Aftermarket Revenue to Fall by 10% This Year, Industry Analysts Estimate

This story appears in the Aug. 31 print edition of Transport Topics. Click here to subscribe today.

The heavy-duty aftermarket industry, which had passed through the previous two recessions relatively unscathed, has been hit hard this time, with one analyst saying revenue will be down 8% to 10% this year compared to 2008, which itself suffered a 4% drop from 2007.

“The aftermarket started to decline when the financial crisis hit last October and continued to fall through all of this year, though it has now stabilized,” Jeff Wallace, general manager of parts, sales and marketing for Daimler Trucks North America, told Transport Topics.

DTNA, a subsidiary of Germany-based truck maker Daimler AG, builds Freightliner and Western Star trucks, plus Detroit Diesel engines.

“Much of the decline was tied directly to the macroeconomic situation of both collapsing credit and sales, which was a global phenomenon,” Wallace added. “The current repair behavior and current macroeconomics have really distorted demand.”

He said that with freight tonnage going down, fleets responded by downsizing the number of trucks or parking unused ones.

“Fleets have been reluctant to spend money on repairs and have been cannibalizing vehicles for parts rather than buying them,” Wallace said.

Wallace estimated that the truck aftermarket had been a $15-billion-a-year industry in retail sales and service before the recession.

Stuart MacKay, president of MacKay & Co., Lombard, Ill., said it was the worst market in 20 years.

“The good news in the aftermarket is that it is not anywhere as bad as the new-truck market,” MacKay told TT. “In the past two recessions, the aftermarket didn’t experience a drop in revenue — just a flattening out — but for the first time in 20 years, we have seen a drop.”

MacKay & Co. is a research and consulting firm in trucking and other heavy equipment, which also focuses on the aftermarket.

Class 8 new truck sales in the United States have been down 33.3% through July, compared with the first seven months of 2008, according to WardsAuto.com. New truck sales fell 11.6% for the entire year of 2008, compared with 2007, which also was a down year, Ward’s said.

“The forecast for the 2009 heavy-duty aftermarket is that it will be down more than 8% but probably not more than 10% by year-end from 2008,” MacKay said. “That decline comes after 2008, which was down about 4% from 2007.”

Timothy Kraus was more optimistic. Kraus is president of the Heavy Duty Manufacturers Association, Research Triangle Park, N.C., which represents many of the truck component makers.

“The companies that are focused on just the heavy-duty aftermarket are doing very well, down only 2% to 4% this year over last, while the original equipment manufacturers are down well over 30%,” Kraus told TT.

“The companies that are doing especially well are into the suspension and chassis markets, as well as braking and brake linings, and companies that make preventive maintenance products,” he added.

Volvo Trucks North America and Mack Trucks Inc., both subsidiaries of Swedish global truck manufacturer Volvo AB, agreed with Mac-Kay that the current downturn was an anomaly.

“The overall parts market has contracted this year, due to lower equipment utilization,” VTNA spokesman James McNamara told TT. “This is unusual, and we have not witnessed such a contraction in many years.” 

“In addition, the parts market has also been negatively impacted by continued lower truck sales, new and used,” McNamara added.

“Parts volumes, which are traditionally countercyclical, have been running lower than usual this year with such dramatic truck underutilization,” Mack spokesman John Walsh told TT. “Vocational truck utilization is lower than that of the overall trucking industry, due to reduced construction activity on a national basis. This, of course, has a corresponding effect on Mack’s aftermarket business.”

Mack specializes in building vocational trucks.

“In addition, lower levels of both new and used truck sales reduce the opportunities for sales of other components, such as dealer-installed driver amenities and auxiliary power systems,” Walsh added.

DTNA’s Wallace said exports of aftermarket products also were down.

“Exports make up a significant part of the aftermarket, and our export business is down a little bit more than domestic business,” Wallace said.

He said Daimler’s largest foreign markets were in Australia and New Zealand, followed by Latin America.

Wallace and MacKay were optimistic about a turnabout beginning next year.

“The recovery that we’re all hoping for, we expect to begin to see late in 2010, and we’ll be in a much better position in 2011,” Wallace said.

 “We anticipate the aftermarket in 2010 will rise from 2009 levels by about 8%,” analyst MacKay said.