THE NEW RISKS FOR DISTRIBUTORS

Three experts weigh in on what the aftermarket is thinking about — and it all centres around electric vehicles

By Adam Malik

The change in product mix distributors will have on their shelves is going to be one of the biggest challenges they face in the coming years, according to an industry expert. While the biggest trend a few years ago would have been disintermediation and distribution — in essence, removing the middle man in the distribution process (see: Amazon) — now it’s disintermediation from electrification, said Bret Jordan, managing director at Jefferies, a consulting firm that works in the automotive aftermarket.

“There is going to be some impact on existing product mix over time,” he told attendees of this year's MEMA Aftermarket Suppliers Vision Conference in Chicago.

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Jeffries predicts 55 per cent of the car parc will be electric by 2050. So distributors need to look at the timeline, see where their customer base is and adjust their product mix to match up.

“There still is a reasonably high lifetime maintenance spend [on EVs], it's just different product,” Jordan pointed out. “You've got a lot of HVAC [components] around heating and cooling and batteries. For charging, you've got a lot of weight and a lot of undercar — a lot of torque, so a lot of tearing up the undercar.”

For Todd Campau, associate director of aftermarket solutions at S&P Global, right to repair was his biggest concern for tomorrow.

For the most part, the industry can handle most of the internal combustion engine vehicles on the road today; there’s a lot of knowledge in maintaining them.

“But as it shifts more and more to battery electric and plug-in hybrids and more sensors — and we haven't even talked about autonomous driving anything for a while because it kind of got backburner during the pandemic — the ability to repair and maintain those systems is critical for the aftermarket,” Campau said.

Not having information to maintain these vehicles is “our biggest existential risk” he added during the 3 Dragons: A View from an Economist, Wall Street Analyst and Aftermarket Analyst session. “It doesn't matter if it's a battery electric vehicle or an internal combustion vehicle or a hydrogen vehicle.”

But he also agreed with Jordan — there will be plenty of repair opportunities, and expensive ones.

“The repairs are likely going to be a lot more expensive. The number of repairs may not be as high as we have with internal combustion. But I think there's going to be opportunity and there's going to be revenue,” Campau said. “I think calibrating and maintaining sensors is a huge opportunity for somebody to dive into.”

Jordan also noted increasing consolidation as a threat.

“There used to be a lot more players. We've now sort of consolidated the market down to four or five big distributors [in the U.S.],” he said.

So I think you're going to see consolidation; you're going to see consolidation on the service side. So it'll be fewer distributors with fewer points of sale. But the underlying sales will still be there, it's just going to be the more sophisticated operators doing it.

For a dose of positivity, Liz Clark, automotive team lead from the Office of Transportation and Machinery at the International Trade Administration, pointed to the amount of opportunity the industry has ahead of it.

“I think there is opportunity. It's going to come through that change and that diversification where you can leverage it just right and find those markets and opportunity, find those business opportunities, whether it's in repair, or in distribution, that they do exist,” she said on the panel. “And that will be changing rapidly. And you can stay on top of that change, you can find those opportunities.”