The Service Opportunities Behind Aging Autos
Every year Polk Automotive analyzes the trends in U.S. car and light truck registrations to gauge the age of vehicles on the roads. This year, like every year since 2002, they reported that the average age of all light vehicles on the road has risen. Today, the average age of America’s auto fleet is an impressive 11.4 years of age, up from 11.2 last year.
This is great news for the automotive aftermarket whose livelihood relies on the sale of replacement parts and service repair. Older cars mean more work and more profits. But while it is certainly notable that the age continues to climb and drivers are keeping their cars and light trucks longer, we wondered what other telling trends were behind the numbers. We learned a few interesting facts.
Baby Boomers are Still Setting Trends
According to a study by the University of Michigan’s Transportation Research Institute, Baby Boomers may be aging along with their cars. As a group, they still drive significant changes in all sorts of demographics, including vehicle purchases.
The study reports that older drivers are more likely to buy new vehicles. Even though auto dealers continue to court the Gen X, Gen Y and Millennial market, it’s the graying baby boomers that have the desire and means to purchase new vehicles. It turns out that nostalgia for the era of the car is a powerful influence.
What about younger drivers? In another study University of Michigan researchers found that younger individuals – those same Millenials that auto makers are targeting for advertising, actually purchase fewer new vehicles than expected. They found that a higher proportion of internet users (the digital natives) were associated with a lower licensure rate. Fewer younger registered drivers mean less reason to purchase.
Are Auto Makers Making Better Cars?
In an age of disposable everything, it looks like automobile manufacturers may be doing the unthinkable – making better, longer-lasting cars.
M. Simon, technical contributor for Manufacturing.net contents that “Engineers Killed Detroit”.
“Cars that are engineered to last longer require that you buy fewer of them in a lifetime. Remember when a car that ran for 100,000 miles was a good car? I do. Now a 200,000 mile or 250,000 mile life is considered a good car. Engineers (aided by competition) did that. And not just American engineers. Engineers all over the world.”
John Tammy at Forbes suggests that “The Unions Didn't Bankrupt Detroit, But Great American Cars Did”. He suggests that today all cars are engineered well. They are built to last. They are reliable, affordable and don’t break down that often like they did in the 1970’s era. Tammy says “In short, cars are simple, prosaic, and easy in a modern sense to manufacture well”. If you believe his position, reliable automobiles have become a commodity, contributing to the longer life of cars and trucks.
Aftermarket Vendors Vying for Parts and Service Business
No matter what the reason for the continued aging of American’s vehicles, one thing is certain. Automotive aftermarket vendors should be prepared to capitalize on the revenue opportunity that is presently available, even though there will be competition from other providers and strong economic obstacles.
Ratchet and Wrench reports that the auto service industry is actually experiencing a downward revenue trend. “In the last five years, overall industry revenue has declined at an annual rate of 2 percent to $30.3 billion. This decline was largely due to declines in the overall economy, which caused a decline in disposable income and corporate profit, effectively stifling the use of vehicles and the need to repair them”.
With tight competition, savvy aftermarket parts and service providers eager to tap into potential revenue streams are searching for the best path to take and have discovered that service operations hold the best opportunities. In Aberdeen’s recent State of Service Management: Outlook for 2013 report, sampled organizations stated that on average service margins were 10.7% higher than those from products.
Where the Opportunity Lives
As product profit margins shrink and service profit margins grow, more companies are placing higher value on the service model and transforming their service centers into profit centers. PTC’s Service Lifecycle Management approach is leading the adoption of service related attitudes with products like Enigma’s InService EPC which helps execute those service management strategies that lead to profitability.
Aftermarket parts and service providers not focusing on service profitability run the risk of being left behind. As Ali Pinder, Research Analyst for Aberdeen Groups says in a recent blog post “This ability for service operations to produce profitable growth has raised the importance of service in the eyes of the executive team, from a cost containment tool to a growth engine for many businesses”.