By now, forecasters have arrive to conditions with the point that nobody could have foreseen 2020. The pandemic disrupted just about every trusted statistic, leaving professionals with practically nothing far more than economic fairy dust to carry make feeling out of coverage and convey the year into command.

But, likely into our present 12 months, we have all the indicative information to assess results. Persistent inflation, soaring fascination premiums, producing backlog, slowing GDP — flashing indicators all all over. Straightforward peasy proper? Not so quick.

In truth, there is minor agreement on nearly anything other than for the reality that we may possibly be heading into a economic downturn. We can’t even tell at this position if the contraction will be gentle or severe.

In a the latest CBC posting, BMO’s chief economist Douglas Porter summed up this predictive predicament for the present calendar year, contacting 2023 “a quite odd cycle.” The very same write-up acknowledged that “the overall economy is awash in contradiction and the info are really noisy.”

Automotive indicators from last calendar year deliver a excellent illustration of these inconsistencies. New motor vehicle sales volume was down in 2022. DesRosiers Automotive Consultants estimates there ended up 1.49 million vehicles marketed in 2022 — a drop of about 9 per cent from 2021, and the least expensive figures due to the fact 2009. But supplier profits and revenue ended up up, driven by higher margin for every auto and aspect profits. Some automakers even noted report incomes in some quarters.

Aftermarket section gross sales fared even greater. Month to month calendar year-above-calendar year revenue results (launched by Stats Canada, up to October 2022 annual final results not available as of creating) from Canadian automotive components, tires and components shops present regular double-digit advancement concerning 2021 and 2022. Sure, part rates went up significantly in 2022 on the back of inflation but the YoY will increase have been significantly increased – indicating both additional volume or income.

Will these opposing trends continue on into 2023? Will the Canadian automotive market — particularly the aftermarket — keep on to make revenue, despite the significantly shaky fundamentals? Or will this be a 12 months of pervasive reckoning?

In this article are my feelings on how the aftermarket may perhaps condition up this yr.

Aftermarket development will slow down

This may possibly sound like negative information, but it isn’t when you put it in context. We do not have complete 2022 numbers but (as of creating), but 10-month final results from car parts retailers propose that once-a-year progress was amongst 10 and 12 for every cent. This was another year of high growth, coming out of the lows of 2020. A 3-peat is not likely.

Latest financial facts stage to a slowing financial system as substantial interest premiums start off to weigh down on customer spending. It will have some influence on discretionary repairs. Inflation will also likely normalize to close to 4 to five for each cent, which will dampen the rate of selling price hikes. Each these components will impact aftermarket revenue.

On the flip aspect, new auto profits will keep on being depressed on the back of source concerns and soaring selling prices, inspite of considerably extra stable inventory. Even utilized auto profits are envisioned to flounder in 2023, in spite of slipping prices. Considerably less autos additional in a recessionary surroundings is typically compounded by unemployment and small motor vehicle usage. That will not be the scenario this calendar year.

Irrespective of the tech layoffs and tightening genuine estate, occupation vacancies continue being high – hovering around the million mark, in accordance to Statistics Canada. Folks might not be commuting as considerably but U.S. facts (in absence of Canadian numbers) from 2022 show that yearly kilometres are escalating at a wholesome rate. All these variables imply that the vehicle parc will go on to age and work generally, and will need to have restore and maintenance products and services, top to continuous demand from customers for auto store expert services.

Based mostly on these counter-indications, I count on the Canadian aftermarket to grow at about six to seven per cent in 2023.

Functioning expenses will continue on to increase

Each wages and labour shortages have continued to intensify given that the pandemic. The projected recession may seem to be like a reduction to companies — at least from the viewpoint of labour availability — but operators may well be in for extra impolite surprises.

Industries, these as the aftermarket, with a superior charge of hourly wage staff will continue on to experience employing difficulties. Deep-pocketed companies will outcompete scaled-down ones with additional desirable salaries and gains. Compound that with higher functioning costs, many thanks to latest fascination costs and prohibitive cost of goods, and you get a looming income killer.

Level of competition will intensify

This may perhaps seem to be like a cliché but listen to me out. In a restricted market, providers carry out the standard playbook — promotions, selling price wars etc. We saw truly minor of that in the very last couple of several years, but with provides and expenses stabilizing, we will inch closer to normalcy. If need drops radically, we could even see some rollbacks and weighty discounting in the latter half of the yr.

But the competitive arsenal will be distinctive in 2023 — a trend that will only intensify in the next couple of many years. What will different winners from losers this yr will be the pace and agility of market motion. The pandemic and source chain crisis quick-tracked aftermarket suppliers, distributors, and retailers into digitization.

Competitors who are continually ahead in this industry are leveraging e-commerce, facts, and automation to their benefit. They are getting faster and nimbler with their products, pricing, and placement approaches to take additional focused and regular actions. As markets tighten, these new investments will go on to broaden the gap concerning far more historically inclined companies in 2023 and over and above.

Kumar Saha is Toronto-based mostly vice president (U.S.)/Managing Director (Canada) of worldwide automotive info agency Eucon. He has been advising the North American automotive business for around a ten years and is a frequent conference speaker and media commentator.


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