From the Journal: Column: Surprises galore in 2023
By now, forecasters have come to phrases with the truth that no person may have foreseen 2020. The pandemic disrupted each dependable statistic, leaving specialists with nothing greater than financial fairy mud to deliver make sense out of coverage and convey the yr into management.
However, going into our present yr, we now have all of the indicative knowledge to evaluate outcomes. Persistent inflation, rising rates of interest, manufacturing backlog, slowing GDP — flashing indicators throughout. Straightforward peasy proper? Not so quick.
In actuality, there’s little settlement on something aside from the truth that we could also be heading right into a recession. We will’t even inform at this level if the contraction shall be gentle or extreme.
In a latest CBC article, BMO’s chief economist Douglas Porter summed up this predictive dilemma for the present yr, calling 2023 “a really odd cycle.” The identical article acknowledged that “the financial system is awash in contradiction and the information are fairly noisy.”
Automotive indicators from final yr present an ideal instance of those inconsistencies. New automotive gross sales quantity was down in 2022. DesRosiers Automotive Consultants estimates there have been 1.49 million automobiles bought in 2022 — a decline of about 9 p.c from 2021, and the bottom numbers since 2009. However vendor income and earnings have been up, pushed by greater margin per automotive and half gross sales. Some automakers even reported document incomes in some quarters.
Aftermarket half gross sales fared even higher. Month-to-month year-over-year income outcomes (launched by Statistics Canada, as much as October 2022; annual outcomes not accessible as of writing) from Canadian automotive elements, tires and equipment shops present constant double-digit progress between 2021 and 2022. Sure, half costs went up dramatically in 2022 on the again of inflation however the YoY will increase have been considerably greater – indicating both extra quantity or revenue.
Will these opposing tendencies proceed into 2023? Will the Canadian automotive business — particularly the aftermarket — proceed to make cash, regardless of the more and more shaky fundamentals? Or will this be a yr of pervasive reckoning?
Listed here are my ideas on how the aftermarket could form up this yr.
Aftermarket progress will decelerate
This may occasionally sound like dangerous information, but it surely isn’t while you put it in context. We should not have full 2022 numbers but (as of writing), however 10-month outcomes from auto elements retailers recommend that annual progress was between 10 and 12 per cent. This was one other yr of excessive progress, popping out of the lows of 2020. A 3-peat is unlikely.
Current financial knowledge level to a slowing financial system as excessive rates of interest begin to overwhelm on client spending. It’ll have some affect on discretionary repairs. Inflation can even seemingly normalize to round 4 to 5 per cent, which can dampen the tempo of worth hikes. Each these elements will affect aftermarket income.
On the flip facet, new automotive gross sales will stay depressed on the again of provide points and hovering costs, regardless of much more secure stock. Even used automotive gross sales are anticipated to flounder in 2023, regardless of falling costs. Much less automobiles added in a recessionary atmosphere is often compounded by unemployment and low automobile utilization. That won’t be the case this yr.
Regardless of the tech layoffs and tightening actual property, job vacancies stay excessive – hovering across the million mark, in response to Statistics Canada. Folks might not be commuting as a lot however U.S. knowledge (in absence of Canadian numbers) from 2022 point out that annual kilometres are rising at a wholesome tempo. All these elements suggest that the automotive parc will proceed to age and function usually, and can want restore and upkeep providers, resulting in regular demand for auto store providers.
Based mostly on these counter-indications, I count on the Canadian aftermarket to develop at about six to seven per cent in 2023.
Working prices will proceed to rise
Each wages and labour shortages have continued to accentuate because the pandemic. The projected recession could appear to be a aid to companies — a minimum of from the angle of labour availability — however operators could also be in for extra impolite surprises.
Industries, such because the aftermarket, with a excessive price of hourly wage staff will proceed to face hiring challenges. Deep-pocketed companies will outcompete smaller ones with extra enticing salaries and advantages. Compound that with greater working prices, due to present rates of interest and prohibitive price of products, and also you get a looming revenue killer.
Competitors will intensify
This may occasionally appear to be a cliché however hear me out. In a good market, firms deliver out the standard playbook — promotions, worth wars and so on. We noticed really little of that within the final couple of years, however with provides and prices stabilizing, we’ll inch nearer to normalcy. If demand drops dramatically, we would even see some rollbacks and heavy discounting within the latter half of the yr.
However the aggressive arsenal shall be totally different in 2023 — a development that can solely intensify within the subsequent few years. What’s going to separate winners from losers this yr would be the velocity and agility of market motion. The pandemic and provide chain disaster fast-tracked aftermarket suppliers, distributors, and retailers into digitization.
Rivals who’re persistently forward on this market are leveraging e-commerce, knowledge, and automation to their benefit. They’re getting quicker and nimbler with their product, pricing, and placement methods to take extra focused and frequent actions. As markets tighten, these latest investments will proceed to broaden the hole between extra historically inclined companies in 2023 and past.
Kumar Saha is Toronto-based vp (U.S.)/Managing Director (Canada) of world automotive knowledge agency Eucon. He has been advising the North American automotive business for over a decade and is a frequent convention speaker and media commentator.
