Commercial vehicles aftermarket in USA to reach US$ 120.41B by 2025

The total market size of the USA commercial vehicle aftermarket including that of medium and heavy duty vehicles is estimated to be USD 94 Billion and is expected to grow at a CAGR of 3.6% to reach a market size of USD 120.41 Billion in 2025

Definition / Scope
Market Overview
Market Risks
Top Market Opportunities
Market Trends
Industry Challenges
Technology Trends
Regulatory Trends
Other Key Market Trends
Market Size and Forecast
Market Outlook
Distribution Chain Analysis
Competitive Landscape
Competitive Factors
Key Market Players
Strategic Conclusion
References
Appendix

Definition / Scope

The term commercial vehicle may represent any type of motor vehicle, including vans, buses, or coaches, commercially transporting goods or passengers. In the United States, commercial vehicles are often grouped into eight different categories, ranging from Class 1 light duty trucks to Class 8 heavy duty haulers.

The U.S. commercial vehicle production industry has seen steady incremental increases, since 2010, the production of commercial vehicles in the United States has jumped from around five million units to 9.2 Units in 2018.

Commercial vehicle aftermarket represents activities including manufacturing, remanufacturing, distribution, retailing and installation of all auto parts, equipment, chemicals and accessories after the purchase of the commercial vehicle by the customer from the Original Equipment Manufacturer.

The Commercial vehicle Aftermarket encompasses parts for replacement, appearance, collision and performance, including electric propulsion. The Aftermarket provides a wide variety of spare parts at varying quality levels and pricing for all vehicle makes and models.

Market Overview

8.0% – Truck and SUV sales Growth rate for the full year 2018
3.6% – CAGR growth rate of Commercial Vehicle Aftermarket
35% – percentage of imports made in the Commercial Vehicle Aftermarket
4.1% – CAGR growth of imports of Commercial Vehicle Aftermarket
USD 145 Billion –automakers and suppliers investments made on R&D
USD 94 Billion – total market size of the USA commercial vehicle aftermarket
USD 17.4 Billion – Commercial Vehicles Aftermarket parts replacement revenue in 2018
USD 20.4 Billion – Expected Commercial Vehicles Aftermarket parts replacement revenue by 2025
USD 6 Billion – The replacement tire market of medium and heavy duty trucks
USD 5 Billion – The replacement tire market of light trucks
USD 3,791 Million – Revenues generated from tires segment
USD 567.63 Million – Revenues generated from Batteries Aftermarket
USD 682.72 Million – Revenues generated from Brake parts Aftermarket
USD 257.04 Million – Total size of Filters Aftermarket
34 million – total units of replacement light truck tire units
20 million – total units of medium and heavy duty truck tires shipped
10.1 million – total units of USA commercial vehicle re-treading market size
11,786,069 – Total number of Truck and SUV units sold in 2018

Market Risks

Tough Competition from Chinese OEMs

Commercial vehicles parts manufacturers, depending on the product produced, contend with tough competition from overseas manufacturers. For Instance, imports accounted for more than half of domestic demand in 2018.

Heavily subsidized auto parts from China caused the U.S. auto-parts trade deficit with that country to increase more, in total, than the U.S. auto-parts trade deficit with any other country.

High Start-up Costs

Commercial Vehicle parts manufacturers must have the production capacity and economies of scale to produce large quantities of products at low prices.

Additionally, large-scale Commercial Vehicle part production requires advanced manufacturing facilities, which have high set-up costs. Moreover, with the onset of tighter fuel economy regulations, spending on research and development is high for certain products, such as air conditioning units and exhaust systems.

Improving Average Shelf Life of Automobiles

OEMs advancements in technology such as improvements in powertrain technology, rust prevention, lubricants and superior products led to significant improvements in reliability and durability resulting in significant improvements in average shelf life of the Commercial Vehicle, resulting in erosion of aftermarket sales margin.

