Tech Injection

Given its competitive environment, it is no wonder the automotive sector is constantly evolving, with each brand working to improve its edge over the competition by employing the latest and greatest technology. The automotive aftermarket industry is not immune to these changes, but is fortunate to have at its disposal reliable insight into its future.

Part of that insight comes with the latest installment of the Automotive Industries Association (AIA) of Canada’s recently issued 2014 Outlook Study. The biannual report, produced by DesRosiers Automotive Consultants Inc., examines the state of the Canadian automotive sector as a whole to predict the future conditions of the aftermarket and to help the industry prepare for upcoming changes in work volume, customer demographics and technology.

THE AFTERMARKET

The automotive aftermarket is the $19.1 billion sector of the automotive industry concerned with manufacturing, distributing, retailing and installing automotive replacement parts, tools, accessories, equipment and chemicals.

In 2013, the Canadian aftermarket boasted a workforce of 403,800 in communities across the country. Although the total accounts for only half of those employed by the automotive sector, employment in the aftermarket has been more stable than that in the original equipment (OE) sector because, much like doctors and teachers, the demand for the services of aftermarketers is independent of consumer whims.

The automotive aftermarket industry can be divided into two main categories: Do-It-Yourself (DIY) and Do-It-For-Me (DIFM).

The DIY segment consists of retailers supplying consumers with necessary parts and materials to complete their own maintenance and repairs.

Though this segment is popular for certain maintenance jobs, such as oil changes and fluid top-ups, it has experienced a steep decline in recent years as vehicles become increasingly complex. Today’s vehicles are like computers on wheels, requiring specialized skill and technological tools to maintain.

As such, it is no surprise that more and more Canadians are bringing their vehicles to the more than 23,500 Canadian service outlets for DIFM maintenance and repairs.

VEHICLE SALES PAST, PRESENT AND FUTURE

Figures from the latest Outlook Study clearly demonstrate the new vehicle market set an all-time sales record in Canada in 2013, having sold 1.74 million light vehicles. Yet another record has just been announced for 2014, with the sale of 1.85 million vehicles.

It is anticipated that that upward trend will continue, with sales projected to exceed 1.8 million units by 2016.

It should be noted that light trucks sales have continued to increase since 2009, and now represent 58.7% of all new vehicle sales. Attributed mainly to the growing popularity of compact sport utility vehicles, this trend will have important repercussions on the aftermarket in the next decade.

The study further found that large pick-up trucks have also gained popularity, while sales of intermediate sport utility vehicles, small pick-up trucks and vans have decreased.

The record sales posted are likely due to vehicle affordability and fuel prices. Canadian buyers required an average of 18.5 weeks of before-tax income to purchase a new vehicle in 2012, a decrease from the average 19.2 weeks of income required in 2010.

In contrast, buyers in the United States required an average of 21.3 weeks of before-tax income to purchase a new vehicle in 2012. This difference can be attributed to a reduction in the manufacturers’ suggested retail prices for base models of passenger cars in Canada, as well as the country’s more positive economic environment. Fuel prices, which increased steadily from 2009 through 2012, also finally stabilized in 2013.

NEW VEHICLE SALES AND THE AFTERMARKET

The record number of new vehicles on Canada’s roads meant that new car dealerships were the most popular choice for maintenance and repairs in 2013, holding a 36.6% share of the service and repair market. This success is expected to ripple through to the aftermarket as these vehicles age.

Though many Canadians purchased new vehicles in 2013, consumers are now keeping their vehicles longer, such that the average age of a light vehicle in Canada is now 9.3 years. Vehicles between one and five years old are typically brought to the dealer for repairs because they are still under warranty, but once warranties expire, the vehicles are typically brought to the aftermarket for service.

Aging of the record number of vehicles sold in recent years combined with the increasing size of the Canadian vehicle fleet and technological advancements that increase the life expectancy of vehicles will contribute to the growth of the aftermarket in coming years.

In fact, aftermarket parts and labour sales are expected to reach $21 billion by 2017.

UPCOMING CHALLENGES

Overall, the future of the aftermarket in Canada looks bright, but the predicted growth will be accompanied by some challenges. First and foremost, there are questions about the industry’s ability to accommodate the upcoming influx of vehicles, both in terms of available service bays and skilled workers.

In 2013, there were 23.4 million vehicles registered in Canada, and that number continues to increase. The growing volume of work for the service and repair industry will push the limits of existing service facilities and exacerbate the aftermarket’s current labour shortage problem.

At this time, new workers entering the industry are not offsetting those retiring from the industry. Unabated, this risks keeping vehicles off the road longer as workers struggle to keep up with repairs.

Another likely challenge is the declining value of the Canadian dollar. Since the aftermarket relies heavily on imported products to meet consumer needs, as the Canadian dollar weakens, the cost of imported parts increases, making the industry extremely vulnerable to exchange rate fluctuations.

Finally, technological changes in the OE sector meant to meet new regulatory demands will dramatically affect the aftermarket.

EMISSIONS REGULATIONS AND VEHICLE TECHNOLOGY

In November 2012, then federal environment minister Peter Kent announced that Canada would implement stringent emissions regulations for 2017 and later-model-year vehicles, similar to those outlined by the U.S.-mandated Corporate Average Fuel Economy (CAFE) targets.

These regulations will require that passenger vehicles in Canada reduce greenhouse gas (GHG) emissions by 3.5% annually for 2017 through 2021 model year vehicles, and by 5.0% for 2022 through 2025.

To meet these new regulations, vehicle manufacturers are developing new technologies to improve the efficiency of engines through direct fuel injection methods and other forms of forced induction/enhanced combustion, using alternative energy sources to fuel new vehicles, and reducing the weight of vehicles by using new materials (for example, Ford’s popular F-150 pick-up truck now has an aluminum body).

As OE manufacturers adopt new technologies to meet these regulations, the aftermarket will also have to adapt.

For example, electrical problems will likely require specialized diagnostic tools and advanced technical knowledge to troubleshoot, such that vehicle systems will become more difficult and more time-consuming to repair.

In addition, new body materials such as aluminum, magnesium and carbon fibre are also difficult to weld and bend back into shape, having major effects on auto body and collision repair.

The service and repair industry will, therefore, have to invest not only in new repair tools and technology, but also in skills training for employees.

Outlets will also need to manage customer expectations since there will be more work that requires more time and not enough skilled workers to complete it.

Despite the challenges, the Canadian automotive aftermarket holds the rare advantage of having a window into the future since the number and type of vehicles that will be in Canadian service bays in the next decade and the technology they contain is being determined now.

Though, by its nature, the industry must react to changes in the OE sector, market research and effective planning mean that the industry can cope with whatever technological changes are thrown its way.