INDUSTRY GROWTH: FIXED OPERATIONS OPPORTUNITIES

Babak Rosenthal Mohammadi Accredited General Manager, Toyota Motor Sales U.S.A. August 13, 2024

Industry Growth: Fixed Operations Opportunities

The U.S. Auto Care Industry is on the brink of significant expansion, with consumer spending projected to exceed $400 billion by 2025. This anticipated growth is fueled by an aging vehicle fleet, increasing maintenance demands, and the evolving needs of today’s consumers. However, alongside these opportunities, dealerships face rising costs, shifting consumer preferences, and heightened competition from general repair shops and quick lube centers. Additionally, trust in dealerships has eroded, further complicating the landscape.

To capitalize on the industry’s projected growth, dealerships must adopt a multi-faceted approach. This includes transparent pricing, enhancing customer relations, investing in electric vehicle (EV) service capabilities, and understanding the evolving needs of consumers. By addressing these challenges with strategic foresight, dealerships can secure their position in a rapidly evolving market.

PROJECTED EXPANSION: AGING VEHICLE FLEET

INDUSTRY GROWTH FORECAST:

The U.S. Auto Care Industry is projected to exceed $400 billion in consumer spending by 2025, driven by the aging vehicle fleet and increasing maintenance demands.

KEY STATISTICS | AVERAGE VEHICLE AGE:

• 2018: 11.7 years
• 2021: 12.1 years
• 2023: 12.5 years

IMPLICATIONS: The growing average vehicle age signals a significant opportunity for the automotive service market, with older vehicles requiring more frequent and extensive maintenance. This trend will continue to fuel the growth of the industry, particularly in sectors focused on repair and maintenance services.

RISING COSTS IN VEHICLE REPAIRS AND SERVICES

SIGNIFICANT COST INCREASES:?

Rising costs have significantly impacted the automotive repair and service industry over the past few years.?

• Repair Costs: Up by 20% in the past year, driven by labor shortages, supply chain disruptions, and rising parts costs.
• Service Visit Costs: Increased by 45% since 2021, reflecting broader industry inflation trends.
• Dealership Repair Orders: Experienced a 35% increase in costs since 2021.

CONSUMER PRICE INDEX (CPI) TRENDS:

Overall Increase (1997-2024): 165.37% increase in motor vehicle repair prices.

Recent Increases:

• 2023: 17.11%
• 2022: 9.89%
• 2024: Projected 5.92%

BUYING POWER ANALYSIS:

The buying power of $500 in 2019 has diminished significantly due to inflation. In 2024, the equivalent value of $500 is approximately $739.78.

IMPLICATIONS: Rising costs present challenges for both consumers and service providers. Dealerships and repair shops must focus on transparent pricing and clear communication to maintain customer trust and satisfaction.

INCREASE IN SERVICE VISITS AND DIY?

MORE FREQUENT VISITS:

The aging vehicle fleet in the U.S. has led to a notable increase in service visits as older vehicles inherently require more frequent and extensive maintenance.

• As vehicles age, they require more maintenance, leading to an increase in service visits. The average vehicle age reached a record 12.6 years in 2024.

IMPACT: The aging vehicle fleet is driving a steady demand for maintenance services, making customer retention and attraction crucial for dealerships and service providers.

DIY SERVICE ACTIVITY: Consumers engaged in DIY vehicle maintenance.

DIY Service Activity (% of consumers engaged in DIY vehicle maintenance)

2023: 53%? ██████████████████████████████████████████████████? ??

2021: 45%? ████████████████████████████████████████████? ??

2018: 48%? ███████████████████████████████████████████████? ??

• 2023: 53% ??
• 2021: 45% ??
• 2018: 48% ??

IMPLICATIONS: The rise in DIY activity suggests that while professional service visits are increasing, some consumers are taking maintenance into their own hands, possibly due to rising service costs.

COMPETITION AND TRUST IN DEALERSHIPS

LOSS OF MARKET SHARE:

For the first time in the history of the study, general repair shops have overtaken dealerships as the most preferred service providers among consumers.

