Get your motor running
During the Great Recession of 2008-2010 many people felt that the end of the American automobile industry was upon us. But while that real risk was narrowly avoided for the automobile manufacturing industry, what most people don’t think about is the massive industry that comes after the car is manufactured and sold. The automotive aftermarket, as opposed to the sales of new cars, performed extremely well during that economic downturn - and is continuing to do so today.
Auto Industry Overview
Automobiles are complex machines that increasingly include sophisticated computers. They are absolutely essential to the majority of the working population, and are frequently a point of pride for their owners. They require both regular and emergency service, replacement parts, paint, cleaning, stereo system installations and a whole lot more.
The automotive aftermarket provides these parts and services, and largely flourishes during economic uncertainty. When people aren’t buying new cars they are keeping older cars longer. The average age of vehicles in the United States is high - and has been climbing steadily over the last several years.
Even new cars require regular service but as they age they require more care and they break down more frequently. Service stations and parts retailers both benefit. And there are a lot of cars on the road: more than 1 car for every American over 16 years old. Those of us that only only one are bringing down the average!
With the return of economic stabilitynew car sales have been increasing as well - but the aftermarket remains strong. More new cars hitting the road PLUS cars are getting older (but staying registered) has these aftermarket businesses running hot.
The Autocare Association estimates that the US automotive aftermarket will be worth $273.4 billion in 2017 - an increase of almost $35 billion in just four years. This puts the aftermarket between 1.5 and 2% of the US Gross Domestic Product. It is estimated that over 4.2 million people work in the industry and growth is expected.
The aftermarket industry is strong!
Chief among the reasons for this strength: the large and growing fleet of vehicles and their high average age. Older cars need more care and an aging and older national fleet is great news for aftermarket providers.
The value of the repair/replacement market for vehicles 0-4 years old is $20.7 billion, but the value of the aftermarket for those 8 or more years old is a whopping $77.3 billion.
The fleet is growing.
In 2015 there were 257.9 million passenger vehicles registered in the United States, an increase of 5.3 million (2.3%) over 2014. As mentioned the number of cars per licensed driver now stands at 1.1 and has been increasing steadily since 1972.
The scrappage rate - the rate at which cars are taken off the road - has also been declining with only 11.4 million cars retired in 2014. Fewer cars are being unregistered, abandoned, or junked. In 2015, new vehicle registrations was greater than scrappage by 42% - the highest number recorded by the IHS.
The fleet is getting older.
In 2015 the average age of registered vehicles was 11.5 years old and has been increasing steadily since the Great Recession. With more than 70% of the population driving to work, folks need their car. Can’t live without one and can’t buy a new one - you better keep the one you have running.
Though the growth has plateaued with improving economic conditions this average is still increasing and is expected to reach 11.7 years by 2017.
The automotive industry is a huge, diverse set of manufacturing and service businesses that bring cars and trucks to market, keep them in working order, paint, clean, fix and even trash them when it’s time. While there are often interesting business opportunities at the auto dealership level, it’s generally after the cars are sold that things get really exciting for those interested in franchising. A few examples:
Service work - maintenance or general repair
Tools! For the professional or home mechanic
This list scrapes the surface but doesn’t even mention some obvious opportunities like gas stations (and now charging stations), taxi services, used car dealerships, detail shops, etc, etc, etc.
A few things to keep in mind
The increase in complexity of vehicles often requires specialized training. Repair shops can gain an edge by specializing and staying current. However this specialization is leading to a shortage of trained techs in the market.
Electric and hybrid cars are bringing new opportunities to market– service, parts, and fuel businesses will need to expand to support these trends.
Service providers are now able to leverage technology to gain marketing efficiencies. For example, timely reminders about snow tires and oil changes have already proven to provide an uptick in return business.
New cars are getting more reliable. Improvements in technology and materials are increasing useful life and requiring fewer services. New cars, in other words, are able to last longer with less money spent in aftermarket services. Some automobile manufacturers are even recommending longer intervals between standard maintenance services such as oil changes or tire rotations.
On the flip side, people do wash new cars more frequently!
There are a lot of cars on the road, and keeping them running, keeping them clean and making them your own is big business. This breadth of opportunity and such strong market trends make 2016 an exciting time to get involved!
Matt Sena is a writer and researcher, a co-founder, a former portfolio manager, a rider and a dad. He earned his MBA in Finance from Kellstadt Graduate School of Business while working at Goldman, Sachs & Co.