January 2018: "Moving Forward Into The New Year...Or Are We?"

As we put another year behind us and move forward into the new year, I found it very interesting, when doing my research that many industry analysts and economists in general having many varied opinions and predictions about what we can expect in the coming years in our industry.

In my opinion, when doing my research last month, I would have expected a pretty similar year as we had in 2017, with pretty much an even line, with no real gains, or losses in overall sales.

In 2017, we did see that the seven year climb on vehicle sales was coming to a halt, but other than that, with the economy on the rise, GDP on the rise and unemployment going down, things would appear to stay pretty steady in 2018.

This seven year climb coming to an end is really no big surprise to most of us who have been "in the business" for many years, as we all know that this industry has been "cyclical" in nature, every seven or so years.

To me, sales climbing for a period of years and then leveling out is not the real concern as much as what happens AFTER the sales hit that peak.

Do they start to slide down a slippery slope, or do they remain steady for a period of years before going back up again? I know we all don't want to take that ride on the slippery slope, but this is where the research may have some confused as we reveal this info shortly.

After we review some of this research, whichever way the opinions sway, I believe one thing is for certain and that is the future sales of automotive parts will remain strong.

We will start out with research on automotive sales in general as it relates to our current economic conditions, and then segue into our automotive parts industry.

The first area of research that I went to were the facts as I wanted to know what our annual sale of new vehicle units were and expected to be at the end of December 2017. Then I wanted to compare that number to the past seven years initially, then compared to the overall trends for the last decade or so.

By looking at the facts first, I thought that they would keep me from swaying one way or another as to what the industry analysts and economists are predicting. I also realized that even though I knew the facts, I had to let the facts take a back seat when it comes to predicting the future.

That's an area where "the experts" are supposed to come in and that, in my opinion, is where the confusion starts.

The first article I came across was a recent one by slate.com which compares..."the auto industry as an indicator to a slowing economy", while another one right after that by chicagofed.org. in mid-2017 states that we can expect..."solid and steady economic growth in 2017 and 2018". Quite a variation as I read through both articles.

It seems though that much of these varied opinions and prediction comes right back to the facts that I initially researched.

The peak of new automotive unit sales was approximately 17.5 million units in 2016 and they expect that number to drop to 16.9 million once the counting is done in 2017. New unit sales are predicted to be the same 16.9 million in 2018.

First of all, in my opinion, 2018 isn't really here yet and if the numbers are correct, going from 17.5 million new unit sales to 16.9 isn't that much different if my math is correct. So, I guess this may be the reason for the opinion swings in either direction. 

It is a decline, but it is still a far cry from when the bottom dropped out back in 2008 when new unit sales fell to approximately 10 million, now that's a number to be concerned about. Since 2008, the new unit sales have steadily climbed each year to it's peak at 17.5 million in 2016. One again, our seven year cycle proving itself yet again.

In prevedere.com's. 2018 Automotive Outlook states..

"U.S. auto sales experienced record numbers from 2008 - 2016, but the industry is seeing a steady decline in 2017 for the first time in eight years. And there is no reason to believe that sales will continue to drop in 2018."

According to Andrew Duguay, key economist for prevedere.com, goes on saying in his key webinar "takeaway"...

Despite a healthy economy and wage growth, cars have reached significant saturation among consumers and will be buying fewer cars in 2018. Due to this saturated market, there will be fewer customers despite wage growth. Auto dealers must get the full value out of every sales and cannot afford to incentivize customers through promotions. Marketing campaigns should be focused on baby boomers who have continued wage growth, disposable income and still value their expensive cars". 

In contrast, the Federal Reserve Bank of Chicago, (chicagofed.com), says some very key indicators lead them to believe that we will see steady economic growth, including the automotive industry. Key indicators such as;

• Real Gross Domestic Product, (GDP) to grow at 2.3, (June 2017), other estimates @ 3.2 in 2018
• Real Residential Investment 3.4 to 6.3, (2017,2018 vs. 1.1 in 2016)
• Car and Lt.Truck Sales to 16.9 million vs. 17.5 million in 2016 & 17.1 million in 2017
• Housing Starts growing from 1.18M units in 2016, 1.26M units in 2017 to 1.32M units in 2018
• Consumer Price Index 1.8 to 2.3, (2016 vs. 2018)
• Ten Year Treasury Rate from 2.13 in 2016, 2.70 in 2017, to 3.11 in 2018 

Confused yet?.....here's more!

