There’s probably nothing more American than the entrepreneurial spirit. Building up a business from the ground up is the American dream for many, and there’s nothing more gratifying than being your own boss. But given the state that the economy is in, is now a good time to build an automotive aftermarket parts business? Let’s look at the trends influencing the automotive sector and see if they’re positive or negative for building an aftermarket business.
What Is The Current State Of The Automotive Aftermarket Sector?
The automotive aftermarket is on the verge of significant changes. These include altering consumer expectations, rapid adoption of new technologies, and shifts in competitive power. The value-creation and company-model transformations in the automotive aftermarket will also have a lasting impact.
The pace of consolidation will pick up in mature markets such as Europe and North America, with competition from unpredictable players. Take, for example, digital natives looking to take their business into the automobile aftermarket. In developing nations, whole new categories of consumer demands will emerge, requiring aftermarket businesses to respond.
In today’s world, new technologies and market changes that follow them have prompted aftermarket companies to rethink their position and be strategic about maintaining advantages in a rapidly changing environment. That said, it’s not all doom and gloom for the automotive aftermarket sector. In fact, things couldn’t be better as there are many positive aspects that make this an opportune time to build an automotive aftermarket business.
The Automotive Aftermarket Industry By The Numbers
According to statistics, automobile parts personal usage hit a new high in June 2020, when it surpassed $50 billion for the first time. July figures indicated $49.884 billion, while August rose to $50.303 billion. Aftermarket tires’ consumer usage hit a new peak in June 2020 at $35.504 billion.
In 2022, the online auto part and component market will reach $26.1 billion in North America. It will be up by more than 40% from 2020. In 2022, the light-duty vehicle aftermarket size is expected to be around $341 billion. The whole automobile aftermarket/auto care sector, which includes medium and heavy-duty vehicles, is anticipated to be about $439 billion in 2022.
In addition, the total number of light vehicles on the road is forecast to reach nearly 278 million by 2029 in the United States. The average age of these vehicles will be about 12. As any venture capitalist can tell you, nobody should invest in a startup business if that company will be operating in an industry in decline. What these numbers tell us is that the automotive aftermarket is a booming industry with plenty of room for growth.
Now that we know the state of the automotive aftermarket sector, let’s take a look at some trends that have influenced that growth.
The COVID-19 Pandemic
With the onset of the COVID-19 pandemic grinding global economies to a halt, the automotive sector also suffered. As more and more people work from home, the need for new vehicles has naturally gone down. And while we could be forgiven for thinking that the aftermarket industry suffered a similar fate, the effect the pandemic had on it was the complete opposite.
In fact, the pandemic has been a boon for the automotive aftermarket sector as people have had to find ways to keep their existing vehicles running. According to a study by JD Power, 64% of vehicle owners say they are now more likely to perform their own basic maintenance and repairs. This is up from just 49% in 2019.
What’s more, the pandemic has also led to a surge in demand for used vehicles. According to a report by Edmunds, the number of people shopping for used vehicles jumped by 21% in May 2020 compared to 2019. A total of 36 million new vehicle sales are expected to be lost worldwide by 2022, compared to 2019 levels. In the auto market in the United States, it predicts new car sales volume will decrease by around 3.5 million vehicles year over year, with that forecast depending on whether the recession continues.
This is because people are now more budget-conscious and are looking for ways to save money. With the automotive aftermarket sector being much cheaper than buying a new vehicle, it’s no wonder the industry is experiencing such growth.
Aging Vehicles On The Road
As mentioned earlier, the average age of vehicles on the road is around 11.9 years. This is because people are holding onto their vehicles for longer periods of time. The number of vehicles over 25 years old has doubled since 2000. And with older vehicles come more maintenance and repairs.
This is good news for the automotive aftermarket sector as people will need to replace parts more often. In fact, the demand for automotive aftermarket products is expected to grow by around $62 billion between 2019 and 2025. This represents a compound annual growth rate (CAGR) of almost four percent.
What’s more, with the number of vehicles on the road expected to reach nearly 278 million by 2029, there will be even more opportunities for growth in the automotive aftermarket sector.
Fewer OEM Options
With more and more car manufacturers focusing more of their efforts on electric vehicles (EVs), the number of options for original equipment manufacturer (OEM) parts is dwindling. This is because EVs contain far fewer moving parts than traditional gasoline-powered vehicles.
This presents a huge opportunity for the automotive aftermarket sector as people will need to turn to aftermarket providers for their parts and accessories needs. The global market for EV charging infrastructure is expected to reach $30 billion by 2025.
This also means that aftermarket retailers can better focus on a niche of the market that is only going to grow in the years to come. Retailers can, for instance, focus on selling parts and accessories for the Ford F series (the most common model on US roads) or on vintage models. By catering to a specific niche, aftermarket retailers can better compete with OEMs and provide their customers with the parts they need.
The Rise of eCommerce
The automotive aftermarket sector has also been bolstered by the rise of eCommerce. As more and more people shop online for their needs, the automotive aftermarket sector has been able to tap into this growing market. Historically, the automobile parts industry has grown at a rate of roughly 3.5% to 3.9% each year. However, according to recent reports, the auto parts eCommerce sector is expanding at an annual compound growth rate (CAGR) of around 20%.
Selling auto parts and accessories over the internet has never been easier. Online platforms such as Amazon, eBay Motors, or Walmart, among others, have made it possible for small aftermarket retailers to reach a larger or even international audience. What’s more, with the use of search engine marketing (SEM) and search engine optimization (SEO), aftermarket retailers can ensure that their products are seen by potential customers who are actively searching for them.
The automotive aftermarket industry is a massive sector that continues to grow in value each year. There are many factors that influence this growth, but the most important one is the impact of eCommerce on the market. More and more consumers are buying automotive parts online, and this is causing the industry to grow at an unprecedented rate. If you’re thinking about starting an automotive aftermarket business, now is definitely the time to do it!