies in their futures! Book a meeting with us to share your thoughts on the automotive aftermarket, tariffs, incentives, millennials, or whatever else might be on your mind!