Slowdown in Economic Growth

USA’s Gross Domestic Product (GDP) growth to decrease to 2.8/% in 2019, from 3.4% in 2018. Along with the headwinds of oil and interest rates, that outlook is based on a consumer slowdown, and modest increases in business investment and exports. The Slowdown in the economy is set to forecast its shadow on the CV Aftermarket.

Top Market Opportunities

Growth of Private Brands in the aftermarket

Most OEMs and the larger distributors of Commercial Vehicle parts are creating their own parts brand to speed up repairs, drive service business into the dealerships and stores and to offer new choices to the customers.

Attraction towards “All-makes” parts

Today’s truck operators serve more markets, offer more services and support more applications than ever before. So it’s not always possible for them to maintain an inventory of genuine replacement parts spanning multiple brands.

When suppliers implement the concept of all-makes parts, truck operators can enjoy the benefits of “one-stop shopping” while dealers and distributors can streamline inventory and capture more business regardless of a fleet’s brand composition.

Growth of “value brand” all-makes part sales

second and third vehicle owners are turning to “value brands” or all-makes parts due to lower costs, proven performance criteria and extensive laboratory testing of parts. The high quality parts doesn’t affect the shelf life of the commercial vehicle.

It has been found that price compromise with the quality of the commercial vehicle parts equalled shorter component life, hence adopting to “genuine” long-life components.

Continued growth in remanufactured components

The Key advantages of remanufactured components include lower cost, nationwide warranty and reliable quality. Remanufactured truck and trailer components are products of a process that includes disassembly, cleaning, rigorous inspection and qualifying, in addition to replacement, reassembly and testing. Remanufacture of trailers, chassis, and even tractors built with glider kits is a new trend in the aftermarket business.

Digitization of channels and Interfaces

Digital channels are gaining prominence among consumers. Customers are looking for reviews and online communities to better improve their buying decision. Multiple platforms for online parts sales exist already. Suppliers, OEMs, distributors, and workshop chains will continue to increase their online participation and launch new platforms.

E-commerce share of consumer vehicle parts sales is expected to increase to 20-30% by 2025. Digital will allow aftermarket players to further increase their commercial vehicle aftermarket’s value as connectivity helps them move closer to the end-customer.

Digitization allows for substantial improvements in the value chain and decreasing lead times for workshops and customers.

Market Trends

OES Expansion

To take away market share from the Independent Aftermarket (IAM), OEMs continue to expand and improve all-makes program and to gain an edge over the IAMs in the price war OEMs will tend to develop economy line products for post-warranty trucks. There are examples of existing programs offered by DAF and IVECO which significantly increase customer engagement and convenience

DAF (with the truck and trailer parts (TRP) program) was the first OEM to roll out an All-makes Parts and Services program. In 2016, the TRP program offered more than 72,000 items under 17 product groups, which is one of the broadest coverages of universal parts and accessories for CVs.

This program is available at all 1,000 DAF dealer locations in Europe, where services are also offered. IVECO Parts and Services partnered with Mageti-Marelli aftermarket in 2013 to offer OEM-quality parts for all light commercial vehicle (LCV) makes that are serviced and installed at IVECO-authorized dealers across Europe. Two other key aftermarket programs from IVECO include:

Value Line (offered by Magneti-Marelli)—Competitively priced routine maintenance parts for old IVECO trucks (for S2000 and earlier models); higher demand for economy line parts, especially in price sensitive markets such as Eastern Europe and Russia
Bullder—All-makes program for trailers and semi-trailers

Telematics

Telematics solutions integrate capabilities like live traffic updates, smart routing and tracking, rapid roadside assistance in case of accidents or breakdown, automatic toll transactions and insurance telematics.

Therefore, they are critical to optimizing the operational metrics of fleets such as fuel cost reduction, resource optimization and real time connectivity. OEMs will integrate remote diagnostics or prognostics into fleet management solutions, creating more visibility and business for its dealer channels.

