MacKay & Company duo addresses economic softness, aftermarket projections for 2024

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Updated Jan 26, 2024
Bob Dieli presents at Heavy Duty Aftermarket Dialogue
MacKay & Company's Bob Dieli presents on the economy during Heavy Duty Aftermarket Dialogue Monday in Grapevine, Texas.

If the economy feels shaky, uneven or volatile these days, Dr. Bob Dieli says there’s a reason for that. The MacKay & Company economist says the U.S. economy has been in a boom period for a while. It’s heading for a peak, and once it gets there, things are going to change.

Speaking Monday at Heavy Duty Aftermarket Dialogue, presented by MEMA and MacKay & Company, in Grapevine, Texas, Dieli says the current business cycle has remained in its boom period for longer than anticipated. He doesn’t expect that to continue through 2024, and says MacKay & Company’s Enhanced Aggregate Spread (EAS) and Truckable Economic Activity (TEA) metrics indicate the year ahead will be the beginning of a slowdown.

How much of a slowdown? Dieli says that remains to be seen.

TEA, which has long been a predictive tool for economic fluctuations, is negative for five of its six main categories. Dieli says the only category not in the red is government activity, which he attributes to local and state spending due on infrastructure. EAS has also fallen into an area that generally syncs to a recession, though Dieli says there once was an incident in the past where the EAS was in a recession-adjacent range and a recession didn’t occur.

[RELATED: Mack's Randall says 2024 truck sales could exceed expectations]

Looking ahead, Dieli says once the business cycle peaks later this year, the economy’s decline could go in several directions. He says a soft landing is “possible but not probable,” and will be determined by how the Federal Reserve continues battling inflation.

Dieli says the Fed has been mood because of inflation for a while. The inflation experienced the past two years “was everywhere at the same time, which hadn’t happened in decades,” he says, and has made it tricky for bankers to pin down exactly where interest rates need to be.

Dieli says the Fed has chosen not to change interest rates at recent meetings (the next of which is scheduled next week) and could continue that pause in 2024 if the economy slows. And Dieli does note that while current projections for the year are negative, he doesn’t expect the economy’s bottom to drop out. A down year was due after so much growth from late 2020 through early 2023.

Travis Kokenes speaks during Heavy Duty Aftermarket DialogueMacKay & Company's Travis Kokenes speaks during Heavy Duty Aftermarket Dialogue Monday in Grapevine, Texas.

Aftermarket outlook better

Economic concerns will impact the aftermarket in 2024 but MacKay & Company’s Travis Kokenes says it appears the industry will outpace general economic conditions.

In following Dieli on Monday, Kokenes shared MacKay & Company’s numbers for last year’s sales and its most recent projections for 2024 through 2028. Kokenes agrees with Dieli’s assessment that 2024 will not equal the great years seen earlier this decade, but says price inflation in the aftermarket is returning toward historical norms and demand remains strong enough to keep the market from a downturn.

MacKay & Company’s final 2023 assessment for the North American aftermarket for Class 6-8 trucks and trailers was positive. Kokenes says the U.S. aftermarket was up 3.8% to $46.2 billion, with Canada up 3.2% to $5.87 billion and Mexico up 4.3% to $6.19 billion. Within the U.S., independent aftermarket operations were slightly stronger than OE dealer business, a shift after dealers had outperformed distributors the prior year. 

Price drove a lot of the continent's growth (the U.S. was up 3.9%), Kokenes says, but MacKay & Company expects price to have less of an impact on 2024 and beyond. He says aftermarket prices rose by 1.9% on average from 1990 to 2020. MacKay & Company is predicting a 3% increase in price in the U.S. this year but just 2% in 2025 and beyond. That normalization will lead distributors and their suppliers to earn higher profits even if top-line revenue growth rates drop from what has been seen the last three years.

[RELATED: Bain & Company experts shares how to business forecast in an uncertain economy]

And a 2024 downturn in parts sales isn’t inevitable. In fact, Kokenes says MacKay & Company is predicting a stronger year for the aftermarket in 2024 compared to 2023.

In the U.S., he says MacKay & Company is predicting the aftermarket for Class 6-8 trucks and trailers to be up 4.3% in 2024 to $48.2 billion with a compound annual growth rate (CAGR) of 3.6% through 2028. Canada is projected to be up 3.2% in 2024 to $6.06 billion with a 2.2% CAGR through 2028; Mexico rising by 3.3% in 2024 to $6.40 billion and 2.7% CAGR through 2027.

Kokenes also closed Monday’s session with insights from MacKay & Company’s surveys of fleet and aftermarket distributors to better educate the suppliers in the audience. He says price increases are the concern for both segments in 2024, with availability following, as well as regulation and regulation.

Kokenes says the supply crunch of the last year has fundamentally changed buyer’s habits in both markets. He says 55% of fleet and distributor survey responders admit they have sourced parts from a different vendor in the past few years due to parts availability, with the average number of purchases changed being 11%. Nearly half (48%) also changed suppliers for some components due to price increases. 

For vendors that want to win back that business, Kokenes says MacKay & Company’s research indicates there are things suppliers can do. In asking dealers and distributors how manufacturers can improve, Kokenes says 44% of MacKay & Company survey responders believe the best path forward is increased stocking levels and better availability, with 23% advocating for price controls or freezes (see image above). 

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