AUTO PARTS INDUSTRY – UNITED STATES

AUTO PARTS INDUSTRY – UNITED STATES

Consumers of automotive parts are likely to be married, Millennial men. They are heavy internet users, who watch automotive videos on YouTube, and turn to Instagram for visual stimulation. They follow new car trends and are more likely than their older counterparts to consider themselves car enthusiasts. These consumers perform extensive research online before making a purchase and look for detailed information, particularly on vehicle fitment. They respond well to video content, trust online reviews, and are looking for cheap options. The B2B segment is becoming more optimistic as the pandemic’s impact diminishes, despite current supply disruptions. The e-commerce market share is increasing due to the crisis, and Amazon is a significant threat to auto part retailers. Meanwhile, repair shops and dealers are purchasing value-oriented auto parts to respond to consumer demand and supply disruptions.

Consumer Profiles

  • B2C buyers of auto parts tend to be DIY consumers, especially for auto retailers, as DIFM consumers typically rely on shops to provide the parts. Most studies, articles, and research conducted on the B2C segment refer to DIY consumers; therefore, the profiles were mostly based on them.

Demographic Profile

DIY consumers

Psychographic Profile

  • The psychographic profile was created using information from different consumer groups that compose the B2C auto parts segment. Since sources covering the topic tend only provide small pieces of data or are limited to one aspect of the profile, we gathered multiple sources covering these groups to achieve a robust report. The consumers used were DIY auto parts consumers, car enthusiasts, and millennial men. Nonetheless, to prevent any interpretation errors, the consumer used for each insight was fully noted.

Habits

  • Buyers of auto parts are likely to be heavy internet users. They like to watch movies and TV shows online, and to listen to podcasts.
  • These buyers are likely to be on social media to network with other professionals, find out about movies, TV shows, and events, support their favorite brands, and meet new people. YouTube is their favorite social media platform, followed by Instagram and Facebook.
  • YouTube is especially popular for automotive content among Millennial men, as they tend to be the largest audience of the top channels in the United States, including Jay Leno’s Garage, Regular Cars, Saabkyle04, ChrisFix, MotorTrend Channel, Donut Media, and Scotty Kilmer.
  • Auto part buyers tend to believe the internet is a good place to meet new people, especially those who share their interests.
  • Millennial men usually conduct independent research, check online reviews, and place more trust in user-generated content. This is particularly true for Hispanic millennial men, a rising demographic for auto part retailers.
  • Auto enthusiasts turn to Instagram when looking for visual stimulation, seeking both vintage and new releases. Some noted that the platform is a great place to post “curated photos of their own cars and hard work on the vehicles, like detailing.”
  • Auto Enthusiasts on Instagram are “2.6x more likely to view videos on the platform vs. the US Instagram population.”
  • US male auto enthusiasts usually use simple hashtags to describe their passion. The most common ones, according to Facebook are #cars, #car, #carporn, #newcar, #automotive. It is interesting to note the difference between genders. The hashtags most commonly used by US female auto enthusiasts are #newcar, #blessed, #winning, #momlife, #adulting.
  • Eighty percent of auto enthusiasts are interested in sports cars, 74% in luxury cars, and 63% are interested in auto shows (pre-pandemic survey). According to Facebook IQ, the top interests expressed by the group on Instagram reflect an interest in both performance and aesthetics.

Attitudes

  • Millennial men like to follow brands that post informative content, particularly content that serves as an inspiration or provides good advice. They are also more likely to follow a brand because their friends follow it too.
  • Millennials are more likely than older generations to have taken a pay cut or been laid off because of the pandemic. Black and Hispanic Millennials are even more likely to have been affected by layoffs. These consumers were already struggling with debt before the pandemic hit, and are now in a worse position. They never fully recovered from the Great Recession, and are now sustaining further economic losses, which could be one of the reasons why they are favoring DIY alternatives.
  • Millennials auto part buyers love innovations and new car trends. They are also willing to participate in rewards and loyalty programs, especially if they can access it using their smartphones.
  • Auto enthusiasts often call themselves “car guys.” According to AdWeek, these consumers are “four times more valuable to auto marketers than the average consumer.” They like to share car and parts information online and show their new equipment and improvements.
  • Click-through rates of auto enthusiasts are almost six times the Google average, and social video engagement is 60% higher than average. “The real key is targeting them when they’re consuming content that they’re passionate about. You do better when you talk to an enthusiast when they’re in the middle of enthusiast content rather than in a Google ad in the wild.”
  • Moreover, these consumers become references for others consumers, and people are 3x more likely to come to them for advice before making a purchase.

