Dealing with the aftermarket: 2010 and beyond

THE “traditional” perspective on the truck and trailer aftermarket has been ingrained in many of us for as long as we can remember: “When the new truck and trailer market goes down, the aftermarket goes up.”

The logic driving this is relatively straightforward: when new equipment isn't entering the market, the existing stuff gets older, needs more service, requires more parts, etc. And, looking back over the past couple of recessions, this was more or less true.

The real fact of the matter is this: the aftermarket may have not really gone up much - if at all - but it certainly didn't go down much, and sometimes not at all in the two recessions preceding 2008 - 2009. How does MacKay & Company track this? Let's take a look.

Our core index of the “movement of stuff” we call Truckable Economic Activity (TEA); this isn't Sarah Palin's TEA party, it's ours! It consists of only the elements in Gross Domestic Product that generate movement of freight - plus 50% of imports. (GDP disregards imports, since they are not goods produced here; from our perspective - they move by truck here, usually two or three times before being consumed).

Consumption is food, clothing, basically non-durables. Investment is residential and commercial construction, equipment, software and the like; the rest is, hopefully, self-explanatory. All of this “stuff” moves by truck at some point, usually multiple moves. When the economy is good, TEA is strong; when it's not, TEA softens, too.

Looking at the two recessions preceding this most recent one shows how directly aftermarket parts demand is driven by TEA - and how insulated aftermarket demand was in these two earlier downturns. TEA dropped over 7% in the 1991 recession, the new trailer business dropped 35% - but the aftermarket dropped only roughly 1%. In the 2000/2001 recession, TEA dipped just a smidgen below the zero line, new trailer production dropped over 50% - but the parts business stayed in positive territory throughout! That's all well and good - but the most recent recession set new parameters. This time around, TEA cratered nearly The result? Aftermarket parts demand dropped over 8% in 2009 compared with 2008.

If 2009's the bad news, we've seen just the opposite move in 2010. TEA turned up sharply, truck and trailer utilization reversed, much parked equipment was put back on the road and cannibalization just about ceased. As a result, the 8% deficit performance in 2009 was wiped out on the positive side in 2010.

So where is this $15 billion business headed in 2011 and beyond? It will not grow in 2011 at the rate it grew in 2010, probably at half this rate. The economy is still not particularly strong, freight activity has softened of late, parts inventories have pretty much been restored - so growth will be more normal. Utilization levels should increase - as should average vehicle miles. But this will be offset by the improvements in durability and reliability we've seen in most truck and trailer components in recent years. So don't look for huge increases in the aftermarket anytime soon.

The truck and trailer parts aftermarket is on very solid ground today - and it will continue on this basis in the future. For many dealers and distributors, the parts business and the accompanying service business is a key contributor to profits in good times — and often the ONLY contributor when business softens. Disregarding the importance of the aftermarket, objectively, may be disregarding the future of the business.

Stuart MacKay is president of MacKay & Company, a specialized market research and consulting firm established by him in 1968. MacKay & Company concentrates the majority of its research and consulting activity in the truck, heavy equipment, agricultural equipment, engine and parts and service distribution businesses.

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