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Tuesday, 28 February, 2023

North American Automotive Aftersales Outlook 2023

>> By all measures, 2023 will be a tricky year. <<

On one hand, several macro factors that have held back the automotive industry for the last 3 years are on the wane. Supply chains are easing, inflation is slowing down, and parts inventories are normalizing. Unemployment continues to be at the lowest levels – 3.6% for the US and 5.8% for Canada in Q4 2022 – seen in North America in recent history.

Conversely, we have high interest rates and an economic slowdown that is highly likely to tip over into a recession. 2022 was also one of the worst years in a decade for new car sales. US sales fell to 13.7 million units (lowest since 2012) while Canada finished at about 1.5 million units (lowest since 2009). Based on multiple expert forecasts, this year is not expected to be much better.

These contradictory factors make 2023 a difficult year to predict. Aftersales may have had a bumper year once again in 2022 – with an estimated 8%-10% revenue growth - but in 2023, there could be some bumps in the way.

Below we answer some of the key questions on how North American automotive aftersales will develop this year.

1. What will be key influences on aftersales?
For OEMs and dealers, three years of consecutive low new car sales will start to have a negative impact on maintenance part sales and services. They will increasingly push into Lifecycle 2 and 3 vehicles to make up for lost aftersales business from late-model cars, leading to more competition in the 5-10-year-old vehicle segment. Used car sales declined slightly in 2022 (about 10% in the US), following two record years. But demand will remain strong overall in 2023 which will be beneficial for the aftermarket. Furthermore, two key factors – vehicle mileage and age – will continue to have a positive impact on part sales. Vehicle owners may not be commuting as much because of remote / hybrid work but US vehicle miles travelled data indicates that car usage is back to normal. For the last 12 months, Americans have travelled about 3.2 trillion miles – close to pre-pandemic numbers. Similarly, average vehicle age has not lost any momentum and stands at well over 12 years now. True that parts are lasting longer than ever because of improving vehicle quality, but an older car parc will keep the aftermarket busy in 2023.

2. How will aftersales perform?
All signs point to another great year for aftersales. But it will be hard to replicate the growth figures of 2021 and 2022. Revenue volumes so far have been largely driven by price hikes, which were actioned because of raw material and supply chain costs. Units have remained stable following an expected upswing following the 2020 spiral. In 2023, demand is expected to remain strong, even if there is a mild recession because of the strength of other underlying factors as discussed above. But Eucon data already shows that aftermarket pricing is stabilizing – which means that revenue growth will probably follow inflation levels in 2023, around 4%-6%. The increase should be consistent across both the US and Canada.

3. What will be the impact of vehicle technology?
Electrification is topic du jour in the automotive industry. For aftersales, the key question comes down to how soon the vehicle parc will transform from internal-combustion engines to electric propulsion. Yes, EVs (Electric Vehicle) have seen stronger-than-expected sales – nearly doubling new sales share from about 3% in 2021 to nearly 6% in 2022. In the US alone, EVs are expected to surpass 1 million units this year for the first time. Growth will be equally strong in Canada. But the immediate impact on the aftermarket will be negligible as the EV parc will account for only 2%-3% of the total. Moreover, even this small parc is relatively new, thereby requiring no maintenance or overhaul. At the same time, the first wave of EVs sold – a small number no doubt - in the last decade will be entering their second lifecycle for the first time. The aftermarket is responding to this trend by getting workshops ready for these vehicles - e.g., the NexDrive EV repair program introduced by NAPA in North America. The industry will continue to see more such initiatives in the following months to harness the emerging EV opportunity.

4. How will digitization continue to disrupt aftersales?
The pandemic months fast-tracked the adoption of digitization, particularly for part sales. According to a joint study published by two leading US aftermarket associations, US parts e-commerce doubled from 6.5% in 2018 to 12.1% in 2021. While we may not see the explosive growth of 2020, data shows that online part sales will continue at about 8% year over year. But B2C ecommerce volume is only a small part of the digitization story. Increasing number of B2B aftersales transactions are also happening digitally. Suppliers, retailers, and distributors are heavily investing in reducing friction at electronic touch points by enhancing e-catalogs, improving purchase pathways, and providing other forms of digital support. Every year more dealerships are launching online parts stores, supporting OEMs in their quest for more aftersales. In 2023 and beyond, we will see the competitive distance widen between those who are adopting digitization and those who continue to do business the traditional way.

5. What will be the role of data and analytics in this disruption?
Increasing digitization opens stakeholders to more data – both from their own platforms and third-party sources. More data in turn allows them to take more accurate and faster decisions. For example, digitally advanced competitors are increasingly taking more frequent pricing actions, driven by market volatility, automation software, and customer awareness. While one could argue that the inflationary environment will fade, data transparency driven by growth in ecommerce and digitization will only increase. When both B2B and B2C customers have easy and constant access to product data, aftersales businesses will have to stay ahead of the game by creating robust processes to create, consume, and digest high frequency data. They must also create the analytical tools to act based on these inputs. Otherwise, they risk foregoing their competitive edge in the near and far future.

Would you like to increase your aftersales performance in the North American market? We would be pleased to offer you a non-binding initial consultation:

Kumar Saha (Vice President, Eucon Americas, LLC / Managing Director, Eucon Canada)
+1 365 364 2305 //
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