I recently recorded a webinar for Taiwanese businesses engaged in the automotive aftermarket. What I explained to these business leaders about the U.S. market was this: the aftermarket has worked decades to get parts as close as possible to vehicles that need to be repaired. This is a story you know well.
Much as Rome wasn’t built overnight, our amazing auto parts distribution system was something that took decades of blood, sweat — and probably, tears — to bring to fruition. Those who came before us (and some who still work with us!) constructed a beautiful network that enables someone to drop off their vehicle in the morning and pick it up after work, repairs completed.
This was not an easy ecosystem to build. And this is precisely why, while the automotive aftermarket was deemed essential by the U.S. federal government, returning to normal, pre-pandemic conditions is something far off.
The coronavirus pandemic is but one factor
This is not to say we can’t make great progress once federal, state and local lockdowns are gradually relaxed. But as a unified, global automotive aftermarket, we must come to grips with some conditions that are exacting downward force on us, despite our best efforts to fight them. We are simultaneously fighting two forces: the coronavirus and its effects and the government lockdowns and their effects.
Both the lockdowns and coronavirus have brought unemployment and fear. On Friday, the U.S. government pegged the tally of unemployment at 14.7 percent. More than 20.5 million people in the U.S. lost jobs in April. These are staggering numbers, ones that eclipse anything seen in recent memory and stats that haven’t been seen since the Great Depression. (More on that in this story from The New York Times.)
In fact, Bob Michele, who is a J.P. Morgan managing director, says we should expect it to take 10 to 12 years for the U.S. unemployment rate to come down to pre-pandemic numbers.
In the first few days and weeks after shutdowns hit the U.S., my reporting found that automotive parts retailers and shops were experiencing sales slumps of between 25 and 50 percent. That was to be expected, mostly because people were told not to leave their homes.
The coronavirus is having a substantial impact on the automotive aftermarket
This week, the Auto Care Associations Michael Chung, director of market intelligence, provided the association’s research on the pandemic’s effects on the aftermarket.
The association did a member survey and found that the pandemic is having “is having a substantial impact on the business performance, investments, staffing, and demand for products and services for companies across the aftermarket, regardless of size or business type,” Chung’s report says.
“Nearly two-thirds (63%) of aftermarket organizations are experiencing a substantial impact on their business performance. Six out of seven aftermarket organizations (87%) reporting that COVID-19 has been at least ‘somewhat impactful’ on business performance are seeing a decrease in demand for the services/products, with nearly half (46%) seeing a decrease of at least 26%,” his report states.
The U.S. continues to have a global warning on all international travel, citing the pandemic. Most countries have similar warnings. Knowing this, Automechanika Frankfurt has been postponed to 2021. (More on that story here.)
With the prospect of a viable vaccine in mass quantities being a year or more away, expect continued downward pressure on the automotive aftermarket. Of course, we are by no means alone in this. If pressed to list an industry untouched by this pandemic, I can’t imagine one that isn’t.
The automotive aftermarket is fighting back
Even though we are up against a formidable opponent, we can’t back down. And the automotive aftermarket is fighting back. The Auto Care Association this week announced it joined more than 100 trade associations and other business organizations who are advocating for new assistance programs based on grants to keep industry moving forward.
“The Auto Care Association is leaving no stone unturned in its continued effort to identify opportunities to help our members, American businesses and American workers to get back on their feet and get back to work,” said Bill Hanvey, president and CEO, Auto Care Association. “Joining the coalition is another important step we have taken in order to secure more funding and resources that will be vital to keeping businesses within the auto care industry afloat during this unprecedented crisis.”
There is good news. Timken declared a quarterly cash dividend of 28 cents per share. According to the company, it’s the 392nd consecutive quarterly dividend paid on the common shares of the company since the company joined the New York Stock Exchange in 1922, one of the longest-running dividend records among NYSE-listed companies, Timken said. While many companies are forced to withhold dividends to shore up their cash pile, Timken is signaling that it’s moving forward with business as much “as-usual” as possible.
Fear is driving the behavior of businesses and consumers alike
Fear, for consumers and business owners alike, comes down to this: We are unsure what to do. With few exceptions, no one alive today has experienced anything like what we are going through. No one has any great answers. We are inclined to do what we might do during other crisis situations, but when nothing we’ve experienced quite matches up to the pandemic and the ripple effects, our past experiences do little to inform us now.
Many companies are hoarding cash. They’re cutting unnecessary expenses where possible, applying for loans, laying off employees and generally, trying to stay afloat. We would be foolish to believe consumers aren’t doing the same. The U.S. consumer mindset that created a global economy has suddenly gone dormant.
How many of those U.S. government relief checks will find their way into the economy in the near future? The fear permeating the U.S. and countries around the globe has shifted the immediate focus of the consumer mind to these things: Do I have enough food for my family? How long can I keep a roof over my head? How long will I have a job?
Everything else is just conversation and we are trying to adjust to this new reality.
Currently, draft legislation is making the rounds in D.C. that would provide — prepare yourself — $4,000 a month for married couples, plus $2,000 per child up to three children — retroactively and for 90 days past the time the pandemic is declared over. Whether such an audacious piece of legislation ever makes it into law is yet to be seen.
What can the automotive aftermarket do now?
The global automotive aftermarket immediately jumped in and did what it could to help. Dayco made ventilator parts. MANN+HUMMEL began making masks. Lubrication Specialties and Lucas Oil are making and donating hand sanitizer made by their employees. Other companies are doing their part. More will surely come in the weeks and months ahead.
Prior to the pandemic, the aftermarket had a reputation for being a steady, not very sexy industry that produced modest returns year over year. Those same attributes will help us surmount this pandemic and return us to some sense of normalcy, however long it takes.
For the latest news and information on the global automotive aftermarket industry, visit https://aftermarketintel.com. Do you have news? Contact Aftermarket Intel Editor Mark Phillips at firstname.lastname@example.org.