One of the best articles that I found was from McKinsey & Company's "The Road To 2020 And Beyond" 24-page PDF, downloadable article subtitled, "What's Driving The Global Automotive Industry". Their in-depth research offers a great perspective on where the automotive industry is headed.

Their analysis implicates a very huge and optimistic outlook which surrounds itself by one narrative and that is...

"...the global automotive industry is about to enter a period of wide ranging and transformative change, as sales continue to shift and environmental regulations tighten..."

It appears that this article takes our industry into a vast worldwide market that can impact all of us here in the U.S. Their overall findings indicate that "the global automotive industry is in better shape than it was five years ago...and by 2020, global profits for automotive OEM's are expected to rise to almost 50%"...

With this shifting landscape in the global markets, automotive OEM's will grow even bigger and stronger worldwide with further opportunities in trade and commodities with world countries. So, even though the U.S. market may remain steady, or maybe experience very slight declines, the automotive industry will continue to grow.

Let's not forget the internet either when forecasting into 2018 and beyond. According to Carpark & McKinsey, not only are unit sales increasing on through the internet increasing, "internet connected" vehicles are on the rise.

By 2020, it is predicted that we will realize a 30% increase since 2012, of new vehicles with network solutions capabilities. By 2020, it is estimated that 1.32 billion units will have internet connectivity on a global level.

The outlook and opportunities seem to be growing each year with new technology connecting the world to much closer parameters. New areas of front end sales growth can also only mean one thing....more future parts sales!

So, how do these forecasts and predictions, either positive or negative impact "Smart Parts" Managers in 2018 and beyond?

The best research I saved for last of course as parts managers, we should want to know what to expect in the coming year and perhaps beyond. The good news is that there is a lot of "good news" for parts managers and fixed operations managers in general.

First of all, with market implications leaning to more of a flat sales market in the U.S., even though noty drastic, implies that vehicles are being kept longer and lasting longer than ever before. Average ownership is now reaching double digits in vehicle aging, thus requiring more service and parts. 

Even though vehicle maintenance requirements are getting less and less every year, the secondary dealer and aftermarket sales are increasing as sales on used vehicles remain strong and parts sales demands grow higher and higher.

My last bit of research comes from a recent Hedges & Company blog titled; "Car Industry Trends: Online Parts Sales to Reach $8.9 Billion in 2017", which is an increase of 16% over 2016 and expected to rise to over $10 Billion in 2018 and over $13 Billion by 2020.

Also, according to Hedges & Company, Ecommerce parts sales are projected to grow by 15% in 2018. Also, the Automotive Aftermarket Suppliers Association, (AASA) projects total aftermarket sales to have a compound growth rate of 3.6%, which is the same growth rate predicted for the "Do-It-Yourself", (DIY) retail sales growth.

Amazon still remains the auto aftermarket's single largest retailer, challenging other big players like Advanced Auto Parts, Autozone and O'Reilly's Auto Parts. Amazon also boasts a most recent Barron's article which states that Amazon auto parts prices were 22% less than the other chain auto parts stores. 

Hedges & Company goes on to say that it is no secret that the "brick & mortar" parts stores are having a rough time as their sales only grew at a 2.9% rate in 2017 and predicted to drop to a 2.8% growth rate in 2018 and 2019. So, online sales are not only growing....they are accelerating!

Not only are online parts sales accelerating, parts sales are shifting to mobile as well. Mobile parts sales added up to a minimum of $4 Billion in auto parts sold online in 2017 and also expected to grow in 2018.

And lastly....here's the big one that should put all of our "parts minds" to rest. Also according to Hedges & Company.....

"Total Ecommerce parts sales in the U.S., as tracked by the U.S. Census Bureau, had a year over year growth of about 16% in 2016. They estimate that total Ecommerce parts sales to be 7.7% of TOTAL U.S. Retail Sales, (all retail sales, not just auto parts)."

I guess my only question is...

"2018 is right in front of us...how much of this growth do we want as Smart Parts Managers?"....

Happy New Year From ACG Smart Parts!!!

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com