Thursday, August 4, 2011

Hmmm. I Wonder If Things Are All Right With Parts Sales Trends?

Our monthly detailed Market Watch report shows steady sales gains for the major OEMs. Accessories and collision are going gangbusters; M&R looks OK; Powertrain less so. So, in terms of OEM sales to dealers, things look good. What we said in March is dead on.

But, what about dealer sales to end-customers? This week Automotive News talked about owners spending less on service; so far in 2011 owners are spending $169 vs. $176 in 2010. A modest 4% decline. No problem; it’s just a single digit fraction. Charles Child wrote the article and leaned on J.D. Power data: he thought that the decline in spend was surprising given that the average odometer tallied to 78,000 in 2011 – about a 28% increase from the pre-recession 2008 average odometer. So, vehicles in dealer service bays seem to be older and have higher mileage. Of course.

Wow, Americans really have a tough time with simple math. 2011 is three years into the recessionary equivalent of the Dutch Elm disease – new car sales swung from 16.5 million units annually to 10 to 11 million.
There are simply not as many young cars out there. The higher odometer average is more a consequence of this simple math than of the spate of aberrant behaviors that Child’s lists in his article.

So, there’s nothing to worry about? I would not go that far. The J.D. Power data seems to support our car parc and parts sales analyses from March 1st. And, the mud pies thrown at the dealers are, also, familiar.

“Automotive” represented the top complaint in state consumer protection investigations – “faulty repairs” was listed under this category. People see this and think, “dealers”. Our customers are changing and the digital revolution is generally not a friendly place for dealers.

After reading Child’s article several times in an effort to separate the facts from the bad analysis, I’m stuck on the startling implications of 2011’s $169 a vehicle spend for an older vehicle vs. 2010’s $176 spend for a younger vehicle. Older cars cost more to repair and maintain, and
spending should be less “deferred” the further we get away from 2009 and the more total miles traveled increases. The small decline in spending at dealers is indicative of a larger problem facing dealers and OEMs – namely, that they hemorrhage market share in older car parc to the IAM. Given current economic conditions, this will accelerate – our focus groups confirm this, and the recent AAA affordability study does, too. Childs hints at this by saying that the J.D. Power report didn’t take into account how much business is going to the independent repair shops. Again, we talked about this in March. More evidence.

Bottom line: It might be wise to prepare for tougher market conditions in 2012 and 2013. Maybe it’s time for the OEMs to watch the Godfather again. “No, no, no! No more! Not this time, Consigliary. No more meetin’s, no more discussions, no more … tricks. You give 'em one message: … it's all-out war: we go to the mattresses.”

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