The Modern ICE Age: Driving Demand in the Aftermarket

by | Nov 1, 2021 | 0 comments

By Andrew Ross

As much as the revolution in electric vehicles has dominated the headlines, the inescapable fact for the aftermarket is that it is what is on the road – namely the internal combustion engine (ICE) — that dictates the demand for aftermarket parts and service.

Shortly after Advance Auto Parts released its second-quarter results, Advance CEO Tom Greco put the transition in perspective in a Fox Business interview on the U.S. aftermarket landscape.

“We see it as a trend that we describe as deeper more than it is sooner. So in other words, it’s very concentrated…in certain counties and certain markets across the country. So think about the coasts, where you’ve got higher penetration rates, and that’s where we’ll be doing a lot of the work in the next little while.

“As you look forward, with the estimates that we have, there’s 280 million cars on the road today.  We expect there to be about 300 million cars on the road in 2030. And at that point, there’ll be about 15 million BEVs (battery electric vehicles) on the road.”

Keeping that in perspective, that’s about 5% of the total vehicles in operation. For the Canadian market, that equates to about 1.5 million vehicles, spread unevenly across the country, and divided among more than 20 manufacturers, and much more than that in terms of models.

And further to Greco’s point of the regional nature of the EV population, in the third quarter of 2020:

  • 3.5% of total new vehicles registered in Canada were zero-emission vehicles (ZEVs).
  • 54,353 new ZEVs were registered in Canada.
  • 95.4% were in Quebec, Ontario and British Columbia.
  • 71.8% of new ZEVs registered in Canada were battery electric vehicles (BEVs).

So while turning away one in 20 vehicles would seem like a bad business model, it also needs to be considered in terms of the right level in investment in parts, training, tools and marketing expenses too.

“So it’s going to take some time for that to happen,” continued Greco. “You mentioned all the different parts [vehicles have]; hybrids are quite similar for us in terms of the number of parts that need to be repaired and maintained. So, we’re somewhat indifferent there. The BEV is quite different, but they do have wipers, they do have brakes. They all need to be washed. They all need to be accessorized. So, you know, we are getting ready for that trend. It’s [really going to be the next decade] when you see the biggest impact.”

“The impact of EVs is very limited right now,” says Jason Best, senior VP sales – Independent Aftermarket First Brands Group, suppliers of brands such as Autolite, FRAM, Trico, Carter, StrongArm, Centric and Raybestos Brakes. “It’s an emerging technology change and it’s going to definitely have a long-term impact on the aftermarket. it also provides opportunities, but I would say that it has minimal impact as of today.”

But this isn’t to say that things are stagnating – especially with the advancing use of Gasoline Direct Injection technologies.

“There’s changing technology even within the internal combustion engine. I believe that when you look at it overall, the makeup of what the car parc is today on the road, there’s massive amounts of opportunity, especially with the growing average age of the vehicle.”

The challenge for aftermarket manufacturers is to keep up with engineering and design changes within the combustion engine to adjust for that.

“Certain parts are more complex today than in the past – GDI pumps, as an example. We all know at one point that those are going to be highly in demand from a failure standpoint, but I don’t think everybody’s been able to wrap their arms around what really is the failure point, in terms of timeframe or time on the vehicle.”

Malcolm Sissmore, VP sales aftermarket at BorgWarner Inc., echoes these sentiments. Sissmore emphasizes, though, that the evolution of the car parc, and especially the part of it in the hybrid space, provides an ongoing market for ICE engines. But with the advent of GDI and a greater use of turbocharging, it’s a very different repair landscape.

In fact, you could even say that due to lack of use, sometimes these engines need more maintenance, not less. So the internal combustion engine is still there; however, diagnostics capabilities between electric vehicle motors and the ICE are getting bigger, in terms of the complexity of the electrification and the diagnostics.

According to Sissmore, “A lot of discussion from the shop is saying, ‘Don’t worry about any type of loss of maintenance on a vehicle; the diagnostic time and dollars will be far greater.’”

But in terms of VIO, the ICE has gone through a huge change and continues, with GDI and GDI turbo. “If you look at the car parc of GDI engines that are out there now, especially in what is called the work truck group, it’s a really, really big car parc.”

Even as far back as 2014, nearly 40% of the vehicles being produced had GDI engines. This has risen steadily as new models and new, tighter requirements have taken hold. According to the U.S. EPA, by 2020 half of the major manufacturers had GDI in more than 80% of their models, and two, Mazda and Mercedes, had that number at 100%.

“I think it’s somewhere 60-some-odd million VIO right now have GDI and GDI turbo,” Sissmore continues. “That brings just a whole realm of different internal combustion engine work.” He points out that GDI engines have two fuel pumps, a sender and a high-pressure pump, and are putting out significant horsepower from comparatively small displacement.

A few examples:

  • Hyundai’s Gamma 1.6L specific output at 86.3 horsepower per litre.
  • Ford’s 2.7-litre EcoBoost V6, found in a variety of vehicles including the F-150, with a solid 325 hp, or 120 hp per litre.
  • The high-output 3.5-liter EcoBoost® V6 with 450 horsepower and 510 lb.-ft. of torque.