TCO Optimization

The average total cost of ownership (TCO) for a light-duty vehicle (under 10,000-pounds GVWR) ranges from $5,000 to $8,000 per vehicle, per year. Original Equipment Manufacturers will adopt Big data (based on increased connectivity in trucks) to optimize total cost of operation, aiming to bring more than 2-3% in savings

Adopting Predictive Analytics for Reduction in Warranty costs and improvement of Quality

Original Equipment Manufacturers will adopt predictive analytics for achieving 5-10% in warranty costs and quality-related issues, thus increasing parts profitability.

Counterfeit Parts

Bearing the marks of legitimate brands, counterfeit components are typically not made to the specifications of original equipment manufacturers. Counterfeit parts can result in poor performance and even catastrophic failure.

According to estimates from the Federal Trade Commission, the current market for counterfeit parts is approximately USD 12 billion annually. This can be problematic for consumers who elect to use independently owned and operated CV repair shops.

Vulnerable Software

The fact that driverless trucks depend on a bunch of software applications further opens up the possibility of vulnerability to counterfeit and fraudulent parts. An organized criminal group can tend to create counterfeit parts with pre-installed backdoors of vulnerabilities and sell them to consumers.

This possibility opens up new dangers to consumers apart from faulty airbags or subpar brake pads. Organized criminals and Governments can exploit backdoors to access the location history, intercept communications or gather other personally identifiable information.

Price Erosion

There are two types of depreciation faced by dealers which includes value erosion which occurs as a result of aging assets and holding costs which is as a result of accumulation of expenses from general operating overhead, including floorplan inventory investment and cost of capital (including interest rates) that erode margin and make a dealership less profitable than it could be.

No establishment of Privacy standards

At the moment, companies engaging with connected vehicles have not established clear guidelines for consent, privacy safeguards, and data retention. Users of connected vehicles must also now contend with cybercriminals in addition to the physical safety risks of driving.

Hackers may manipulate a vehicle’s operation, whether disabling a vehicle’s brake system or tampering with the steering during a commute. Even though today’s vehicles are not fully autonomous, the growing presence of computerized components and automation features has created a lot of vulnerabilities that security researchers have begun to exploit.

Industry Challenges

Technician Shortage outpacing Demand

There is an acute shortage of skilled auto technicians and mechanics. There are roughly 750,000 auto techs and mechanics nationally, the U.S. Bureau of Labor Statistics reports. To meet anticipated demand and respond to attrition, the bureau estimates, the industry will need about 46,000 more technicians by 2026 — a 6 percent growth rate from 2016.

Insufficient R&D Capability and Investment

Low levels of domestic R&D capacity and technological upgrading push firms to a reliance on cost-based competition focused on constraining overall labour costs. USA companies currently invest approximately 3.4% of total sales revenue in R&D

Inventory Challenges

The Automobile Aftermarket players manufacture parts and components of different models, with a few of these models in production for more than a decade, To serve such an industry, the aftermarket industry handles a large variety of parts in different sizes. This can be an inventory management nightmare.

Technology Trends

Autonomous Vehicles

Autonomous Vehicles (AVs) are being designed not just from the traditional CV sector but also from non-traditional CV players like Embark and Otto. Self-driving trucks have the potential to improve road safety and human well-being by reducing the number of vehicle crashes due to human error or fatigue.

This “crashless” future is estimated to eliminate personal injury and property damage associated with vehicle crashes and save more than 30,000 lives per year.

The implications for vehicle design and manufacturing are profound as industry experts estimate that autonomous trucks will require less structural parts than regular trucks.

Research indicates that this will have huge implications for the CV aftermarket as there will be a fall in the demand and manufacturing of structural steel, air bags, roll cages among other safety features. Vehicle repair and maintenance shops could also lose revenue as the OE dealers will be better equipped to repair the trucks they have manufactured.

