Charting Upward Growth

SEMA News—December 2018

BUSINESS

By Mike Imlay

Charting Upward Growth

New SEMA Research Can Assist Your Business Planning

  What economic, consumer and industry trends are in store for 2019 and beyond? The SEMA Market Research “Future Trends Fall 2018 Report” compiles and analyzes data from numerous government and business sources to give SEMA members the unique insights they need.
   

Coming off the recently concluded SEMA Show, it’s apparent that the industry is eager and primed for growth in the new year. But while the Show is always the ideal venue for spotting industry innovations, there are also broader factors at work shaping industry direction and individual business growth. Overall economic health, consumer confidence and new vehicle configurations are just a few of the trends that will impact SEMA-member businesses in 2019 and beyond, and connecting such dots for solid business planning is no small task. Thankfully, SEMA Market Research has done the heavy lifting with its first comprehensive “Future Trends Fall 2018 Report,” which is now available for free download at www.sema.org/market-research.

“This is a brand-new report for us, and the first in a series of many more future trends reports, which we will release twice a year,” said Gavin Knapp, SEMA director of market research. “The idea is to take a look at what’s going on in the world from an economic perspective as well as from an industry perspective and provide a snapshot of the data while looking ahead to make some relevant forecasts and projections. Each report will also highlight a different key area of significance to our industry. In this report, it’s powertrains and how we expect them to change over the next few years.”

The fall 2018 report is divided into four sections that crunch a wide collection of data from government and other sources touching on new-vehicle, powertrain and economic trends, plus consumer buying and driving habits. Easy-to-follow charts and graphs sum up the data quickly and succinctly, while related text blocks go deeper in explaining and analyzing the data. The entire report is designed to be useful to everyone in the aftermarket supply chain, from manufacturers and warehouse distributors to online and brick-and-mortar retailers.

“Whatever type of business you’re doing, you can use this information for your general business planning,” Knapp explained. “That could mean a manufacturer deciding whether trends are favorable before ramping up and continuing production, or a warehouse deciding to stock more, or a retailer deciding on the best products to carry. The report also helps our businesses anticipate coming changes in vehicle and engine types along with consumer driving habits as we go forward.”

Automotive Trends

Of course, the aftermarket’s backbone is the vehicle platforms that OEMs produce, so the future trends research devotes keen attention to new light-vehicle sales. Current forecasts call for 17 million light-vehicle units to sell in 2018 and 16.81 million units in 2019. That’s a 1% decline in 2018 and a 1.1% dip for 2019. In the midst of that, however, the market share of light trucks is trending upward, thanks to the growing popularity of crossover utility vehicles (CUVs). In 2017, light trucks—including sport utility vehicles, vans, pickups and CUVs—accounted for 64% of all light vehicles sold. That figure is expected to hit 69% by 2025, with CUV sales driving almost the entirety of that growth.

Economic Growth ForecastAt nine years and counting, the current U.S. economic outlook remains on a historic course. The economy is on track to post roughly 3% growth in 2018.

“By 2025, CUVs will be pretty dominant in share of the market,” said SEMA Research Manager Kyle Cheng, the report’s lead analyst. “We’re similarly projecting that, as time goes on, there will be a shift toward smaller engines, but without a sacrifice in performance. By 2025, we predict two to three liters will become the dominant engine displacements.”

“What we’re also seeing in terms of trends is a simultaneous rise in horsepower along with mpg, so the technology is getting much more efficient across the board,” Knapp added. “Looking forward, it’s going to be smaller engines and fewer cylinders. We’re already seeing a lot of that, even in fullsize pickups, in which there are a growing number of six-cylinder engines. We can also expect a lot more four cylinders and turbocharging in the overall light-vehicle category.”

Industrial Production GrowthIn addition to the overall U.S. economic growth, manufacturing growth (the largest component of industrial production) has accelerated in recent months, helping to lift the overall index to record levels.

Moreover, OEMs won’t be shying away from gasoline engines anytime soon.

“Gas engines still dominate the market, even if they don’t dominate the headlines,” Knapp said. “Even if we look out to 2025, we’re still talking about gas engines powering 82% of the vehicles being manufactured and sold here, with electrics and plug-in hybrids comprising only about 3% of vehicle sales each for a total of roughly 6%. It’s still a gas-dominated world and will be for quite a while.”

Unemployed People Per JobThe strengthening economy has resulted in a historically low unemployment rate in which job openings now exceed the number of unemployed. For businesses, that will mean increased competition for workers. For workers, lagging wage growth is finally beginning to show some upward momentum.

A big question for the aftermarket has also been whether emerging OEM technologies and advanced vehicle computerization will lock out specialty-equipment innovators, but Knapp believes that pessimism in that regard is misplaced. He points back to the ’70s and ’80s when cars shifted to fuel injection and the electronic tuning modules that took hold soon after.

Distribution of Gas Turbo EnginesThe trend toward smaller engines boasting more efficient fuel economy alongside performance gains will continue through 2025, thanks in large part to turbocharging. Currently, about 25% of all new light vehicles are fitted with turbos. By 2025, that figure will reach almost 60%.

“Vehicle and engine technologies are always going to change,” he said. “Luckily, our guys are usually ahead of the curve. As we look at all of those changes and those that the OEMs are putting into their cars now, very often that stuff was developed by our industry first. That’s why this report puts an emphasis on powertrains—to keep SEMA members prepared for what’s evolving.”