2023: General repair shops surpassed dealerships as the most preferred service provider for the first time in the study’s history.

• General Repair Shops: 33%
• Dealerships: 31% (down from 35% in 2021)

COMPARING SERVICE VISIT SHARES:

Dealership Decline:

• 2021: 35%
• 2023: 30%

Growth in General Repair/Service Stations:

• 2021: 27%
• 2023: 28%

Increase in Quick Lube Visits:

• 2021: 11%
• 2023: 13%

IMPLICATIONS: The decline in dealership preference suggests consumers are increasingly seeking alternatives that offer better location convenience, competitive pricing, and personalized service.

EROSION OF TRUST

DECLINING TRUST LEVELS:

The trust that consumers place in their dealerships has seen a marked decline, which poses a significant challenge for the automotive service industry.

• 2023: Only 43% of consumers expressed trust in their dealerships, down from 54% in previous years.

IMPACT ON LOYALTY:

• Those Who Trust Their Dealership:
• Those Who Do Not Trust Their Dealership:

FACTORS INFLUENCING TRUST:

• Prior Experience: 46% of consumers cited positive past experiences as a reason for returning to their dealership.
• Cost Concerns: High service costs without transparent pricing have eroded trust.
• Communication: Lack of clear communication regarding service timelines and costs leads to dissatisfaction.

IMPLICATIONS: Dealerships must address the trust deficit by enhancing transparency, improving communication, and focusing on customer relations to rebuild and maintain loyalty.

PREPARING FOR ELECTRIC VEHICLE (EV) SERVICE

TRANSITION TO EV SERVICING:

As the automotive industry shifts towards electric vehicles (EVs), dealerships are recognizing the need to adapt their operations to meet the unique requirements of these vehicles.nbsp;

• Infrastructure Investments: 71% of dealerships have invested in EV infrastructure.
• Technician Training: 54% of dealerships have added technicians with high-voltage training.
• Resource Gaps: 58% of dealerships need more infrastructure, and 67% require more electrically trained staff.

EV SERVICE EXPECTATIONS:

Frequency of Service Visits:

• EV Owners: 2.6 visits per year
• ICE Vehicle Owners: 2.3 visits per year

Time Spent at Dealerships:

• EV Maintenance: 2 hours and 59 minutes
• EV Repairs: 3 hours and 42 minutes
• ICE Maintenance: 2 hours and 25 minutes
• ICE Repairs: 2 hours and 51 minutes

CHALLENGES FOR EV OWNERS:

• Higher service costs and longer wait times for EVs are major sources of dissatisfaction.

IMPLICATIONS: Dealerships must continue to invest in infrastructure and training while improving transparency and communication to build trust with EV owners.

KEY TAKEAWAYS

The automotive service market is poised for substantial growth, driven by two main factors:

GROWTH OPPORTUNITY:

• The aging vehicle fleet and the return to regular driving patterns present substantial growth opportunities for the automotive service market.

COMPETITIVE PRESSURES:

• Dealerships face increasing competition from general repair shops, quick lube centers, and body shops, which have gained consumer preference due to convenience, pricing, and personalized service.

IMPORTANCE OF TRANSPARENCY: Rising service costs and declining trust highlight the need for dealerships to prioritize transparency in pricing and communication to maintain customer satisfaction and loyalty.

CONCLUSION:

The automotive service industry is at a crossroads, with significant opportunities for growth alongside substantial competitive pressures. Dealerships must adapt to changing consumer preferences, invest in EV servicing capabilities, and rebuild trust through transparent and customer-focused strategies to secure their position in the market.