Modular Architecture

OEM’s are adapting to mega platforms/ modular architecture where design and parts are standardized across the globe. Aftermarket industry stands to benefit as costs associated with manufacturing of unique parts will reduce substantially.

Additive Manufacturing

Additive Manufacturing (AM) is the industrial version of 3D printing. Additive manufacturing can make custom parts on demand and has the potential to mass produce parts. Many automakers now use 3D printing to make prototype parts for vehicle development, as well as tools and assembly aids for manufacturing operations.

Several truck companies are looking into making production parts with 3D printers in the next five years. Some automakers currently produce handfuls of small replacement parts, typically interior trim pieces. 3D printing enables efficient fabrication performance and reduction of emission toxicity.

e-retailing

The increasing number of e-commerce platforms and rising collaboration between e-commerce platform providers and brick & mortar stores is one of the prominent factors driving the e-commerce CV aftermarket. Another prominent factor growth driver of the e-commerce CV aftermarket is e-tailers acting as service aggregators to provide price and quality assurance to customers.

e-commerce platforms are increasingly being opted by customers due to the availability of multiple brands at competitive prices, and also because the platform serves product specifications and varied product requirement of customers. Owing to this, service aggregator e-commerce platforms is likely to stoke the growth of e-commerce CV aftermarket.

New logistics models

New logistics models such as mobile-based freight brokerage (Uber for trucks), which is expected to see growth in adoption rates from offering of free mobile applications with free value adds such as transport management system solutions (TMS) solutions

Regulatory Trends

Vehicle / Parts Standard

Many aftermarket parts are regulated by the National Highway Traffic Safety Administration (NHTSA) based on safety needs. Generally, the agency regulates equipment that is required on all new motor vehicles. Emissions-related parts are regulated by the U.S. Environmental Protection Agency,

California Air Resources Board and other state agencies. An aftermarket part may be directly regulated (ex: lighting equipment, tires, mirrors, brake hoses) or it may be indirectly regulated (i.e., a part may not take the vehicle out-of-compliance when installed).

In all cases, NHTSA can regulate any equipment that poses a safety concern. States are free to enact equipment regulations which are identical to NHTSA standards or, in the absence of a federal rule, establish their own laws and regulations.

The most frequent examples of individual state rules cover parts like auxiliary lighting equipment, noise levels for exhaust and stereo systems, suspension height and window-tinting. It is the responsibility of the manufacturer to be aware of federal and state laws and regulations in order to meet compliance requirements.

Other Key Market Trends

Aging Truck population

In USA the average age of light trucks is 11.5 years and that of heavy trucks is14 years pushing more of them into the prime replacement period for expensive repairs.

Market Size and Forecast

USA represents the first largest automotive market in North America.

The USA Commercial Vehicles Aftermarket parts replacement revenue in 2018 is estimated to be USD 17.4 Billion and is expected to grow at a steady growth rate of 2.3% and is estimated to reach a market size of USD 20.4 Billion by 2025.

The components segment is expected to be the sector’s most lucrative in 2018, with total revenues of $76.6 Billion, equivalent to 81.6% of the sector’s overall value

The surge in CV aftermarket growth experienced in 2018 is attributed to the increase in light and medium duty trucks sales in the two years prior. This would suggest that as truck ownership rises in the region the aftermarket should continue to experience growth.

Market Outlook

The USA CV Aftermarket reached a record USD 94 Billion in 2018 and is poised to grow at a steady growth rate of 3.6% to reach a market size of USD 120.41 Billion in 2025.

Key Stats

USD 20 Billion – The market size of the truck parts aftermarket
USD 6 Billion – The replacement tire market of medium and heavy duty trucks
USD 5 Billion – The replacement tire market of light trucks
USD 3,791 Million – Revenues generated from tires segment
USD 567.63 Million – Revenues generated from Batteries Aftermarket
USD 682.72 Million – Revenues generated from Brake parts Aftermarket
USD 257.04 Million – Total size of Filters Aftermarket
4-5% – market size of the parts e-commerce of the truck aftermarket
1-2% – The market share gained by OES channel.

