Independent repair shop owners and tire dealers often have two main factors guiding their business philosophy: where do the cars come from and where can I get the parts/tires? Stepping back from the micro level of analyzing how these issues affect you can often reveal some interesting facts about how they affect the industry.
In June 2021, IHS Markit released its annual estimate of vehicles in circulation and the age of those vehicles. One was a new record and the other was a retirement.
The new record was set by the average age of light vehicles in circulation. The IHS estimate for 2021 indicated an average vehicle age of 12.1 years, an increase of two months from last year’s forecast. The retreat was in Vehicles in Operation, or VIO. This number fell from 281 million vehicles in 2020 to 279 million vehicles in 2021. According to IHS, this is the first drop in VIO since 2012.
Fall in sales
An easily measurable economic time series can be cited as the culprit for both movements reported by the IHS. That culprit is the decline in new vehicle sales in 2020. For the year, new auto and light truck sales were 14.436 million, the lowest level since 2012. Using an online database such as the Auto Care Association’s TrendLens or the Federal Reserve Bank of St. Louis’s FRED, we can track annual or monthly auto sales. While the final sales figure for 2020 likely exceeded many forecasts made at the start of the lockdown, nonetheless, 2.5 million fewer new cars were added to the country’s stock in 2020 than in the previous five years. This will cause both a shortfall in VIO as well as an increase in the average age of vehicles.
Shaded areas in Chart 2 indicate economic recessions. As you can see, the drop in sales that occurred during the lockdown corresponds in depth to the drop that occurred during the Great Recession of 2008-2010. However, as soon as the lockdown ended, sales picked up, unlike the Great Recession, when sales remained low for many years. The Great Recession was caused by massive financial problems that started in the housing sector – so it took a long time to fix it. The last recession was caused by restrictions put in place to address a non-economic issue, and when those restrictions lifted, the economy was quick to come back.
The perfect place
A look back at auto sales from past years also highlights good news for the aftermarket. Many industry observers cite what is called the “aftermarket sweet spot” which is made up of vehicles that are variously described as six to ten or six to eleven years old. These are out-of-warranty vehicles, entering the period when the original equipment needs replacing, and the vehicles are still young enough that owners are doing more than the bare minimum to keep them on the road. The number of vehicles in the “sweet spot” today are those that were produced six to eleven years ago. Chart 3 only contains the annual sales data we showed earlier, only the period from six to eleven years ago is highlighted in green. (Green is the color of money, but that’s just a coincidence.)
What this graph easily shows is that the number of vehicles in the “sweet spot” over the past two years has been heavily influenced by the slump in new vehicle sales that occurred during the Great Recession. It wasn’t until 2014 that new vehicle sales exceeded the 2007 level. After that, there were five years of very high new vehicle sales (2015-2020) that are aging just enough to be in the “sweet spots”.
The “sweet spot” bottomed out in 2017-18, when the full effect of the Great Recession’s sales slump kicked in. But starting in 2019 and culminating in 2024, one by one, these low sales years will be replaced by high sales years, and the number of vehicles in the “sweet spot” will increase. The drop in the maximum “sweet spot” size in 2025 is due to the drop in sales in 2020. Of course, anything beyond 2025 will depend on future sales resolved.).
where are the parts
In 2021, Babcox Media completed its biennial Independent Repair Center Profile. Among the questions we ask in this survey “Where do you buy parts from?” and “How do you buy coins?” This always provides interesting details about inventory and parts supply.
A key question we ask in the survey is “Please think about all spare parts you order in a given month. How much do you expect to get from each of the following sources? while constraining their answers to add up to 100%. The results reveal that just under half of their orders go to traditional program groups and just over a quarter go to chain stores. To see what respondents said, click here to read the full article from our sister brand, Shop Owner Magazine