The Specialty Equipment Market Association (SEMA) has just produced a study that uses three scenarios to measure the future of the automotive sector.
As the introduction to the study points out, 2020 was a year of profound turbulence for the sector. While some companies have resumed their activities during the pandemic, some, particularly in the service sector, have been deeply affected.
Gavin Knapp, Market Research Director at SEMA, mentions that the aftermarket is a good illustration of this dual reality. While several service providers saw their operations slow down drastically, the sale of parts for car enthusiasts, who maintain or customize their vehicles themselves, exploded during the lockdown.
According to this study, 2021 will also be marked by uncertainty.
This study is based on five main parameters:
- When will trade restrictions be lifted?
- At what point will the economy recover?
- How will consumers behave towards their vehicles when the restrictions are gradually lifted?
- Will auto sales pick up and which models will lead the way?
- How will demand change for the automotive aftermarket?
The study’s predictions are based on three scenarios ranging from the most pessimistic to the most optimistic to the most likely. The analysis is based on the U.S. market, but there is no doubt that much of its conclusions can be applied to our own Canadian market.
The speed of economic recovery in the U.S. and here in Canada will depend on the distribution of the vaccine and its efficacy. The easing of trade restrictions and the nature of government financial support will also affect demand. Moreover, when consumers are able to resume more normal business activities, will they think about car maintenance or spend their budgets on travel and dining out?
The most optimistic scenario is that most of the restrictions associated with COVID-19 could be removed next summer or fall. In the worst case scenario, the restrictions are expected to be maintained in whole or in part by the end of 2022. Recovery from the pandemic recession will be gradual and experts expect a return to pre-pandemic economic growth no earlier than the second quarter of 2021.
Consumers have already not hesitated to buy new cars and replacement parts as sales reached an all-time high by the end of 2020.
The industry is hiring again
Employment also stabilized overall after a very dry period. On the U.S. side, 756,000 automotive-related jobs had been lost, but by December, statistics indicated that 80% of these workers were back in new car sales, parts manufacturing, and mechanical and tire services.
Consumer confidence has also been greatly affected over the past 12 months. The study estimates that consumer confidence should return to a normal level by 2023.
The report predicts that the automotive sector could experience a slowdown in early 2021, but should gradually regain strength in line with the pace of public vaccinations. The recovery could be all the more interesting because consumers have shown themselves to be thrifty and are benefiting from a relatively well-stocked savings account.
Getting back on the road
North Americans consider their cars to be a safe and secure way to get around, for both vacations and work. The significant drop in public transit use, largely due to mistrust, is also a factor that could have a positive effect on the aftermarket. Currently crippled by restrictions, air travel is likely to suffer in the medium term from travellers’ reluctance to fly.
“As a result, people may want to use their cars more for travel, which will result in more wear and tear and potentially an increase in demand for parts,” the study noted. What’s more, the relatively low price of fuel encourages car use.
According to SEMA’s research department, online sales of automotive products and parts increased during the pandemic. As a result, by the fall of 2020, 44% of U.S. sales of products and equipment related to the industry were made online. This percentage is expected to remain stable in 2021 and to decrease slightly in the following years.
The future for light trucks
The automotive industry was hit hard during the early stages of the pandemic, with the closure of dealerships, some service shops and even some manufacturing plants. According to SEMA, it will take two or three years to return to pre-pandemic sales levels. This recovery should continue in the same direction as that of the last few years, oriented towards SUVs, light trucks and utility crossovers.
The latter category alone could account for nearly half of sales by 2027. By 2027, 82% of new vehicles purchased overall by consumers will be light trucks. The pickup truck will continue to be popular and will account for a large portion of the demand for replacement parts.
Citing a Deloitte study, the report indicates that 50% of U.S. respondents want to keep their vehicle longer than they expected. This has the effect of driving up the value of used vehicles in the marketplace because of their relative scarcity.
Resilience for the aftermarket
According to this study, the effects of the pandemic on the secondary market were not as devastating as feared.
Retailers have been the most affected by this crisis. Together with the service centres, they recorded a 4% reduction in their sales turnover on the American side. However, sales should gradually return to normal levels by the end of 2021. In April 2020, only 22% of the members of the aftermarket ecosystem expected to end the year with better results than in 2019. This percentage rose to 55% in September.
What the report concludes is that our industry is resilient and has been able to adapt its offering to the changing situation.