Here we are at the beginning of the year – how did the industry do last year? What might we expect in 2023? Short answer: Despite continued challenges and uncertainty, the business has continued to adapt and perform robustly while driving activity has resumed in aggregate. In this article, I touch on a variety of topics spanning the particular aftermarket and the broader economy. To start, let’s look at total vehicle miles traveled (VMT).
VMT for the first 10 months of 2022 has already surpassed VMT for the entire year associated with 2020 (Chart 1). When we compare the first 10 months of 2022 to the particular same periods for the previous years, all of us see that VMT has exceeded pre-pandemic levels (Chart 2).
Since Memorial Day weekend, VMT offers been fairly steady across the country, with the only significant drop occurring during the week of November 6, likely due to Hurricane Nicole plus Veteran’s Day (Chart 3).
This bodes well for tire replacement and service, particularly given the regular intervals associated with maintenance and alternative.
Are consumers ready, willing and able to pay for their tire needs? In 2021, we saw several instances of increased consumer liquidity (and by extension, disposable income) as the particular federal government distributed stimulus checks. This year provides seen high inflation plus concerns of a recession. While there is a movement toward student loan forgiveness, legal challenges have arisen, suggesting that relief is not imminent. Consumer confidence dropped throughout the year as the war in Ukraine dragged upon and as inflation persisted, even while unemployment remained low.
Consumer self-confidence as well as the capacity to take on more debt, as measured by consumer loans via credit cards and revolving plans, (i. e., does not include mortgages or car loans) suggests that consumers are not in a good state of mind or finances to absorb more debt.
According to Morning Consult, the particular percentage associated with Americans planning to buy a vehicle was lower as of May: 9. 6% for new, 5. 7% for used. With the average age of vehicles continuing to climb (12. 1 years while of January 1, 2022, based on S& P Global Mobility data), the decreased appetite for new automobile purchases bodes well with regard to the aftermarket in general. Vehicle owners are likely to purchase new tires if the need is urgent – say, a flat tire that cannot be repaired. Given the particular stretched wallets of many consumers – gas, food, other day-to-day necessities – it stands to reason that will many vehicle owners will delay tire replacement a bit.
Steadily Rising Cost of Business
Inflation hasn’t just hit the consumer – it is more expensive to do business as well. Chart 4 to the right tracks the producer price of tire plus repair materials alongside typical hourly wages for wheel dealer employees.
Wage rates have not risen at the same rate because materials – with the competitive employment market and workers demanding higher income in response to pumpiing and a tight labor market, it becomes a challenge to raise prices to absorb additional costs – may customers be willing in order to pay higher costs? Not only are usually consumers stretched thin, but the service market is also competitive, plus driving habits have changed since the onset of the pandemic.
Impacts on Tires – Office Occupancy
Remote work continues to impact the automotive aftermarket. Kastle reports that as associated with Nov. 9, average office occupancy across 10 major U. S. cities was at 47. 5%. It has been a very gradual climb to this figure since the particular onset of COVID-19 in early 2020.
As people continue to work remotely, let’s take a look at another consideration that can impact the demand regarding tire servicing and substitute – driving habits.
Impact on Wheels – Driving Behavior
Fewer drivers commuting to the workplace could imply less congestion. Less blockage can lead to increased travel speeds and less hard braking. Telematics provider Arity noted a year ago, “During 2020, data showed drivers spending the good amount of time driving faster than 80 miles an hour. In 2021, speeds are still up compared to 2019, but not as higher for as long. ” Depending where you are, you may see different demand patterns from your customers. For example, some of your customers’ trips may have evolved to be mixed purpose, occur at different times of day and on different days of the particular week, be longer inside duration, and be characterized simply by higher rates of speed and much less frequent brake. Other customers may be commuting during the same occasions as before the outbreak but experiencing different traffic conditions and wear designs on their own tires plus brakes.
And, with the change in driving patterns and purposes, there is the particular possibility that will people are thinking of an electric vehicle (EV) for their particular car.
Impacts upon Tires – EV Adoption
The high instant torque associated with EVs is related to quicker wear and tear of tires. Electric vehicles possess gained traction in recent years (see what I do there? ), using the adoption of alternative powertrain vehicles (this includes battery electric, hybrid electrical, plug-in hybrid electric plus fuel cell) rising in order to 9. 4% in 2021, after an incremental increase from 2. 9% in 2016 to 5. 4% in 2020, according to the Auto Care Association’s 2023 Factbook, based on S& P Global Mobility information.
The recent “Joint EV Trends and Outlook Forecast” produced by Car Care Association and Automotive Aftermarket Suppliers Association (AASA) notes that, “Current estimates show EVs reaching approximately 30% of new car sales in the U. H. by 2030 –a number that is expected to increase rapidly thereafter, ” according to lead author Strategy &. As a lot more drivers move to EVs, the potential for increased maintenance/replacement frequency, as well as brand new tire development appears in order to be promising.
Industry Performance and Outlook
Overall, the auto aftermarket continues to perform nicely. Chart 5 on pg. 18 illustrates the product sales at automotive, accessory plus tire stores for that first nine weeks of each 12 months from 2019 to 2022. While inflation has certainly impacted retail prices, it is encouraging that the particular incremental sales from 2021 to 2022 exceeded 10%, and product sales always exceed pre-pandemic amounts.
Earlier this yr, S& G Global forecasted aftermarket growth for light vehicles to grow by 8. 5% in 2022. This follows 14. 8% growth within 2021. While we still have some period to round out the year, it really is encouraging to see retail sales performing properly as marketplace conditions stabilize.
That said, uncertainties still abound – “supply chain” is still a major headline, although perhaps not as dominant as it was earlier in the particular year. Data suggest that supply chain difficulties have abated somewhat. The particular Federal Reserve of New York introduced the Global Supply Chain Pressure Index (GSCPI), which is a metric that incorporates global transportation costs, air freight expenses, supply chain-related components from the Purchasing Managers’ Index and other data points to measure the state from the global source chain.
We are a long way off from the particular massive supply chain headaches we had last year when the GSCPI was more than four standard deviations higher than normal. To put this inside perspective – the average height associated with an American adult male is five feet, 10-in. with a standard deviation of 3. 15-in. Someone who will be four regular deviations above normal is nearly 6-foot-11 – in the last quarter of 2021, it has been like being surrounded simply by men who were nearly seven feet tall!
To become sure, offer chain problems continue in order to persist, and we don’t know what we might see in the news, however the stabilization of contributing factors like freight rates and components availability should smooth out some of the particular uncertainties plus challenges that will the auto aftermarket has weathered over the past several years.