Once again, it's time to bring our ACG "Smart Parts" Readers an industry update. Actually, it's been well over a year since we did the research and shared our "State of the Union" so to speak as it pertains to just what's happening as well as what we, and other experts are forecasting, or "predicting" as far as future industry trends.
Now that we have one quarter down in this year and a previous year to catch up, we can actually provide, in my opinion, a qualified and fact-based forecast on what we can potentially expect looking forward to this year and perhaps even the next few years.
As we usually do, we will start this forecast where it all starts with our New & Used Vehicle Sales, then moving on to the "trickle down" affect in our Fixed Operations with Parts & Service. The automotive industry's "after sale" business still remains strong even though we have all weathered many past & current events and conditions.
After all, we are still feeling the effects from the pandemic and now the flu, inflation with a possible recession in the wake, global conflicts and wars that are all still on the table as we continue forward. Even though I have mentioned in the past that our industry is somewhat "resilient" to all the pre-mentioned, it doesn't mean that we will survive individually in our competitive industry.
From the front side of things in our Sales Department, we have definitely seen the results from these past few years. You don't have to be an industry expert to see when you drive by any New Car Dealership that the lots are basically empty. Scary feeling for sure, especially for us that have worked in this industry for years.
If I were the consumer, my first thought would be is this the beginning of the end? Are we headed to a time where we are going to be rationing vehicles again? Will we be sitting in long gas lines again and will food be next?
Even though some of this may sound like "doom and gloom" with history repeating itself, it's not like that at all...
Let's Begin...
I realize that many "Smart Parts" Readers out there may not realize that this is what really happened back in World War II, even though I wasn't around then, my parents and history recorded these events. Keep in mind, that we are by no means predicting history repeating itself here as these empty dealership car lots were predicted and for specific reason.
Although, one fact is for sure is it hasn't been since World War II since we experienced more new vehicle production shutdowns. Even though the reasons are different today versus sixty plus years ago, some of the effects are still the same today.
"Supply In Demand" has always affected our economy, whether it be the overall price of goods, our lifestyle, or just our means of survival, as our Supply Chain feeds the engine of our economy. When supply is cut off, demand drives price up and when price goes up, so do the profits and that's what we have witnessed for the last couple of years.
Let's start taking a look at some recent history trends and facts that will lead us to what we might expect, or "forecast" into the rest of 2023 and perhaps beyond. Keep in mind that we already know about what we are currently dealing with as we don't want to make any excuses for what we already know.
It's kind of like dealing with parts back orders as we already know we all have them and, in my opinion, it's time to get over it and deal with them. Our job is not done when a part goes on back order, it's just beginning, much like dealing with everything else in our business.
Let's start with some recent facts and data...
According to Forbes Wheels at forbes.com, Used Vehicle mark ups are starting to ease up a bit as Used Vehicle Financing is going up with interest rates rising, thus making it tougher for getting potential Used Vehicle Owners to purchase. Also, New Vehicle Lease Interest Rates are also rising, therefore making Lease Options even more difficult. As a matter of fact, Vehicle Lease Purchases are down almost 50% since Covid-19 first hit.
On the other hand, even though New Vehicle Prices are rising, and less available, interest rates are lower on New Vehicle Purchases, so it may be more cost effective to buy a New Vehicle versus a 2 to 3-year-old Used Vehicle at a lower overall cost, but eventually much higher after interest rates kick in. This is not unusual and has happened many times over the years.
Also, we have to factor in what we didn't have to in the past and that is the EV Revolution. Electric Vehicle purchases continue to rise from 326,000 in 2019 to over 724,000 in 2022. This number would have risen even further if it weren't for Supply Chain Issues that continue to affect these EV Purchases today.
There are still long wait lists for the Ford F150 Lightning, Tesla Model Y, EV SUV's in general, and new models from new Manufacturers such as Rivian, VinFast, and Lucid. Although higher prices for these EV vehicles continue to rise due to higher cost of lithium, cobalt and nickel.
The only lower cost EV Vehicle is the Chevrolet Bolt & Bolt EUV which has actually lowered their cost by approximately $6,000.00 to become the most affordable Electric Vehicle in the market. Overall, these higher prices for these EV's have tempered the overall excitement of new purchases.
Here's another little tidbit as Automotive Industry Principal Peter Maithel at Cloud Computing Firm INFOR told Forbes Wheels that the on-going chip shortage could affect the production of up to 3 million vehicles this year. Many are designated for SUV's and EV's, but overall EV's require up to 30% more chips than gas, or diesel-powered vehicles.
Lastly, and in closing on this topic on EV's, as many as 70% of the Electric and Plug-in Hybrid Vehicles that were formally eligible for tax credits will lose that incentive due to strict rules concerning battery and vehicle price caps.
Even with all the above mentioned, and with prices still soaring at the pump, the American Automobile Association's, (AAA's) recent poll indicates that 25% of Americans are still considering an Electric Vehicle for their next purchase.
So!...What's the Forecast on Parts & Service Aftermarket Sales?
Here's what it boils down to from a Fixed Ops perspective...
Our first resource contributor on this topic is marketwatch.com., where they start off by saying that even though Covid-19 and the current war between Russia and Ukraine are still affecting the Global Supply Chain Relationship and Precious Metals Industry, the Global Parts Automotive Parts Manufacturing Market is still expected to rise.
With this rise comes a new breakthrough in the development of parts manufacturing which is the manufacturing "split" by segment and type. Even though we have seen this "split" to some degree over the years, we will be seeing much more.
Some Parts Manufacturing Splits which will include...
- Driveline & Powertrain
- Interiors & Exteriors
- Electronics
- Body & Chassis
- Seating
- Lighting
- Wheels & Tires
The future of Parts & Service Sales has never been stronger as the jobs availability for automotive technicians and parts personnel keeps rising. Automotive Tech Schools as other Trade School Facilities are on the rise as the need, or demand has increased beyond the availability.
Parts sales are continuing to rise according to Hedges Company, (www.hedgescompany.com) with some of their latest numbers. Here are some of the latest ECommerce numbers as of this year and looking forward.
Consumer spending updates on Light Duty Parts Sales are expected to reach 374 billion in sales in 2023, with overall sales including Medium and Heavy Duty Parts Sales expected to reach 497 billion this year according to Autocare/AASA Channel Forecast Models.
ECommerce Parts Sales were at approximately 38 billion in 2022, of which, 19.4 billion was from ECommerce Websites, or "first party, 1P" Sales, and 18.2 billion from "3rd party, 3P" Sales from companies such as eBay and Amazon. These total "1P & 3P" Sales are expected to reach 47 billion by 2025.
Parts Distribution has also expanded and has increased extensively, not only recently, but over the years. We have always been used to having a "two-step" Parts Distribution System where the Manufacturer sold parts to the Warehouse Distributor, (WD), then the WD to the Retailer, or "Jobber", then ultimately to the Consumer.
All this has now given way to a "multi-step" Parts Distribution System as the internet has given pretty much open access from the Manufacturer all the way down to the Consumer, but with many added levels. There are now as many as 10 Distribution Channels leading up to 6 Consumer Destinations in our Automotive Parts Industry.
The immediate forecast looks great for our industry as technology is leading the way for new and more exciting vehicles, with more competition from more, new manufacturers. This will also mean that there will be more vehicle components that will require more skilled technicians and yes....even more of the "right parts at the right time"!
If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :
(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...
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