Values

  • According to a profile designed by IMR in 2017, Millennial DIY auto parts consumers are less likely to believe that “Buying American” is important. However, research shows that during downturns, automotive consumers tend to favor locally produced parts and vehicles.
  • Buyers of auto parts believe they are more connected to their ethnic heritage than their parents, and like when they see celebrities and influencers that represent this heritage.
  • Millennial men are more likely to marry someone from a different racial or ethnic background than their older counterparts.
  • Enthusiasts tend to believe that life should be fun.
  • Millennial men are heavily influenced by their peers. When their friends agree with their choices, they feel more excited about their decision (70%), and a large share prefers to only make critical decisions after discussing it with people they trust (68%). They also like to be well-informed before making a decision.

Hobbies

  • Consumers of auto parts are likely to be car enthusiasts, and as such, they enjoy automotive shows. Some of their favorites are Twin Turbos, Vegas Rat Rods, and Street Outlaws.
  • They like to watch TV on mobile devices, including free TV programs, streaming services, and live sports. Among their favorite sports to watch on TV are NASCAR Xfinity Race, WWE Smackdown, and Inside the NBA, as reported by IMR.
  • Auto part buyers are likely to enjoy fishing, hunting, football, basketball, camping, outdoor cooking, and soccer. They are interested in Monster Trucks, NHL, WWE, and NASCAR.

Consumer Profile

  • Prior to the COVID-19 pandemic, auto part consumers were starting to embrace DIFM repairs. However, the current situation and economic uncertainty surrounding it led to more Americans adopting a DIY mentality, driven by time availability and online resources, such as tutorials that help identify parts and videos explaining the installation process.
  • It is still unclear whether consumers will maintain this mentality once things return to normal; some predict that the DIY trend will fade away. For now, DIY consumers are the driving force behind sales of auto parts, particularly for auto parts retailers.
  • The pandemic also slowed car-buying intentions, putting consumers in a “wait and see” mode, which is expected to further drive the auto parts market. For reference, Millennials planning to buy new cars are looking for larger cars built locally rather than imported. The same behavior was observed during the 2008 Recession.

Research and Buying Process

  • Ninety-three percent of auto parts buyers do research before buying, regardless of buying online or brick-and-mortar retailers. Eighty-two percent based their decision on a brand’s online presence, and 57% go to a manufacturer’s website during their shopping journey.
  • Online search is the most common research path (74% of parts and accessories consumers), followed by auto parts retailers websites (73%), manufacturer websites (57%), and automotive forums (47%).
  • Part buyers (94%) are looking for detailed product information. When visiting a manufacturer site, they are searching for vehicle fitment info (84%), installation info (57%), warranty information (44%), and dealer locations (40%). Findings from a DIY focus group shows that these consumers are looking for help, not sales pitch when doing online research.
  • It’s common for “auto parts and accessory websites to have more than 65% of total traffic on mobile devices.” Mobile transactions are also increasing in the United States and Hedges Company predicts auto parts transactions will reach $10.4 billion in 2020, a 40% increase over 2019 when they moved $7.4 billion.
  • Cross-device conversions are driving this increase, as shoppers typically visit a website multiple times before making a decision. The mobile phone is usually the last device used to buy the product.
  • Another study analyzed 7,000 auto parts keywords for their rankings on Google and compared their click-through rates (CTR). It discovered that automotive “keywords ranked at #1 have an average CTR of 20.5%, but keywords ranked #10 only had an average 5% CTR.”
  • When it comes to searchers, technical auto parts search, such as “What does a reverse rotation turbocharger do?” can significantly improve organic rankings. “Technical automotive search terms with a #1 ranking had an average click-through rate of 24%. Technical automotive search terms that were ranked #1 had a 585% higher CTR than technical search terms ranked #10.”
  • Erick Candelero Griscenco, Agency Development Manager at Google, states that video searches are becoming more relevant, as consumers are using videos in their decision-making process. He further adds, “Any savvy e-commerce auto parts marketer should be considering how to include video in their mix to drive successful campaigns in 2020.”
  • Chris Fellows, Director of Internet Solutions at Direct Communications, Inc. (DCi), echoes Griscenco’s statement, saying that video content is the next big thing for the industry, as more people “watch videos, rather than read text. Installation, features, sound; whatever you can do to better capture the audience to describe the product, the more engaged the customer will be.” However, he notes that a decent description data is still necessary.
  • Furthermore, DIY consumers are more likely to buy wiper blades (65.2%), batteries (63.4%), air filters (38.9%), brake shoes/pads (23.7%), brake discs/rotors (31.2%), body repair parts (20.3%), and oil (16.5%).

