Analyst points to key dynamics shaping vehicle fleet and aftermarket

by | Apr 25, 2024 | 0 comments

Unusaul dynamics thorugh the pandemic, particulalry regarding used vehicles, will continue to shape the number and type of vehicles on the road for the aftermarket to repair.

Speaking at the AIA Canada National Conference, Todd Campau, an experienced aftermarket professional now taking the lead at the S&P Global Mobility research firm as Automotive Aftermarket Practice Lead.

In his wide ranging presentation, he said that there were signs of the new car and used car markets returning to something approaching normal, but there was still shifts ocurring.

“The supply chain seems to be working its way out. And I actually would say that you know, while there’s still some challenges with unemployment and other things, I think Canada’s maybe slightly ahead of the U.S. on coming out of the economic challenges,” said Campau. “We’re starting to see inflation in in Canada and softening. We’re starting to see GDP return more to normal. All in all, I think it’s good. The labour market’s a little tight for sure, but it seems like we’re getting back towards normal behavior and so I think that’s good for the aftermarket.”

“One thing I will say though is we’re still dealing with inflation. We’re still dealing with high costs and those things are actually in a way good for the aftermarket ’cause they will often delay new vehicle purchases and if they delay new vehicle purchases, people have to repair the vehicles in their driveway. Now we are happy to help with that as the aftermarket.”

Campau noted that although the aftermarket does compete with the dealer base on the service business, and is enjoying the impact short new vehicle supply and people holding onto their older cars, it also relies on new car sales filling the future aftermarket,

And this, he says, is still rebounding.

“We’re not back to the pre 2020 levels, but we are moving in the right direction. In three or four years, we do think we’re going to eclipse that 2 million unit threshold again. But it’s not without some challenges and it is has been a little bit slow in coming. This is not unique to Canada. This is the story across the board. In the US we’re also starting to see a return towards normal numbers, but it was very challenged and I would say it’s pretty fragile because of, one of the things that I think I personally learned is that it’s such confluence of factors that drive the aftermarket and maybe uniquely so ’cause we repair the vehicle for its whole life cycle.

“So I would say this is fragile still. We think it’s gonna continue in this direction, but we see big inflation. If we see big unemployment happen again, costs say hi, this could give you a little bit of time. Globally speaking, we still have not recovered to pre pandemic levels either. We were forecasting about a hundred million vehicles a year globally. You can see that. We don’t see that coming until probably closer to 2030 again.”

All this plays into the average age of vehciles on the road, which in Canada is 10.5, in significant contrast to the U.S., where it’s 12.5. He says too that light trucks and SUVs will continue to encourage on passengers vehicles for share, and that while small in numbers EV buyers in Canada are opting for light-trucks and SUVs and a much higher rate than U.S. EV buyers.

One of the most anomolous events over the last few years was the impact that the dip in Canada-US exchange rate had on cross-border sales of used cars. With the focus mostly on five and six year old vehicles, the advantageous exchange through parts of the pandemic fueled a signiicant spike in used vehicles heading out of Canada and into the U.S.

“Prior to the pandemic it was less than a hundred thousand a quarter. So 300,000 a year. The pandemic shot that up; there’s a couple quarters that are almost 200,000 a quarter. That’s pretty significant. That’s about 1% of your fleet leaving a quarter and that’s why your VIO was [actually down].

“It’s not a direct correlation, but when you see the exchange rate down here, the numbers seem to be moderated.

“We keep thinking we’re out of the used vehicle crunch in the US and we’re still not because new vehicles are still not moving the way they’d like them to. So those are two factors that I think are driving this. I think it will go back more towards the more like 300,000 a year, bnut we need to see some of these other factors moderate them.”

He added that there’s not really anything that the aftermarket can do on affect that migration.

“I don’t think the aftermarket’s doing anything wrong. This is a function of economics. Enterprising. U.S. companies are coming up here and saying, ‘I can buy a vehicle from $30,000 in Canada, because of the exchange rate, sell it for $40,000 in the US There’s not much the aftermarket here can do to retain those vehicles because you can’t go give that person that money.

“So I think it’s really kind of just trying to block and tackle as best as we can. And hopefully the exchange rate goes down once the U.S. market gets back to normal. It should normalize. But we’re not losing them because of anything we’re doing. We’re losing them because of just the economics of the situation right now.”


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