SOURCES USED:

Average Age of Vehicles

• Source: S&P Global M (S&P Global Mobility, 2024) - Average Age of Vehicles
• Details: As of 2024, the average age of cars and light trucks in the U.S. has reached a new record of 12.6 years. This increase is attributed to factors such as high new vehicle prices, persistent inflation, and consumer hesitation around the shift to electric vehicles.
• Link: S&P Global Mobility - Average Age of Vehicles

Vehicle Miles Traveled (VMT)

• Source : Federal Highway Administration (FHWA)
• Details: The FHWA tracks vehicle miles traveled (VMT) in the U.S. through their “Traffic Volume Trends” reports. The December 2023 report indicated a 2.2% increase in travel compared to December 2022, with an estimated 263.7 billion vehicle miles traveled.

Repair and Service Cost Increases

• Sources: Evolving Auto Aftermarket Consumer & Vehicle Trends Report : This report provides insights into trends affecting the automotive aftermarket, including cost increases due to supply chain constraints, labor shortages, and other factors.

Increase in Service Visits

• Sources: Evolving Auto Aftermarket Consumer & Vehicle Trends Report : This report provides insights into trends affecting the automotive aftermarket, including the frequency of service visits.

DIY Service Activity Sources:

• Sources: Jefferies 2023|2024 Global Automotive Aftermarket Review and Outlook: 2023 Report and? 2024 Report

Competition and Trust in Dealerships

The data on declining trust levels in dealerships comes from several sources:

• J.D. Power : 2024 U.S. Customer Service Index (CSI) Study : This study measures customer satisfaction with service at franchised dealers or aftermarket service facilities. It highlights issues such as longer wait times for appointments and the impact of parts and labor shortages on service satisfaction.
• J.D. Power : 2023 U.S. Automotive Brand Loyalty Study : This study examines brand loyalty among new vehicle owners, noting a decline in loyalty as vehicle availability increases and more choices become available to consumers.
• Cox Automotive Study: This study revealed a decline in trust towards dealership service, with only 54% of vehicle owners citing “trust” as a reason for returning to the dealership for service in 2023, down from 62% in 20211.
• DriveSure Report: This report also highlights the decline in customer trust and its impact on service loyalty.?
• Edelman Trust Barometer: ?The 2023 Edelman Trust Barometer provides broader insights into trust levels across various industries, including automotive2.

These sources collectively indicate a significant decline in consumer trust in dealerships, which has a direct impact on service loyalty and customer satisfaction.

Consumer Frustrations with Service amp; Dealership Preparedness for EV Service Sources:

• Evolving Auto Aftermarket Consumer & Vehicle Trends Report : This report covers topics related to consumer frustrations with service and dealership preparedness for EV service. Evolving Auto Aftermarket Report
• Electric Power Research Institute (EPRI) : EPRI conducts extensive research on electric vehicle (EV) infrastructure and service needs. Their reports provide insights into the requirements for EV service and the challenges faced by the industry.?
• National Renewable Energy Laboratory (NREL) : NREL’s studies focus on the infrastructure needed to support EV adoption, including charging networks and service requirements. Their reports offer valuable data on the current state and future needs of EV service infrastructure. NREL EV Charging Infrastructure

• Plug In America : Plug In America’s annual surveys provide insights into consumer experiences and frustrations with EV service. Their 2023 EV Driver Survey highlights issues such as broken chargers and insufficient charging locations. 2023 EV Driver Survey
• Consumer Reports : Consumer Reports’ studies on EVs cover various aspects, including maintenance costs and reliability. Their 2023 Annual Auto Reliability Survey discusses ongoing issues with EV charging and battery reliability. Consumer Reports 2023 Annual Auto Reliability Survey

These sources collectively offer a comprehensive view of the challenges and opportunities in the EV service landscape.

: IHS Markit (S&P Global Mobility): Federal Highway Administration (FHWA): Evolving Auto Aftermarket Consumer & Vehicle Trends Report: Consumer Price Index (CPI): U.S. Bureau of Labor Statistics: CCC Information Services: Mitchell International: NPD Group: NPD Group Research: The Freedonia Group: The Freedonia Group Research: J.D. Power 2024 U.S. Customer Service Index (CSI) Study: J.D. Power 2023 U.S. Automotive Brand Loyalty Study, Consumer Frustrations with Service & Dealership Preparedness for EV Service