MOTOR Magazine

A MOTOR Magazine Newsletter
January 9, 2018

Contributed by Bob Chabot
What’s Driving Your Business?

Five Automotive Trends Will Impact Your Business

The automotive sector is one of the biggest and most competitive markets in the world and relies on in-depth analysis for its daily operations,” stated Mark Seng, Global Aftermarket Practice Leader for the market researcher, IHS Markit, a division of IHS Automotive. “The U.S. light vehicle aftermarket is a $287 billion industry. Non-warranty light duty vehicle service and parts are projected to grow by 3.4 percent per year through 2022.”

“Part of this growth will be driven by increasing component value, while another is the sustained five years increasing total miles driven by motorists following seven years of flat or declining miles driven. The challenge for service repair professionals is to keep positioned where the growth is happening.”

Seng then shared five key trends with MOTOR that will shape the environment shops operate within.

New light vehicle sales peaked in 2016 at 17.6 million units. Sales declined to 17 million in 2017 and are expected to decline slightly each year between 2018 and 2020. (All images — IHS Markit, the Automotive Aftermarket Suppliers Association and Auto Care Association)

Trend #1: While U.S. light duty vehicle sales set another record last year, they have begun to level off.

“New light vehicle sales had record selling years in 2015 and 2016, with 17.6 million units sold,” explained Seng. “New light vehicle sales declined to 17 million in 2017, and are expected to continue to decline slightly each year between 2018 and 2020. Of note, IHS expects domestic brand sales to decrease more that import sales over this time period.”

"Another factor that will negatively impact independent shops more so than dealerships, according to Seng, are the impacts of Hurricanes Harvey and Irma, which will drive replacement volume and scrappage, although the effects from each hurricane will differ. “For the approximate 9.8 [million?] vehicles-in-operation (VIO) impacted by Harvey, IHS expects replacement to reach between 400,000 and 500,000 units. The pickup (15.9 percent), midsize car (11.9 percent) and compact car (10.2 percent) segments most impacted, with Ford (17.8 percent), Chevy (15.9 percent) and Toyota (12.5 percent) will be the most affected automakers.”

“Contrast this with Irma. Of the approximate 14.4 million vehicles potentially affected, IHS expects 550,000 to 700,000 vehicles to need replacement. Ford (14.5 percent), Toyota (13.2 percent) and Chevy (10.8 percent) are expected to be the hardest hit automakers, notably in the midsize car (14 percent), compact car (13. percent) and compact crossover utility vehicle segments (9.2 percent). In both cases, new replacement vehicles are more likely to be serviced at dealerships rather than independent shops.”

Import light duty makes are expected to out pace domestic makes for both new and used vehicles in operation.

Trend #2: Future aftermarket service repair opportunities will be driven by the rapidly changing vehicle mix we are experiencing today.

“While four segments —compact, mid-size, crossover utility and full size pickups —represent 57 percent of all new U.S. vehicle sales over the past decade, crossover utility vehicles account for more than 50 percent of the overall growth,” stated Seng. “Automakers have certainly noticed this change in vehicle mix. Service repair professionals should also take note.”

He cited two dynamics service repair professionals should be aware of. “When you look at 6 to 15 year old vehicles-in-operation (VIO), import nameplates have rapidly closed the gap compared with the Big Three domestic brands. A decade ago, there were 43 million more domestic VIO than imports. In 2017, that gap has narrowed to just 9 million VIO. IHS expects the gap between the two to reach zero VIO in 2019, after which the imports will quickly out pace domestics thereafter.”

“A second dynamic happening with new light vehicle sales mirrors the trend with used vehicles. Sales of new import and domestic units are near even right now, but in the coming five years, Seng predicted import brand vehicles (56 percent) would substantially surpass domestic brand sales (44 percent). Service repair shops may need to adapt to these shifts, but would be advised to check local market data first.”

One anomaly to the trend of an aging vehicles-in-operation population is 12 to 15 year old VIOs, which IHS expects to decline by 23 percent between 2017 and 2022. This contrasts with VIO that are older or younger than this demographic.

Trend #3: Some say the aftermarket “sweetspot” is shrinking; more likely, it is just changing, with us feeling the impact of an aging vehicle population.

