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 2021.
Let’s Get Digital
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.
The COVID-19 pandemic has served to crystalize this trend, given the lack of access so many of us had to brick-and-mortar stores last year. In the US, the auto aftermarket captured $16 billion in market share through eCommerce in 2020, nearly a $2 billion increase over initial forecasts for the year. 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.
Boom and Bust Times
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. However, it shouldn’t surprise anyone to hear that 2020 wasn’t exactly a stellar year for auto sales, with McKinsey & Company estimating a six-percentage-point decrease in profits for the global auto industry. Given the economic downturn and general decrease in commuter travel and mobility, this isn’t exactly shocking.
But that decrease in new auto sales signals the inverse for the aftermarket. The auto parts industry is an uncommonly resilient one, and the recession brought on by COVID-19 has not had nearly the level of negative impact on this industry as it has on others. In fact, consumer purchases of auto parts reached an all-time high in the summer of 2020, again a reflection of that to stick with what you have for now.
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 $500 billion by the year 2026.
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.)
Awareness of hybrid and all-electric vehicles has been growing steadily over the past couple of decades, but recent years have signaled the possibility of a true sea change. One study back in 2017 predicted that the majority of top auto parts suppliers would be irrelevant by 2030 if they did not find a way to meet the shifts in the auto industry. Like eCommerce, what started out as an uncertain trend is now solidifying into a new normal.
More recently, Reuters proclaimed 2020 to be “the year the US auto industry went electric,” thanks to Tesla’s meteoric rise and increasing efforts to fight climate change. New hybrid and all-electric vehicles from all over the industry are scheduled to hit the market in 2021, including several electric trucks.
This shift in the auto industry is likely to have interesting effects on the aftermarket. Electric vehicles use their parts differently than traditional ones: while they might take longer to wear out brake pads, they eat through tires faster. Additionally, as systems within the car become more complex, from advanced driver-assistance features to sophisticated heating and cooling systems, aftermarket manufacturers and distributors will need to adjust accordingly – not only in terms of their product offerings but also in how their train their sales teams.
As you’ve likely heard many times in the recent months, these are uncertain times we live in, and the auto aftermarket is no exception. The industry proved resilient in the face of the COVID-19 pandemic and economic recession, but tectonic shifts in both the way sales are conducted and what’s being sold nonetheless create uncertainty for auto parts businesses.
Moreover, 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 their salespeople’s product knowledge, build customer loyalty, and so much more. In a busy industry undergoing major changes, 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, incentives, millennials, or whatever else might be on your mind!
Photo by rawpixel on Unsplash