I’m in sunny Las Vegas for Heavy-Duty Aftermarket Week, and if you’re in the parts and service business, you really should be here too. My head is beginning to hurt due to all the numbers being bandied about (honestly, it’s the numbers) from industry-leading forecasters and researchers.
The heavy-duty aftermarket is on the brink of a transformation and if you want to cash in on future growth opportunities, you first have to know what’s coming down the pipeline. There were no shortage of experts on-hand at this week’s event to share their insights, and while they’re primarily based on US data, they’re equally relevant in Canada. I will post several entries in my blog to bring you up to speed on what’s being discussed here in Sin City.
The heavy-duty aftermarket is a $15.6 billion industry in the US (all figures discussed in this blog entry are in US dollars, not that it matters much anymore). Stu MacKay, of MacKay and Company, and co-hort (vice-president, officially) David Fulghum, project that industry will grow to $20.3 billion by 2016. That’s a substantial growth, but the analysts predicted some players will benefit more substantially than others.
Comparing data from 1989 to that of 2006 showed independent garages have managed to increase their share of the pie from 5% to 13%. That came largely at the expense of Heavy-Duty Distributors and Product Specialists (HDD/PS) which saw their portion fall from 34% in 1989 to just 26% in 2006. Truck dealers increased their share from 38% to 43%, according to data, which is gathered from tens of thousands of surveys distributed throughout the industry.
Fulghum said the trend shows the importance of good service. Independent garages, by providing reliable service, have taken their traditional ‘wrench-turning’ duties and leveraged that to increase their share of the parts business, Fulghum noted.
Impressively, independent garages have also been able to maintain profit margins on parts (30.2%) comparable to the margins enjoyed by heavy-duty distributors (32.3%).
“Independent garages have more than doubled their businesses and at the same time have raised prices on parts,” Fulghum explained. “It shows the value of good service. They are making more money on parts, which is being driven by turning a wrench.”
On the service side, it’s worth noting that in 1997, 410 million hours of service was required on the US truck population. In 2007, that rose to 484 million hours due to the growing truck market, but the hours of service per truck was down 19%. Seventy-five per cent of service is done by the truck owner, be they a fleet or owner/operator, Fulghum said. But outsourcing is increasing and in many cases, independent garages are capturing that business, according to MacKay and Company’s data. A big part of the reason could be labour rates – independent garages averaged $66.15 per hour in 2006 compared to the average dealer rate of $80.36 per hour.
MacKay said parts and service providers have opportunities for growth ahead of them. He noted the average age of the Class 8 truck in the US is increasing and will continue to do so due in part to the higher purchase price. He said his company is predicting the aftermarket will see “meaningful growth for each of the next five years.”
Sixty-seven per cent of distributors and 71% of suppliers said in a survey they expected business to be up in 2008, despite the slowing economy. But while independent garages appear poised to continue gaining momentum, they will face new challenges in the future, noted MacKay. He pointed out there’s increased vertical integration among OEMs, which could favour dealers, which he suggested could be getting 49% of the aftermarket business by 2016. Already, 67% of Freightliner and Sterling trucks have proprietary engines under the hood and 63% of Volvos. International sits at 22% but that’s poised to increase with the impending introduction of their own big bore engine. The trend, said MacKay, “will give dealers a bigger edge than they have today.”
I’ll be sharing more information from Heavy-Duty Aftermarket Week in future blog entries.