“Expect the average combined age of cars and trucks to continue to rise, from 11.7 years in 2017 to 11.9 years in 2019,” Seng projected. "Lots of consumer behavior data supports this. For instance, the average length of vehicle ownership is now at 73 months combined, 81 months for new vehicles and 69 months for used vehicles. ”

But there is cause for concern,” he added. “The current new car buying environment is one issue. Sixty month finance rates have decreased slightly, but that’s offset by an increase in the term of new car loans from just over 62 months a decade ago, to just under 68 months today. In addition the amount of the average new vehicle’s price being financed has risen to $29,134, a 16 percent increase over the past ten years. Consumers are extending themselves financially, banking on new vehicles lasting as long as, if not longer than vehicles have been.”

He also noted that increasing average vehicle age has other implications for the service repair industry. “Look for more repair opportunities from older vehicles. Likewise, you will find repair opportunities coming from the 3rd, 4th or 5th vehicle owner, rather than the 1st or 2nd. This offers shops the potential for increased scheduled and preventive maintenance to keep older vehicles roadworthy. It also provides a compelling case for a good, better or best brand strategy so that shops can provide an attractive repair cost/cost of ownership for owners of older vehicles.”

IHS believes that while automakers are trending toward fully electrified platforms, they won’t be well positioned to efficiently produce large numbers of electric vehicles until well into the next decade.

Trend #4: Electrification of the powertrain is coming, but the traditional internal combustion engine still has market legs.

“Global CO2, other emissions and fuel efficiency regulations are converging globally,” Seng shared. “For example, to reach the targeted 54.5 mpg threshold by 2025, automakers must improve fuel efficiency by 5 percent per year. “

To do that, according to Seng, automakers are actively preparing for a transition to electrification:

  • Conventional Platforms — Some conventional platforms can implement batteries, but cannot change the overall architecture to form a battery driven vehicle assembly.
  • Multi-Energy Platforms — Initially designed to support both conventional and BEV powertrains, these vehicles typically do not feature a skateboard style architecture, but are more flexible than conventional platforms.
  • BEV Platforms — These are designed only for pure BEV applications, and typically feature a skateboard style architecture, which allows for more battery capacity and more interior space with the same vehicle size.

“Simply put, automakers are not well positioned yet to efficiently produce large numbers of EV’s until well into next decade,” he advised. “For example, IHS forecasts 17.8 million new vehicles will be sold in 2018. Of those, 12.7 million (73 percent) are expected to be equipped with ICE powerplants, while just 4.6 million (27 percent) will be non-ICE powered vehicles. Part of the continued dominance of ICEs is due to vastly improved associated technologies, such as smaller displacements, a trending to four or fewer cylinders, the emergence of multispeed transmissions with 9, 10 and 11 speeds, and the incorporation of some electrified components (e.g. start-stop).”

The rollout of automated driving functionalities that provide some degree of autonomy has already begun, but the evolution to full autonomous driving remains many years away, in part because new technology hasn’t been perfected and also due to the number of older, non-autonomous vehicles that will continue to share roads for years to come.

Trend #5: Autonomous vehicles are on the near horizon, so start getting prepared.

“Autonomous driving refers to individual functions operating in concert to partially, and eventually, replace the driver,” explained Seng. “Essentially, the vehicle takes control in some or all road situations with a view to reducing accidents, injuries and fatalities. Some of the technologies necessary to facilitate that are already here and entering service repair bays today."

He noted several challenges that need to be fully addressed. “Autonomous driving is highly dependent on a connected transportation infrastructure in order to guide itself, which is still being built. While autonomous driving technology is advancing rapidly, the legislation required to manage and regulate it in a uniform manner that serves the public interest is lagging. That gap has to be closed. In addition, the legislation required is lagging the technology, which is also problematic.”

“Processing data in real time is another challenge. Telematics, vehicle connectivity and Advanced Driver Assist System technologies are exploding. However, the “latency time” between detecting a road obstacle or hazard and starting interactive communication with other vehicles on the road is currently approximately 50 milliseconds, but needs to be vastly improved to 1 millisecond or less to manage real time safety critical situations."

“To sum up, we — IHS Markit, the Automotive Aftermarket Suppliers Association and Auto Care Association — have confidence the automotive aftermarket industry has the needed parts and skilled technicians to service these new technologies,” Seng asserted. “Our collective challenge is demonstrating to consumers they can have confidence in us to do that.”

[Editor's note: Visit for the latest diagnostic and service insights.]

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