Distribution Chain Analysis

The Distribution Chain of CV Aftermarket is as a collection of collaboration among the following players

Parts Manufacturers Produce parts and other goods made for automobiles and trucks

OE parts manufacturers – parts are made for (original equipment – OE part) new vehicle assembly and whose products may also be sold in the aftermarket

Aftermarket parts manufacturers

Remanufacturer/Rebuilder

a rebuilder of motor vehicle engines and hard parts, selling to distributors and repair shops

Warehouse Distributors

stocks inventory of parts and goods purchased from manufacturers, then sells to automotive jobbers, retailers or directly to repair shops

Program Group/Distribution

a group of warehouse distributors/businesses purchasing, selling and marketing under a common name. Program groups may be large organizations that purchase parts directly from parts manufacturers, offer warehouse distribution access as well as marketing, training and other services.

Jobbers

purchases products from distributors then sells and delivers to repair shops

Auto Service Center

companies that specialize in specific auto maintenance and repair service, i.e., transmissions, brakes, air conditioning/radiators

Service Stations

gas stations with at least one repair bay in operation. They purchase their parts from their parts stores, truck dealers, distributors, and the internet

General Garages/Independent Service Providers/Service Outlets/Repair Shops

businesses usually owned by an individual or partners that sell repair and maintenance services to vehicle owners. May belong to a program buying/marketing group.

Vehicle Dealers

companies selling new vehicles to consumers or commercial vehicles to businesses. They normally perform almost all of the warranty services on vehicles they sell. Dealers also perform maintenance and repair on vehicles no longer under warranty. Dealers are considered the main competitors to the aftermarket industry repair segment of the industry.

Competitive Landscape

High-quality and competing on a on a low-cost strategy are the two driving factors of the CV aftermarket. The larger companies continue to retain their strong global presence through expansion, merger & acquisition, partnership & collaboration, and extensive product portfolio.

These strategies are widely adopted to increase their presence and the customer base. The competitive environment in the market is likely to intensify further due to new product development and business expansion.

Competitive Factors

A synergy of these key underlying factors: Availability, Value proposition, Service and Brand Equity are essential for success in CV Aftermarket industry.

Availability: Leaner supply chain and efficient inventory management are ways to ensure that products are available at the right time and at the right place.

Leaner supply chain: can be achieved by identifying-reducing-eliminating supply chain bottlenecks and adopting efficient Transport Management System (TMS). To this effect, some manufacturers are now revisiting their business models by favoring online selling channels to traditional selling. Inventory management: caters to uncertain market demands, streamlines inventory flow and ensures that Stock Keeping Unit (SKU) strikes a balance between stock deficit and stock surplus.

Value proposition: Value proposition in this context relates to good quality at best price such that the customer perceives value for the product. Quality: Over engineering is a common problem seen in foreign players in this market; complying with Asian standards and lowering their technical specs will still meet the quality requirements of the region.

Price: competitiveness can be achieved by decentralizing warehouses, maintaining minimum trade layers, by keeping the packaging design minimalistic etc.

Service: Service excellence has become the kingpin in achieving greater customer satisfaction. By improving customer relationships, firms are coming up with innovative service solutions to secure customer retention.

Customer Relationship Management (CRM): Engaging current and potential customers through varied means to understand their needs, and device service products accordingly. By providing meaningful touch points like informed and efficient service representatives, group forums where common FAQ’s are addressed, customer experience can be enhanced.

Innovative solutions: like Do-It-Yourself (DIY), tailoring services to individual customer needs, improving service levels at Do-It-For-Me (DIFM) outlets, transferring routine maintenance hassles like service reminders, door to door service etc.[18]over to the firm rather than the customer.

Brand equity: Brand awareness coupled with strong network presence improves brand equity of a firm.

