Analysis: Meet the new year … same as the old year

Déjà vu.

Which is what January 2022 feels like — a mirror impression of January 2021.

Back again in the drop, when field observers like us get their crystal balls out and start off auguring developments for the yr to come, I had a markedly distinct idea of how 2022 will unfold. But so did the COVID-19 virus.

Primarily based on the pre-Omicron scenario, I had predicted supply chain disruptions to little by little ease off, car or truck revenue to decide on up and miles travelled to see a sharp rise. Those predictions now feel as certain as flight schedules these days.

But 2022, in numerous approaches, will not be an precise repeat of 2021. Matters may possibly search gloomy now but there is some hope. Canada will most most likely have a nicely-boostered population by the end of Q1. If the early insights into Omicron’s relative mildness maintain, we may be ultimately creating our way into post-pandemic steadiness.

The automotive aftermarket has weathered the COVID-19 storm greater than other transportation sectors (e.g., new auto sales). The business can also count on more of the same from last calendar year, but with some discrepancies as we development further into 2022.

So below are my prime predictions for the business this year…

Another development 12 months

Let us start out with the excellent information. Though there is no trusted over-all field earnings details for Canada, 2021 was a terrific yr for the aftermarket — regardless of all the offer chain woes. If we use the U.S. current market as a proxy, then the Canadian current market most very likely observed earnings will increase involving five and 10 for every cent in 2021. Uni-Choose described equivalent cumulative income advancement involving 2020 and 2021 for the first 3 quarters, to use a Canadian illustration.

The advancement can be attributed to a very simple market rebound subsequent a steep drop in 2020. But there’s at least another aspect driving the spurt. Automobile income remained reduced in 2021 because of the chip scarcity. As both new and utilized automobiles had been challenging to come across, men and women retained and maintenance their more mature motor vehicles, leading to higher demand from customers for vehicle store services.

Car gross sales will keep on to be as anemic as 2021 — at the very least for the initial 50 {e3fa8c93bbc40c5a69d9feca38dfe7b99f2900dad9038a568cd0f4101441c3f9} of the yr. Scotiabank Economics has forecasted 1.77 million product sales in 2022 (by now a much reduced figure than the 1.8-1.9 million units we have been hitting persistently in the past). Provided the existing Omicron threat, I doubt if profits will cross 1.75 million this calendar year.

An additional year of very low profits — with secure auto miles travelled — is quite likely to translate to bucks for the aftermarket. Primarily based on my calculations, I imagine the Canadian aftermarket will improve by 10-12 for each cent in 2022.

Vehicle parts prices, source to continue to be volatile

The double-digit growth prediction above could possibly seem to be as well optimistic to some. But listen to me out: Most of that uptick will occur from selling price increases, not volume.

Eucon’s analysis of millions of pricing facts factors in North The usa shows really hard areas costs went up by about 8-10 for each cent in 2021. The raises were being even greater for selected groups. Source chain problems and superior freight expenses had been largely to blame for the sector inflation, and expenses had been handed down the distribution chain.

Quite a few of these prices were being at first absorbed at the top rated of the aftermarket chain (e.g., by suppliers) but evaluation displays that they began to trickle down to shops and shoppers in the 2nd and 3rd quarters of 2021. Even without having Omicron, part charges would have ongoing to increase in the very first 50 percent of 2022. The new pandemic surge, and the continuing supply chain issues, will only prolong that upward trajectory.

This trend will keep on — in reality, it is probably to get even worse in 2022. That can’t be good news for retailers and portion suppliers that are by now indicating that the scenario is dire.

Labour shortage

Selecting expert technicians and counter people was a challenge even ahead of the pandemic. A lot of reports and products have been predicting an acute scarcity of labour — significantly for the aftermarket — for the subsequent couple several years.

COVID-19 has now both equally accelerated and exacerbated the dilemma.

Figures Canada reviews that position vacancies are at an all-time large and wages have grown at the quickest tempo in numerous many years. For occasion, regular hourly wages in November ended up 5.2{e3fa8c93bbc40c5a69d9feca38dfe7b99f2900dad9038a568cd0f4101441c3f9} bigger in comparison to the exact same thirty day period in 2019.

This development will carry on — in reality, it is probably to get even worse in 2022. That just can’t be fantastic news for retailers and section retailers that are already saying that the situation is dire. By way of my interactions in the business, I have heard lots of stories of automobiles sitting in the bay or shops acquiring to convert absent customers mainly because they never have adequate professionals.

Around the upcoming number of months, aftermarket businesses will have to brace themselves for better prices of employing. If payroll fees go up, stores and retailers will have to go them on to their clients or forfeit margins.

Digitization will carry on to ramp up

2020 was a watershed yr for on-line pieces e-commerce. According to information from Lang Marketing Resources (as printed in the 2022 AutoCare Factbook), on the web aftermarket income in the U.S. jumped a whopping 37{e3fa8c93bbc40c5a69d9feca38dfe7b99f2900dad9038a568cd0f4101441c3f9} in 2020.

Though Canada is significantly much less evolved than the U.S. when it comes to areas e-commerce, and responsible data is not offered, I have observed extremely sturdy localized fascination amongst industry players in positioning their goods for B2C online channels. Even B2B platforms from the likes of Worldpac, Altrom and NAPA are getting consistently beefed up with new applications and functionalities to make the purchasing approach far more seamless for installers.

Kumar Saha is the Toronto-dependent managing director of the Canadian functions of world-wide aftermarket intelligence company Eucon. He has been advising North American automotive industry for about a 10 years and is a repeated convention speaker and media commentator.