Every day, healthcare experts and data analysts update models predicting the spread of coronavirus to show the extent of the human tragedy—the number of lives lost, patients hospitalized, and unemployed workers. Despite the intense scrutiny, much uncertainty persists.
Within the automotive sector, COVID-19 is a massive, once-in-a-lifetime disruption, and the situation is changing rapidly. To gain more clarity about the pandemic’s potential impact on the light-vehicle aftermarket—encompassing parts, accessories, and tire sales—we reviewed both past and current trends. First, we looked at previous crises to quantify how demand, revenue, and other aftermarket performance indicators typically change during a downturn. We then considered the current global health crisis and created scenarios showing how the aftermarket might evolve this year, as the pandemic abates, and over the longer term, as we enter the “next normal.”
Our analysis focused on challenges unique to the COVID-19 crisis, including a sudden and steep drop in vehicle miles traveled (VMT) and customer foot traffic because of physical distancing. These shifts, combined with the potential for a slow economic recovery, mean that aftermarket demand may take years to recover to 2019 levels. With so many challenges ahead, aftermarket players should take steps now to improve their business and emerge stronger from the crisis.
Although our analysis focuses on the United States and Europe, we also reviewed developments in the Chinese aftermarket, which is showing signs of recovery.
Looking back: Aftermarket performance in previous crises
The light-vehicle aftermarket has typically been the most recession-resistant part of the automotive industry. Its size primarily depends on the size of the car parc, rather than new vehicle sales. When economic pressure causes drivers to delay purchasing new cars, repairs on their current (and older) vehicles become even more vital.
To appreciate the aftermarket’s resilience, consider the financial crisis from 2007 to 2009. The United States saw GDP drop about 4 percent and the economic repercussions hit automotive purchases hard. Sales plunged 42 percent for new cars and 20 percent for used cars, but the aftermarket experienced only a 1 percent decline (Exhibit 1). This performance is even more remarkable considering that VMT, a key driver of the aftermarket, fell by 2.4 percent over the same period. When we disaggregated the aftermarket into component categories, we found the most significant declines were for performance parts and accessories. These discretionary purchases can be delayed, unlike those in the break-fix-repair categories.
Please click here to view the full press release.
SOURCE: McKinsey & Company
