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Stop Trying To Do Too Much, And Watch Your Sales Improve
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By Counterman
or our commercial customers, price and quality are two of the most important considerations when purchasing parts from you (and your competitors). The third is availability, but at least we have some control over what gets stocked in our stores. Barring supply chain issues and material shortages, keeping the right mix of parts available is up to our buyers and inventory specialists. Unless your store’s pricing strategy is out of line with the competition, pricing (and quality) complaints fall squarely on the vendor/manufacturer.
This is not to say that if you are experiencing price, quality, or availability issues with a current vendor that you shouldn’t already be looking for alternate sourcing for the affected SKUs or product lines. During the latest UAW strike, GM and Stellantis parts warehouses were crippled by walkouts, leaving their dealer networks scrambling to provide parts for their customers. Many dealerships were forced to bolster their inventories with quality aftermarket-equivalent products just to keep work flowing through their service departments.
link hidden, please login to view For the aftermarket, this was a perfect storm of opportunity. There was less competition from the local dealership in terms of parts sales, and those same dealers were calling on aftermarket suppliers more often for parts they could not readily obtain through their OEM channels. Due to the perception that OE parts are the best option for their vehicle brand (and a need to provide the same level of service, warranty coverage, and quality) these requests were often for premium product lines. Dealerships are generally unwilling to risk their reputation by installing bargain-basement parts, and the expectation that dealership parts and service will carry a premium price tag silences many objections well ahead of the sale. Independent shops specializing in repair or resale of luxury and performance brands also enjoy a more quality-conscious clientele willing to pay a premium for their services.
There is, however, a subset of dealerships (and some general repair shops) for whom price trumps all other considerations. Your local “buy-here-pay-here” used car lot might come to mind, reconditioning and “flipping” (usually lower-end) auction vehicles, while offering very limited warranty terms. For this market, requests will usually gravitate toward the “least expensive” parts option. Even the most quality-conscious shops sometimes need to hit a “price-point” to stay competitive, and we all have that DIY customer who just wants “the cheapest thing that fits” because they are “trading it in soon” (even though they’ve been telling you that each time they’ve been in for the last three years!).
In an effort to accommodate all types of customer needs, we are likely to offer multiple lines for most of our “commodity” parts. Filters, brakes, chassis parts, belts, lighting, wipers, and fluids are some of the most common categories in which we offer diverse price and quality options. This isn’t necessarily an issue of price versus quality, but rather comparing the value realized from an item’s price and its quality. For maintenance items like filters, an installer might have a “menu” pricing schedule for oil changes, air and cabin filters, and wiper blades. These services generally include labor at no “additional” cost, and the parts already have a recommended service interval. Selling at a fixed price can be tricky when the costs are variable, so shops often use value-line parts for these services. If the shop advertises “any air filter $49.95 installed,” you can bet they will choose your $12 store brand filter over the $25 premium filter whenever they can! These parts will likely provide sufficient service life, and the cost savings to the shop offsets some of the lost labor revenue. On our side of the counter, oil is usually marketed as a loss leader priced to get customers through the front door. Shops treat oil changes the same way, as an opportunity to get the vehicle in the shop to upsell more profitable work.
We would never knowingly offer a product that doesn’t meet some sort of minimum quality standards, nor would we recommend a product that won’t meet a customer’s (reasonable) expectations. The use of “features and benefits” as a selling tool helps classify the customer’s needs, explains the differences in pricing and quality, and minimizes disappointment by customers who expected premium performance and extended service life from the bare-bones product they selected based on price alone.
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By Counterman
link hidden, please login to view, we took an in-depth look at the Consumer Price Index (CPI) and the average vehicle age, highlighting their significant roles in shaping the automotive aftermarket. At the time of publication, we hinted at further exploration into other critical factors that influence our industry, and today, I’ll fulfill that promise by examining gas prices and vehicle miles traveled (VMT), two indicators that give a snapshot of the economy and provide professionals a means to predict the future of the aftermarket landscape.
First, let’s look at everyone’s favorite expense: gas prices.
The fluctuations in gasoline prices in the United States are more than mere figures at the fuel pump; they serve as barometers for a variety of factors, including economic health, geopolitical tensions, consumer confidence and the vitality of the automotive aftermarket sector. Gasoline stands as a relatively inelastic commodity, with demand showing little sensitivity to price changes. This is largely because a significant portion of vehicle use, estimated at about 30% for commuting purposes alone, is essential and non-negotiable for many individuals, according to a University of Michigan study. When considering additional driving for school-related activities, errands and other purposes, visits to the gas station are an inevitable aspect of daily life.
This inelastic nature of gasoline consumption implies that rising fuel prices compress consumer spending power and escalate operational costs for businesses reliant on transportation. Consequently, there’s a logical link between fuel costs and mileage traveled, especially for discretionary travel. Recent studies, including research by AAA, reinforce this connection, suggesting that as gas prices climb, individuals adjust their travel and lifestyle accordingly.
AAA released an article in July 2022 summarizing the aforementioned research that they conducted. The article showed that 64% of U.S. adults made changes to their driving habits and/or lifestyle since March 2022, at a time when gas prices were hovering around $4.30 and peaking at $5.03 in June 2022, with 23% of consumers making major changes. As illustrated in the article, of the 64% who reported they were making changes in their driving and lifestyle, 88% said they would drive less, 74% said they would try to combine errands, 56% said they would reduce shopping or dining out, and 30% reported they will delay major purchases.