“And again, a lot of these vehicles are start-stop as well. Which, you know, as an engine builder – that’s how I started in this business – I cry. It’s one of the worst things you can do to an engine,” he observes.

“I do believe that it is helpful for the environment, but it has huge main crankshaft wear issues, starter wear issues, battery life deterioration. There’s so much complexity with a start-stop going on. And I just think about those vehicles when they’re 10 years old and they have 200,000 kilometres on them, what’s that system going to be like? Especially if the vehicle won’t run without the start-stop working, or is it just going to be shut off anyway?”

Jason Best says that while it’s smart for everyone in the supply chain to be prepared for changes, an important part of that is gauging emerging market demand in real terms.

“The conversations you’re having with your distributors or your retailers is, what are they seeing in terms of buying trends? What type of lookups or calls are related to parts on electric vehicles or the new components of a combustion engine? What type of demand are they seeing?”

As those demand patterns emerge, the aftermarket can respond in kind.

“The distributors have what I like to call ‘the last mile vision.’ They understand what the ASPs are seeing, and the ASPs really drive what that future look is, in terms of what aftermarket manufacturers would need to play in that space, based on what they’re seeing in terms of failures.”

ASPs are typically very pragmatic about how they invest their finances and their time.

A recent study by IMR Automotive Research Inc. interviewed 1,000 U.S. shops and found that 67% of independent repair shops indicate a portion of their business is from servicing battery electric vehicles.  On average, 3.1% (or 3 of every 100 vehicles serviced) are BEVs.  Heavy BEV-populated states, particularly California, and east coast shops tend to have higher service percentages, while Midwest shops have lower percentages.

Some 75% of independent repair shops indicate a portion of their business is from servicing hybrid electric vehicles.  On average, 6.2% are HEVs. BEVs and HEVs account for less business for one- to three-bay shops (0.5% BEV; 1.6% HEV), versus larger 8+ bay shops (9.2% BEV; 14.7% HEV). Shops located in the West (7.7%) have nearly double the percentage of business from HEVs than shops located in the Midwest (4.2%).

But there’s a lot of uncertainty about what the future holds. And while there is consensus that there will be an impact, there’s not much agreement on when.

Forty percent of shops believe the increasing number of EVs and HEVs on the road will impact their business over the next two years; 38.7% do not and 21.4% don’t know. Of the 38.7% that do not believe the increasing number of BEVs and HEVs on the road will impact their business in the next two years, 55.1% believe it’ll take 10 years or longer to see an impact; 13.4% believe it will never impact their business.

How that shakes out in the future will likely be different for larger and smaller shops and where they are in terms of proximity to BEVs and HEVs on the road, but for the time being about 70% of shops are neither investing in marketing, tools, or training for this market, according to the IMR survey.

Shawn Biss, owner of Shawn’s Auto Service, a NAPA AUTOPRO outlet in Smithville, Ont., spoke to Indie Garage earlier this summer. His view seems closely aligned with the U.S. survey’s findings.

“Our population here is semi-rural, though it is getting built up. Most of our business is local people with pickups, but there are a lot of new people moving in from Toronto, so things are starting to change. We are seeing far more hybrids than electrics here. We have a couple that come in twice a year for tires and that sort of thing, but that’s about it.

“I personally have had minimal training (in EV repair). The problem is you take the training and it’s great, but then a year goes by before you see a car, so you forget. There are places in the U.S. that offer training, but it is quite an investment at $5-6,000 U.S. So right now we’re just doing the regular maintenance.”

“I think that everybody – manufacturers, distributors, or ASPs alike – has to keep their eye on what the impacts to service intervals will be, what replacement parts should be identified to be manufactured in the aftermarket space, and all the electric vehicles,” says Best. “I believe everybody should do that. But you can’t let that lead what your decisions are today, based on what the vehicles-in-operation car parc looks like now.”

According to a report by Delphi Technologies in 2020, “While electrification is advancing, we don’t see a world filled only with battery-powered electric vehicles (BEVs) anytime soon. Internal combustion engines (ICEs) will remain key to many automaker go-to-market strategies, particularly in hybrid applications, co-existing alongside electrified powertrains for many years to come. As such, more than 80% of light duty vehicles sold in 2030 are still expected to have an ICE. But they won’t be the engines you know and love today. Gasoline direct injection (GDi) systems, with their emissions and fuel economy benefits, will emerge as the predominant ICE technology for passenger cars.”

And that gives further credence that the ICE, and the vehicles it powers with their more-or-less conventional technologies, as evolved as they are – they still have spark plugs, and use similar drivetrains, braking systems, engine control systems, etc. – will continue to be the driving force for the aftermarket, even as new technologies make their way into the market.

Sissmore does have one piece of advice for action at the ground level.

“Going back to the work-truck world out there, a lot of this maintenance is there, and a lot of those are fleet-operated vehicles. That’s where you look at as a shop or auto parts distributor to make sure that they have a really robust fleet customer base.

“Because that is where that expensive maintenance is being done.”

This article originally appeared in the Sept./Oct. 2021 issue of Jobber Nation. Some minor updates have been made to the printed version.

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