Driving Trends

Is the American love affair with the automobile waning? Ignore all the speculative headlines, because the future trends report puts that question to rest: American enthusiasm for vehicles is not declining. According to U.S. Census Bureau data, 76% of Americans still drive alone to work, with carpooling actually trending slightly downward. What’s more, their average commute time to work was 26 minutes in 2016, virtually unchanged over the last decade. And while vehicle pricing and loan payments are steadily increasing, consumer sentiment for purchasing is also undiminished, with 67% of households seeing the next 12 months as a good time to buy a car.

“Looking at driving trends, license rates and other data, we see that there is still a strong interest in cars across the board,” Cheng said. “I know that there’s a lot of talk out there that people don’t care as much, that they don’t buy as many, or that they’re using Uber or Lyft all the time, but there are 221 million licensed drivers in the United States—a pretty sizable jump over previous years. If everything trends as it is now, we’ll have 232 million by 2020. It’s going up, and we’re only going to see more drivers as the population grows. In fact, the U.S. data shows that there are more vehicles per licensed owner today than there have ever been.”

That said, there are a few factors that could yet materialize in the coming year to dampen consumer enthusiasm for new car purchases. Among those are possible hikes in gas prices and interest rates. Uncertainties about the economy in general over tariffs and trade wars might also take hold. The overall good news, however, is that no one, young or old, is giving up on automobiles or their personalization habits.

“If anything, the data on young people shows that they love personalization and they carry that over to their cars as well,” Knapp observed. “And that goes across the board. People want to have something that’s special to them, whether that means functional or flashy. Not everyone in the country accessorizes or modifies their vehicles, and we know that. But we have a really solid base that’s not going away.”

Economic Outlook

Entering 2019, U.S. industries are bullish for business, and the future trends report takes a deep dive into overall economic indicators to find plenty of buoyant statistics for the aftermarket in particular. For example, the current economic expansion is on a historical course at nine years and counting. If it continues through the summer of 2019, it will mark the country’s longest expansion in the post-World-War-II period. As we end 2018, the economy is on track to grow roughly 3%, and consumer and business confidence remain at record highs. The small-business picture is equally rosy, with the National Federation of Independent Business reporting that employee compensations and earnings trends are setting new records as well.

Interest Rate ForecastHigher interest rates can adversely affect consumer buying habits while also impacting the costs to businesses of carrying inventory. U.S. interest rates are rising across the board and are forecast to continue their rise at least through 2021.

“Seeing where vehicle sales are going is important if you’re developing and selling products, but economic trends are also important,” Cheng said. “Our economy tends to ebb and flow with periods of growth, recession and growth, but since the 2008 recession, we’re now in the longest period of growth without a dip. There is, however, a lot of uncertainty right now about tariffs, and we include some discussion around that in our report. Of all the things looming on the horizon, that’s the biggest threat to our industry. However, if you take a look at all of our economic metrics in the report, things are still very strong. It’s positive, even if most economists are debating whether it’s sustainable.”

Knapp observed another ironic twist to a booming economy: the difficulty it brings in recruiting workers and staffing. That can be especially hard on the small businesses that make up the bulk of the aftermarket.

“We’re actually at a point where government statistics say there are fewer unemployed people than there are open jobs,” he said. “While this is great in terms of people having jobs and money to spend, we know that there are a lot of small businesses facing hiring pressure across our industry. While wage growth has been pretty slow up to this point, we may soon see some wage inflation making up for that. Businesses may have to spend more to find the good people they want. That’s a potential negative for our industry, even though it’s a great thing for the economy as a whole.”

Using the Report

The “Future Trends Fall 2018 Report” packs a lot of information and analysis into its 38 pages. However, the true purpose of this comprehensive research is to help SEMA members plan for their companies’ futures in 2019 and beyond.

“What this report does, and what’s useful for manufacturers and distributors, is give a really broad outlook of everything they’d potentially want to know for business planning,” Cheng said. “You can see where engines are going, where alternative vehicles are heading; you can see sales trends and technology shifts and more.”

“A big part of what we’re trying to do here is look out at the landscape of what’s going on in the country,” Knapp added. “Some factors we hear a lot about in the news, so we’ve tried to look at them through hard facts and the lens of our industry. We gather a lot of data many of us hear about in snippets and bring them together in a relatable manner. For us, the biggest takeaway is helping our SEMA members to see all the disparate information that impacts them in a more unified picture. We sift through the relevant trends and forecast what they mean for our industry.”

Future Trends Fast Facts

The following are just a few of the many takeaways from the “Future Trends Fall 2018 Report.”

  • Car sales are forecast to decline through 2025 as truck sales grow, driven by increased crossover utility vehicle sales.
  • 67% of households consider the next 12 months a good time to buy a car.
  • 76% of Americans drive alone to work—a statistic that is virtually unchanged from the last decade.
  • There are approximately 222 million licensed drivers in the United States, with that number projected to reach 232 million by 2020.
  • With 269 million registered vehicles in the United States, the numbers of registered vehicles per licensed driver and per individual are both at all-time highs.
  • Average horsepower has increased 7% over the last decade, with average fleetwide fuel economy increasing 20%.
  • By 2025, electric and plug-in hybrid vehicles will each account for roughly 3% of total vehicle sales.
  • The U.S. economy was forecast to grow 3% in 2018.
  • Already at an 18-year low, unemployment is expected to further decline to 3.5% over the next year.
  • Consumer spending is forecast to grow 2.4% in 2019.

Get the Full Report

A free downloadable copy of the “Future Trends Fall 2018 Report” can be found alongside all the latest SEMA Market Research studies at www.sema.org/market-research.

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