Putting these sentiments into the context of the automotive aftermarket, less driving will put fewer miles on vehicles, leading to extended periods in between the 3,000-5,000 mile oil changes, roughly 6,000-mile alignments and factory scheduled maintenance around the 30,0000-, 50,000-, and 90,000-mile marks. Additionally, if people have less disposable income, they may put off repairs or standard maintenance like an oil change, further increasing the interval of vehicle maintenance.
However, while less driving may lead to extended periods between routine maintenance tasks such as oil changes, alignments and factory scheduled services initially, this shift in consumer behavior presents a silver lining for the automotive aftermarket. With people potentially delaying maintenance due to reduced disposable income, it stands to reason, vehicles are likely to be held onto for longer periods. This not only increases the likelihood of maintenance and repairs in the long term, but also signals a decrease in the purchase of new vehicles. As a result, the market could see an uptick in older, used vehicles that require more frequent servicing and do not receive warranty services (in other words, an increase in the use of vehicles within the aftermarket sweet spot). This scenario underscores the importance of the automotive aftermarket in supporting vehicle longevity and reliability, highlighting a potentially robust market for service shops and parts suppliers alike.
However, despite the intuitive connections and survey research, some reports, such as one from TIME, paint a different picture. Research analyzing fuel prices and American driving habits from 2000 to 2022 indicates that by June 24, 2022, U.S. gasoline consumption was nearly 8.93 million barrels per day, slightly below the 9 million daily average since 2000, showing a minor 1% drop. Conversely, gas prices soared to 90% above their average for that period.
The results of the TIME analysis will be partially corroborated by some of the charts presented in this article, but it is important to understand that the data presented for miles driven is in millions, so even small spikes on a chart will represent rather larger scaled changes.
To begin our deep dive, we start with Chart 1, which sources data from the U.S. Energy Information Administration and reveals the trajectory of retail gasoline prices across several years, displaying a pattern of highs and lows that correspond with a multitude of external factors.
link hidden, please login to viewChart 1 As we observe the trend line from January 2014 to January 2024, we see a gradual increase with significant peaks and troughs. The trendline suggests a weak upward trend with considerable volatility, which can be attributed to a range of influences, from geopolitical events, supply disruptions, technological advancements and shifts in consumer behavior. While Chart 1 showing a decade of gas price fluctuations may not explicitly outline the impact on the automotive aftermarket as far as time is concerned (meaning that we can’t accurately predict the price of gas in a few years with time alone), the implications are significant. Higher gas prices can lead to increased demand for fuel-efficient aftermarket products or vehicles, as consumers look to optimize their vehicle’s performance.
Conversely, lower gas prices can result in more disposable income to pursue vehicle repairs or perhaps drive more in general, which will inevitably lead to a greater need for repairs and vehicle upkeep (more on that to come). Ultimately, whether gas prices rise or fall, the aftermarket can benefit from the resulting changes in consumer behavior, as vehicle owners seek to manage their operating costs or take advantage of economic conditions to use their vehicles more.
VMT: A Reflection of Changing Times
As previously stated, VMT can have a significant impact on the health of the automotive industry and the aftermarket. So, let’s jump into Chart 2, which showcases VMT data over the last 10 years, according to the Federal Reserve Economic Data (FRED).
This chart traces the VMT from January 2014 to October 2023, offering a graphical story of the nation’s driving habits.
link hidden, please login to viewChart 2 The data shows that simply counting on an increase in driving over time won’t work for predicting aftermarket service demand. Instead, aftermarket businesses should focus on the specific factors that influence driving habits, like economic trends such as inflation and cultural/societal trends such as remote work policies. This understanding is crucial for aftermarket businesses to effectively manage inventory, plan marketing and schedule services. Recognizing that vehicle use can vary widely, rather than following a steady climb, allows aftermarket companies to be more agile and meet their customers’ needs in real time.
Is There a Correlation Between Gas Prices and Vehicle Miles Driven?
Various reports and studies have highlighted a discernible link between gasoline prices and the distance traveled by drivers. However, a broader analysis of economic data reveals a more complex scenario. Despite the intuitive connection between fuel costs and driving behavior, the practical demands of daily life in America—such as commuting to work, school and other essential activities—often render the inclination to reduce driving due to higher gas prices moot. (See Chart 3 which integrates information from the preceding two charts.)
link hidden, please login to viewChart 3 While there’s a connection between gas prices and VMT, it’s relatively weak as indicated by the low correlation coefficient and the even smaller predictive regression score not presented, indicating the presence of other influential factors. For accurate market predictions, we must consider additional variables like geopolitical issues affecting oil supply, policy changes and shifts in oil demand, which can abruptly alter gas prices.
Similarly, VMT is influenced by factors such as public transportation availability, urban versus rural living patterns and societal shifts toward remote work or “walkable” cities. Changes in consumer preferences, such as a growing interest in environmentally friendly transportation options or online shopping, can also play a crucial role.
Therefore, automotive aftermarket professionals should consider integrating advanced analytics and diverse data sources into their decision-making processes. This could involve investing in resources that help analyze social, economic and political trends, alongside traditional market data. Engaging with experts in related fields, from energy economics to urban planning, can also enrich their strategic outlook. In summary, a proactive understanding of the diverse drivers behind market changes is essential to navigate the industry’s complexities, capitalize on opportunities and ensure lasting success in a constantly evolving market.
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