Influences

  • DIY auto parts consumers tend to trust online reviews and other DIYers opinions. They also consult multiple sources, including retailers and manufacturers’ content, before making a decision. For instance, consumers of specialty parts and accessories usually search for information online, although word-of-mouth is still relevant:

Millennials

  • Consumers of auto parts are not likely to be loyal to a brand and are willing to change brands for variety or novelty features. In particular, Millennial DIY consumers are likely to be influenced by the latest trends and celebrity or influencers endorsement.
  • These consumers also enjoy personalizing their vehicles to reflect their individual tastes.
  • Researchers examined website transactions at auto parts and accessories websites in the United States and Canada from 2017 through mid-2020. They discovered that site speed had the most significant impact on conversion rates.
  • Other factors influencing conversion rates include well-managed email marketing programs, market segment, pricing, and user experience (e.g., site navigation, data protection, and keyword search).
  • One study analyzed data from the Great Recession and from 2019 to predict how the pandemic will influence consumer behavior in the upcoming months. They discovered that as a rule, during a crisis, consumers change their automotive service behavior. DIY becomes a preference, and when it is not possible to fix it themselves, they will probably choose aftermarket outlets for service.
  • For example, during the 2008 Recession, auto parts wholesalers (+22.7%), repair specialists (+7.8%), auto parts retailers (+7.8%), national repair chains (+7.2%), and independent shops (+6.5%) were the biggest winners. Meanwhile, discount store-mass merchandisers (-10.9%), new car dealers (-8.2%), collision repair shops (-8.3%), and quick lube specialists (-7.6%) all lost share during the downturn.

Pain Points & Drivers

  • In August, IMR asked consumers what they would do if their vehicle needed maintenance or repair today. They were most likely to search for cheap options (41,1%), research reviews for vehicle repair shops (41%), research auto parts brands (39.4%), purchase parts from marketplaces (33.3%), and repair themselves, even if they have never done it before (29.8%).
  • Price was already an important factor for 44.9% of auto parts consumers in 2019, and only 63.6% stated they were willing to pay more for higher quality auto parts.
  • Only 31.7% of consumers stated that they did not know the difference between auto parts brands in 2019, and 38.6% of consumers said they go to the most convenient auto parts store when shopping.
  • A 2014 study examined the consumer profile of US auto parts consumers. Although the study is older than desired, it has some unique insights that are likely to stand the test of time, especially considering it already focused on millennial men as a target audience. Insights related to device use, social media platforms, and others prone to be affected by the years were not included.
  • The study discovered that online automotive part shoppers have a different consumer behavior than the overall population regarding their buyer journey.
  • Purchasing intent makes a difference. Those buying parts for replacement purposes are more likely to search for deals and are usually more focused, meaning that they know what they want from retailers and are not as likely to make additional purchases. Consumers buying parts for upgrades, on the other hand, are more interested in buying other products during checkout. However, they are also more likely to make returns.
  • Online automotive parts shoppers are more decisive than the general population of online shoppers. They go into the buying process with a “solid understanding of their specific product needs and are willing to wait for their purchases. These shoppers will wait for an average of eight days to receive purchases and four additional days for free shipping.” They are also less likely to make returns than the overall consumer.
  • These consumers expect convenient and flexible shopping experiences during the path to purchase. They want easy checkout processes, easy returns, and determined delivery dates. On the post-purchase side, “70% report viewing a retailer’s return policy before making purchases, further indicating the importance of providing information across every stage of the shopping experience.”
  • Moreover, they usually compare prices and other features during the process, including reading reviews from third-party sources, going to retail sites, checking consumer reports, and social media.

