Aftermarket decline – a problem that will always be just over the horizon?

When I joined ICDP in 2010 our first projection of the size of the aftermarket had just been published, looking at the market volumes to 2015.  It showed declines relative to a 2008 baseline of around 15%, driven by changes in the parc, longer service intervals and improved reliability.  There was only a passing reference to electric cars, and nothing on ADAS or connected cars.  All were around in some form, but not at a level that would register in any significant way.  In response to that downwards trend, manufacturers responded with re-introducing annual service requirements, service plans were promoted more heavily by all players to promote customer retention, and there were improved processes to maximise revenue per job card such as health checks to identify additional work, and investment in new offers that generate traffic such as tyre fitting.

Fast forward twelve years, and we have just published our most recent iteration of the projection, now looking out to 2030.  The volume of operations fell substantially from that 2008 baseline to the pre-Covid affected 2019 levels – by around 20% in Germany, Italy and the UK, a bit less in France – due to lower annual mileage driven, longer maintenance intervals (despite the annual service requirement) and improved reliability.  The new technologies are having a relatively small effect in current data at market level, but when you look forward from 2019 to 2030, we anticipate a further drop in operations of around another 10% with some variations by market.  We did not start projecting the crash repair market until 2016, and have not yet published the latest update, but the direction will be similar with a declining number of operations.

The decline over the next decade is now influenced by the increase in the BEV content of the parc, particularly for the franchised dealers who tend to see the youngest vehicles more, and crash repair will be strongly influenced by the growing penetration of ADAS systems in the parc, that has been shown to reduce the number and severity of incidents.  This is compounded by the long term and continuing trend of lower annual driving distances (other than Italy which appears to have stabilised), although significant uncertainty remains over that trend related to the conflicting influences of valuing private space vs public transport, more working from home, higher fuel prices and more urban traffic restrictions.  On the positive side from an industry perspective, added complexity has boosted the cost of repairs in real terms, so revenues may increase whilst volumes drop – though investment in equipment and training is required to remain ‘in the game’ for current and emerging technologies.

With each iteration of the market projection, we have considered what actions can be taken by manufacturers, parts distributors, franchised dealers and independent channels to mitigate the worst effects of the market changes.  Parts remains a major profit source for the manufacturers and they and the dealers require the cross-subsidy from a strong aftersales business to keep the dealer networks viable – an approach which is challenged by some newcomers such as Tesla and Aiways.  For the independent sector, it is obviously a matter of survival.  In all cases they have responded to the challenges.  There have been many changes by all players, some which might be classed as defensive, others offensive.  Whilst the franchised sector has sought with some success to improve their retention of older vehicles, and to capture some of the ‘all makes’ business, the independent sector has been able to adapt to the new technologies as they emerge, and fought back with a push into younger age segments, particularly for fleets.  Their position has been aided by regulatory changes in the relevant parts of the Block Exemption and Type Approval regulations that seek to maintain a level playing field for the franchised and independent sectors.  The independents complain that manufacturers drag their feet in terms of compliance, but they remain in the game, and will push for tougher guidelines to accompany the proposed five year extension of the current Motor Vehicle BER.  The losers in all of this have been those players who did not adapt to the changes and have either been acquired, exited the business completely or retreated into a niche that is less affected.

Whilst change in the aftermarket is relatively slow, it does move inexorably forward and the effects are wide-ranging.  As we continue the work on the latest projection, I anticipate that we will continue to forecast storm clouds on the horizon, taking different forms on different players.  However, our experience over more than a decade of similar projections is that most players in the industry find a response to the challenge, and those clouds will remain on the horizon as we move forward, rather than engulfing us.