Brand awareness: can be brought about by engaging consumers through online advertising which includes various channels such as social media, and email marketing. It is equally important to build awareness among trade partners from grass root level– tier 1, to repair shop/body shop as they are key advisers to the consumers; trade shows and trade magazines are a few effective ways of educating the dealer.

Network penetration: is important to ensure that at each trade level the channel partner finds value in carrying and promoting a firm’s product. This can be accomplished by incentivizing dealers for achieving sales targets.

Key Market Players

Daimler Trucks North America LLC, formerly Freightliner Corporation, is an automotive industry manufacturer of commercial vehicles headquartered in Portland, Oregon, and is a wholly owned subsidiary of the German Daimler AG.

Navistar International Corporation (formerly International Harvester Company) is an American holding company, that owns the manufacturer of International brand commercial trucks, IC Bus school and commercial buses, Workhorse brand chassis for motor homes and step vans, and is a private label designer and manufacturer of diesel engines for the pickup truck, van, and SUV markets. The company is also a provider of truck and diesel engine parts and service.

PACCAR Inc is an American Fortune 500 company and counts among the largest manufacturers of medium- and heavy-duty commercial vehicles in the world. PACCAR is engaged in the design, manufacture and customer support of light-, medium- and heavy-duty trucks under the Kenworth, Peterbilt, Leyland Trucks and DAF nameplates. PACCAR also designs and manufactures diesel engines, provides financial services and information technology, and distributes truck parts related to its principal business

Cummins is an American Fortune 500 corporation that designs, manufactures, and distributes engines, filtration, and power generation products. Cummins also services engines and related equipment, including fuel systems, controls, air handling, filtration, emission control, electrical power generation systems, and semi trucks. Headquartered in Columbus, Indiana, United States, Cummins sells in approximately 190 countries and territories through a network of more than 600 company-owned and independent distributors and approximately 6,000 dealers. Cummins reported net income of $999 million on sales of $20.4 billion in 2017

Meritor, Inc. (NYSE: MTOR) is an American corporation headquartered in Troy, Michigan, which manufactures automobilecomponents for military suppliers, trucks, and trailers. Meritor is a Fortune 500 company. In 1997, Rockwell International spun off its automotive business as Meritor. In 2000, ArvinMeritor was formed from the merger of Meritor Automotive, Inc., and Arvin Industries, Inc

Allison Transmission is an American manufacturer of commercial duty automatic transmissions and hybrid propulsion systems. Allison products are specified by over 250 vehicle manufacturers and are used in many market sectors including bus, refuse, fire, construction, distribution, military and specialty applications. With headquarters in Indianapolis, Indiana, Allison Transmission has regional offices all over the world and manufacturing facilities in Indianapolis, Chennai, India, and Szentgotthárd, Hungary

Dana Incorporated is an American worldwide supplier of drivetrain, sealing, and thermal-management technologies. Founded in 1904 and based in Maumee, Ohio, the company employs nearly 31,100 people in 33 countries on six continents. In 2017, Dana generated sales of nearly $7.2 billion. The company is included in the Fortune 500.

Strategic Conclusion

The USA CV Aftermarket reached a record USD 94 Billion in 2018 and is poised to grow at a steady growth rate of 3.6% to reach a market size of USD 120.41 Billion in 2025.

Technician Shortage outpacing Demand, Inventory Challenges, Insufficient R&D Capability and Investment are the challenges being faced by the industry players.

OES Expansion, Telematics, TCO Optimization, Adopting Predictive Analytics for Reduction in Warranty costs and improvement of Quality are the factors driving the growth of the CV aftermarket.

Appendix

OEM – Original Equipment Manufacturers
OES – Original Equipment Suppliers
CAGR – Compounded Annual Growth Rate
GDP – Gross Domestic Product
OTA – over-the-air
OBD- On-Board Diagnostics
CKD – Completely Knocked Down