AASA New Car Sales Analysis

The Automotive Aftermarket Suppliers Association( AASA) in response to the very frequently asked question of whether the uptick in new vehicle sales is a positive or a negative for the aftermarket, has performed a very thorough analysis. The answer the AASA decided upon is that it depends on your time frame.

In the long term, new vehicle sales are positive for the aftermarket; over the near-term, unfortunately, they are likely a threat.

In the long term, increasing new vehicle sales will help the U.S. vehicle parts return to a growth trajectory, over time increasing the total addressable market for the aftermarket. These newer vehicles also are needed in order to refill the population of vehicles in the aftermarket “sweet spot,” which will decline in future years as the sales trough of the Great Recession rolls through.

Those new car sales may be a headwind in the near term as noted in the report, “AASA Industry Analysis: Don’t Discount Miles Driven In Long Term Forecasts:” and here is their thoughts.

  • Consumers may consider buying new vehicles instead of repairing or maintaining older vehicles as the repairs on those older vehicles become more expensive.
  • Some of the higher net worth individuals who had older vehicles will migrate back to younger vehicles, potentially pressuring aftermarket ticket size.
  • We will likely see a peak in average vehicle age in the next couple of years if not sooner.
  • New car sales forecasts are well above 15 million for 2013 and trending up; the sales SAAR (seasonally adjusted annual rate) in January was 15.4 million units. These strong sales are expected to continue by forecasters for at least the next three years, with inflow from new sales expected to exceed the outflow from scrappage.

There’s also a possibility of a ‘tipping point’ developing.

Repairs have become expensive on today’s complex vehicles. Failures on the many, very old vehicles could push consumers into the market for new or younger cars since the repair could cost more than the car is worth. For these very old vehicles, scrappage may be the consumers’ economically sound choice. Increased low cost consumer credit availability is another factor that is making the decision to purchase a new vehicle easier than several years ago.

The shrinking “sweet spot” explains the weaker sales the aftermarket experienced in 2012. We do not think it was a primary contributor. While the sweet spot is a mid-term headwind to the aftermarket, the drop-off in vehicles aged 6-12 in 2012 versus 2011 was minor.

Instead, more influential was the expiration of one-time drivers of above-trend demand we enjoyed in 2010-11, as many consumers decided to keep their car longer than expected and hence invested in their older vehicles. This helped push the aftermarket to more normalized demand trends. In addition, shorter-term drivers, such as weather and disinflation, were also headwinds. The sweet spot challenge will be more of a story over upcoming years.

The aftermarket’s saving grace is if the recovery that’s driving improving new vehicle and house sales translates to jobs and our old market driver of increased miles driven. Miles driven will remain a future tailwind for the aftermarket. This could replace the tailwinds the aftermarket has received from its new market drivers: aging vehicles and people putting money into their vehicles as they kept them longer than planned/expected.