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Aftermarket powers through summer despite continued uncertainty of Covid-19

Study highlights seasonal sales observations, how shop owners are working with their contacts in the distribution system, and updated results from a Covid-19 impact survey

Bethesda, Md.—Despite the ongoing uncertainty of the economy, the aftermarket continues to be resilient and adaptive to constant change. In the latest issue of Market Insights by Auto Care Association’s industry analyst Mike Chung, he highlights some seasonal sales observations, how shop owners are working with their contacts in the distribution system to fulfill end customer needs, and updated results from the association’s Covid-19 impact survey.

Seasonality of some parts continues, no matter the economy

In the chart below, unit sales of AC parts (orange) from July 2018 through July 2020 (data are indexed to January 2016) alongside consumer confidence (gray) are examined.

Despite the significant drop in consumer confidence in March/April 2020, the sale of AC components followed its typical seasonal trajectory, with July 2020 sales increasing on a year-over-year basis.

Repair shop owners confirm that even though consumers are driving less, they are continuing to maintain their vehicles, including keeping their AC working throughout a summer of hotter-than-normal temperatures. 

Andrew Dremak, of Mechanic Advisor, a provider of marketing communication platforms for auto repair shops, confirmed the trend: “Across the country, the warm summer weather has led to a strong July for many independent repair shops, particularly for A/C service. As consumers resumed driving and getting their vehicles ready for road trips, shops marketed and promoted A/C service campaigns — notably via email and text — to encourage customers to make sure their A/C systems are working correctly.”

Dremak observes this to be particularly true for independent shops since used car sales are higher, according to the report. Mechanic Advisor has also seen independent shops in resort areas having stronger business with their “summer” residents as they have stayed in their second / resort homes longer than this year. Uncertainty for the fall season does exist, particularly as back-to-school / back-to-office plans continue to be fluid across different states and regions.

Supply chain continues to be a concern

While shops pivot around seasonal demand and reduced driving habits, they have been adjusting to fluctuations in demand as appropriate, the report states. Supply chain continues to be a concern, with a slight increase to 54 percent in July/August:

Inventory management has been somewhat iterative, according to Dwayne Myers, CEO of Dynamic Automotive, an independent automotive repair business with four locations in Frederick, Md.

“The aftermarket supply chain has been doing an excellent job. Store inventories are a little lower right now — for example, before the pandemic, a distributor may have had three or four sets of brake pads, but now only has one. Communication with suppliers and maintaining those relationships continues to be important so that we can set and manage our retail customers’ expectations, and take good care of them in the process.”

Industry outlook trends more positive in recent months

In Auto Care Association’s ongoing survey with its members about the impacts of Covid-19, outlook for the next 12 months has shifted from somewhat negative in April (58 percent “somewhat” or “extremely negative”) to being more positive in May/June and July/August (based on 257 responses collected through mid-August). Nearly one-third of auto care organizations participating in July/August have a “somewhat” or “extremely positive” outlook (31 percent), versus one-quarter of organizations participating in April (23 percent).

Concern for cash position has stabilized

Concern regarding cash position has reduced and stabilized over the summer: one-third of companies were highly concerned in April (36 percent) before dropping to one-in-seven in May/June (15 percent) and one-in-eight in July/August (12 percent) — this is likely attributable to securing of government relief in May/June, adjusting to the current business environment conditions, and as drivers returned to the road and serviced their vehicles in the summer.

While statistics are not available on this topic prior to the pandemic, Chung said he expects there to be a baseline percentage of companies that face financial challenges even in the absence of a national crisis.

To address that concern, aftermarket companies tended to furlough and lay off employees, decrease salaries for both executives and employees, and reduce employee hours while also cutting back on other unnecessary expenses.

Furloughs and layoffs tended to be more frequent in the first several months of the pandemic. As the pandemic continued into June and July, aftermarket companies continued to reduce expenses, cut salaries, and defer investments. That suggests that the pandemic continues to cause companies financial pain.

Similarly, impact on business performance continues to be high for more than half the aftermarket, holding steady at 54%, a nominal decrease from 63% in April:

Also noteworthy, Chung said, is the lower impact on investments over the months – falling from 65 percent in April to 31 percent in July/August.

He added that shops that have invested in modernizing their facilities, systems, and services to enhance the customer experience (e.g., online scheduling, touchless contact) prior to the pandemic have been realizing the fruit of their previous investments and continue to focus on caring for and communicating with their customers.

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