DIFM Consumers

  • DIFM consumers of automotive aftermarket parts have a slightly demographic different profile, and is the only segment in which older consumers take the lead.
  • They are likely to be in the 60+ group (28.8%), closely followed by those in the 30-39 age bracket (22.8%). These consumers are also more likely to be college graduates, with household incomes over $100,000 (25.8%). Single females surpass single males in this segment (24% versus 16.3%); however, married consumers are the most prevalent (59.7%).
  • Traditionally, DIFM sales come from professionals and the service repair industry. However, with the vast amount of online information available and e-commerce platforms, some consumers may choose to buy their own parts and then pay for labor. They are also known as “install-it-for-me” consumers, and independent repair shops report they only account for 4.6% of customers.
  • DIFM consumers in the B2C segment can be divided into those who go through the entire buying journey themselves, but do not actually perform any repair, and those who buy the parts indicated by repair shops and mechanics. Either way, they pay for labor.
  • Brand and brand awareness usually carry less weight for DIFM consumers, as they tend to listen to the professionals who will perform the service. They may not even know or recognize the brand name or the retailer, and even when they buy directly, they are usually just buying the part indicated by the repair shop.
  • Some online portals offer a package deal, in which the consumer buys the part and book the service at the same time. Research suggests that auto part retailers are using this tactic to expand their DIFM sales.
  • New car dealers had the largest market share of the DIFM market in 2019 (23.2%), followed by independent repair shops (19.5%), quick lube specialists (12.3%), auto parts retailers (10%), tire dealers —auto repair (8.5%), and discount/mass stores (6%).
  • The primary reason DIFM consumers chose an outlet is a good prior experience (43.2%), convenient location (15.1%), their trust in a store/shop (13.6%), and low prices (9.1%).
  • DIFM purchases generally include more complex parts, such as “computers and emissions components to exhaust systems.” DIFM buyers gravitate towards retailers with a wide range of shipping options, as timing and pricing are priorities.
  • Research suggests that DIFM consumers are not as enthusiastic about their vehicles as DIY consumers. For example, DIY consumers are five times more likely than DIFM consumers to perform or have someone else performs maintenance on their vehicle at least once a month. In contrast, DIFM consumers usually do it every two to six months. However, it could also be a result of DIY consumers usually owning older cars.
  • Before the pandemic, some estimated that auto part retailers would prioritize commercial business sales, with strategies to attract more DIFM consumers (repair shops and mechanics). For example, Advance Auto Parts rolled out Advance Pro, an e-commerce engine for professional customers.
  • DIFM buyers are usually more connected to the B2B segment. Although they account for a larger share of the aftermarket industry as a whole, the same is not necessarily valid for auto parts retailers. For instance, in 2019, even before the pandemic and the increase in DIY, 80% of AutoZone’s sales “came from retail clients (DIY) and 20% from professionals (DIFM).” Advance Auto Parts usually has a 60% DIFM and 40% DIY revenue share, while NAPA reports a 70% DIFM and 30% DIY revenue share.

Auto Parts Industry — B2B Segment

  • The auto parts market was undoubtedly affected by the COVID-19 pandemic. However, it has shown greater resilience than other verticals. Even in the B2B segment, which is still not showing the same strength as the B2C segment, particularly for large auto part retailers, the sector shows signs of recovery, and players are optimistic. The pandemic is further driving some other disruptions and business activities, such as repair shops purchasing private label parts, e-commerce, and brick-and-click business models.

Insight #1: The Impact of COVID-19

  • The automotive aftermarket was considered an essential industry in the United States, and, therefore, exempt from shelter-in-place orders, albeit implementation was somewhat inconsistent between states and municipalities.
  • COVID-19 affected the aftermarket industry across the entire chain, from manufacturers and shops to distributors and retailers. The initial impact was intense, but the market started to rebound, and retailers and B2B consumers are more optimistic now.

COVID-19

  • B2B sales started to see an improvement in May, but they are at a more gradual pace than DIY sales. Nonetheless, professionals sales are strengthening, “generating robust comps above expectations in May and June as stay-at-home orders began lifting and the broader economy began reopening.”
  • McKinsey predicts that “The potential uplift from DIY will be limited, because not all consumers are able to repair vehicles themselves. Upcoming vehicle generations and technologies will decrease the ranks of DIYers even further,” which should increase B2B sales.
  • Startup Wrench reported that more fleet owners are now opting for “touchless, app-scheduled services and quick turnaround times.”
  • Auto parts wholesalers are facing supply chain challenges as manufacturers begin to file to bankruptcy protection. Michael Robinet, executive director of IHS Markit, expects more auto suppliers to file through the rest of 2020. He also expects “some consolidation in the supply base.

