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www.langmarketing.com Recession Impact on the Aftermarket

Over the years, the aftermarket has gained the reputation of being recession resistant. When the economy does poorly, the aftermarket does well, or so many people have come to believe. However, the aftermarket’s product mix has undergone significant changes over the past 25 years, and today it is less recession resistant than ever.

The aftermarket’s recession resistant reputation is based largely on the belief that its volume consists of non-discretionary products, which are necessary for vehicle operation. However, for a number of years, discretionary products, which are not necessary for vehicle operation, have expanded their aftermarket share. This will affect how the next recession (likely this year) will impact the car and light truck aftermarket.

Recession Around the Corner

Recessions have generally occurred in the U.S. at sixto-eight-year intervals, and one is long overdue. Many analysts believe that a recession will likely hit the U.S. in the next few months, if it is not here already.

The last two recessions (aside from the COVID-19 chaos) occurred in 2001 (March to November 2001) and 2008 (December 2007 to June 2009). Examining them can suggest what might be in store for the aftermarket when the next recession strikes.

2001 Recession

During the 2001 recession, which lasted only six months, aftermarket growth was slashed by more than two-thirds, as light vehicle aftermarket growth fell below 1.0 percent.

It plateaued at that level through 2002 as the aftermarket failed to rapidly recover when the recession ended. In 2003, light vehicle aftermarket product sales finally rebounded to 2.8 percent.

2008 Great Recession

The 2008 Great Recession played havoc with the aftermarket, hammering sales more severely than at any time in the previous four decades.

Car and light truck 2008 product volume plunged to -1.9 percent, down dramatically from the 2.1 percent gain in 2007. Car and light truck aftermarket sales remained negative during 2009, falling another 0.5 percent.

New Vehicle Sales, Collapse

The 2008 Great Recession differed from all other recessions of the past six decades in its 35 percent plunge in new car and light truck sales, coupled with a significant shift in the sales mix of domestic and foreign nameplates.

Miles Driven Hit Hard

Miles driven also took a major hit from the 2008 Great Recession. Annual mileage peaked in 2007 and failed to top that annual driving level for another six years.

Recession Impact on Discretionary Purchases

The next recession will cut discretionary automotive product purchases (such as accessories) and could reduce overall aftermarket product growth by more than 80 percent from its 2021 recovery pace following the impact of COVID-19.

During the economic turmoil of 2020, accessory sales flourished despite lower volume among many aftermarket products, mainly boosted by stimulus checks reaching Americans with time on their hands, who decided to spend this “free money” on modifying and upgrading their vehicles.

Without stimulus checks flowing in the next recession, accessories will be hit hard.

Likely Effects of Next Recession

The next recession (likely this year) will affect the aftermarket in several significant ways.

First, aftermarket sales volume will be negatively affected, particularly discretionary product purchases. The next recession will cut the strong recovery recorded in 2021 by more than 80 percent, especially if it hits this year.

Second, new car and light truck volume will be hit hard by the next recession, with annual volume staying below 15 million and perhaps dropping under 14 million, depending on supply chain issues affecting light vehicle production.

Third, miles driven will be reduced, with the likelihood of annual mileage lower than the 2019 pre-COVID driving level.

The aftermarket impact of the next recession will be intensified by supply chain issues (some of them directly related to the recession) that will play havoc with new vehicle production and various types of vehicle repair, as parts take much longer than usual to reach repair sites or are not available at all.

Six Major Takeaways: • Although the aftermarket has the reputation of being recession resistant, it has changed significantly over the past 25 years in its mix of discretionary and non discretionary products. As discretionary (optional) products generate more volume, the aftermarket becomes increasingly vulnerable to a recession, when consumers cut spending. • Recessions generally hit the U.S. in six-to-eight-year intervals, and one is long overdue. Many analysts believe that a recession will strike the U.S. in the next few months if it is not here already. • The last two recessions reduced aftermarket sales. The aftermarket growth rate fell two-thirds during 2001 and 2002. The 2008 Great Recession hit the aftermarket much harder. Car and light truck aftermarket growth was negative during 2008 and 2009, down from a 2.1 percent gain in 2007. • New vehicle sales collapsed during the 2008 Great Recession, falling by 35 percent between 2007 and 2009. Miles driven was also affected. After peaking in 2007, annual miles failed to match the 2007 yearly total for six years. ª The next recession (likely this year) will affect the aftermarket in several significant ways: a substantial reduction in aftermarket product growth, a further decline in new vehicle sales (possibly dropping under 14 million), and miles driven falling below 2019 pre COVID levels.