Insight #2: B2B E-commerce

  • Overall, the US auto parts e-commerce market share exceeded the original 2020 forecast, and is now projected to reach $16 billion total revenue, a $1.9 billion incremental from the original prediction.
  • Amazon alone is forecast to pass the $10 billion in the overall aftermarket parts category in 2020, with auto parts, accessories and car care products accounting for $8.3 billion and OEM replacement auto parts sales accounting for $1.9 billion. Hedges Company predicts that Amazon would be higher than that “if they didn’t put their emphasis on health care supplies during the pandemic.”
  • The B2B auto parts segment was one of the early adopters of e-commerce. Since the “dot-com era, auto parts distribution has seen steady online sales growth.” However, over the last few years, the segment is flourishing, driven by Millennials and B2B marketplaces.
  • Auto parts suppliers were already accelerating B2B e-commerce back in 2017, aiming to attract more “repair shops, corporate fleets, retailers and other business customers.” At the time, B2B consumers were demanding more self-service ordering options, and suppliers were trying to keep up with online marketplaces, such as Amazon.
  • In 2019, diversified distributors, such as Genuine Parts Co., presented strong B2B e-commerce auto parts sales. Paul Donahue, chairman and CEO, said that “revenue growth under the company’s flagship NAPA brand is being driven mostly by sales to commercial customers through the NAPA AutoCare Center network of repair shops and the Major Accounts group of commercial customers including corporate and government fleets, auto parts and tire merchants and repair services chains.”
  • Despite its growth and the presence of tech giants, the B2B auto parts e-commerce landscape is still “extremely fragmented.
  • Not all B2C players are equipped to enter the market, as a platform for B2B clients is more complicated than the typical B2C platforms, as retailers need to identify customers by associating them to a location or business entity, “accommodate the roles and privileges in the customer’s workflow, and display personalized content with customer-specific pricing, product mix, and relevant terms.”
  • The customer-specific B2B pricing requires live pricing and inventory calls to the ERP. These consumers tend to have specific rules, custom catalogs, tier pricing, payment on account, and cart to quote requirements.
  • For example, Macpek, a heavy-duty truck parts distributor, updated its B2B website to include a real-time inventory checker, quantity pricing with 63,000 matrix combinations, centralized product information, smart search features, and mobile-friendly features. As a result, it saw an 86% increase in online revenues.

Marketplaces

  • Although automotive marketplaces have been around for a long time, even in the B2B segment, they are now securing higher adoption as a new generation of procurement leaders takes over the workforce. A major automotive OEM explained to McKinsey, “I’m glad our CPOs pushed the marketplace idea for indirect procurement. It has increased our competitiveness, both in unit prices and in our choice of suppliers—and it has expanded our knowledge of suppliers and markets. Our results have been so positive that the company is now considering scaling our program to include some of our direct-spend items.”
  • Marketplaces are attractive to commercial buyers because they usually offer a “wide selection of products, better price transparency, lower prices due to competition between third-party sellers, and centralized trading portal.”
  • Amazon is the “elephant in the room.” Automotive is the second strongest vertical on Amazon Business, with over 16 million products listed and 58,000 sellers. Amazon currently offers 400x the number of auto parts when compared to the leading incumbent distributor. Some believe the tech company will eventually swallow auto part retailers.
  • However, other auto parts marketplaces startups in the US are gaining traction. Some operate on a scale that suggests that they can potentially stand up to Amazon, albeit the later is still growing faster.

Insight #3: The Brick-and-Click Model

  • Despite the exponential growth of e-commerce and digital influences, a significant share of consumers still prefers the “human element and tangibility of an in-person experience, when it comes to the actual transaction.”
  • Auto retailers are adopting an omnichannel experience, known as the brick and clicks model, involving the “operation of a retail company via an online or digital store (clicks) as well as a physical establishment (bricks), thus combining both into a single retail strategy.”
  • On the B2B side, online-only retailers partner with physical suppliers and services providers to deliver the model. For example, an auto part retailer engages buyers using targeted website content but then connects them to in-person centers for purchase completions.
  • With Amazon further expanding its auto parts B2B market, research suggests that retailers will have to improve their offers, “providing expert service, and making partnerships with retail partners and manufacturers.”
  • For example, Advance Auto Parts started to offer in-store pickups of online orders after Amazon entered the scene.

Insight #4: Economic Uncertainty and Value-Oriented Auto Parts

  • In the past, economic uncertainty led to a spike in demand for value-oriented auto parts in the B2C and B2B segments. The same is happening today. According to Vertical IQ, even dealer repair operations, “which historically have only sold OEM parts, are providing more aftermarket options.”
  • Independent automotive repair shops are increasingly purchasing private label/store brand parts. In 2018, only 33.4% stated they had increased their purchases of these parts. In 2020, 65.8% reported the same. Today, 45.4% of repair shops part purchases are private label/store brand parts.
  • Furthermore, 68% of repair shops expect to increase their purchase of private label parts over the next year, mainly driven by consumers’ desire to save money due to the pandemic.

Private Labels

  • Better availability is also an important driver, as repair shops are struggling to get parts on time and find suppliers. When asked about the top challenges they expect to face for the remainder of 2020 at the end of May, getting parts on time was the third most mentioned challenge.

Repair Shops

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