Editorial: Not great, not grim, but gray

There is reason for optimism, there is reason for pessimism, but there is no reason to panic.

This was the general sentiment on the state of the aftermarket expressed last month during the 2008 Heavy Duty Aftermarket Week in Las Vegas. Distributors, suppliers and industry influencers painted in shades of gray what to expect this year as key areas of the general economy falter and trucking activity, particularly new truck sales and freight levels, perform worse than predicted.

Unfortunately, predictions were not very rosy to begin with. As presented last month in Truck Parts & Service’s economic outlook cover story, North American Class 8 retail sales were off about 45 percent last year, versus 2006. The crisis in the housing market has brought residential construction to a near standstill, weakening freight tonnage in a situation where there is already too much capacity. Yet, aftermarket activity was not hit nearly as hard. Distributors reported things were slowing down, but not commensurately with the rest of the industry.

During an editorial focus group we held during the show, distributors stated they were focusing on core business strengths and markets to weather the downturn, rather than looking at opportunities for expansion. That will come. It is a cyclical industry, and what goes up must come down. We are coming off a string of very good years.

Of course, the outcome of 2008 and beyond rests largely on the economy righting itself. This may likely happen later rather than sooner. The economic equivalent of a four-letter word was uttered by vice president and chief economist of the U.S. Chamber of Commerce, Martin Regalia, during Heavy Duty Dialogue ’08, which preceded HDAW. He said that while over the last 100 quarters there have been only five with no growth in real GDP, that total is probably going to be added to as a possible recession lurks ahead.

However, “There is a light at the end of the tunnel that is not attached to an on-coming train,” he said, citing strong exports and continued foreign investment as brighter spots.

Even during a downturn, there is still business to be had and money to be made. Speaking at the Heavy Duty Aftermarket Forum at HDAW, MacKay & Company vice president Dave Fulghum said the commercial vehicle aftermarket is a $53.1 billion industry (including light through heavy trucks, as well as agricultural and construction equipment). MacKay & Company president Stu MacKay illustrated the opportunity for distributors by saying there are 2.7 million Class 8 trucks, 1.7 million Class 6-7 vehicles and 3.6 million trailers in operation, equating to $15.6 billion in aftermarket retail. There were also 484 million service labor hours racked up last year.

MacKay broke the 2.7 million heavy-duty units down into 1.6 million operated by the initial owner and 1.1 million in use by second and third owners. He predicted this universe to grow by 2011 to 1.7 million first-owner vehicles and 1.3 million used trucks, and 2 million and 1.6 million, respectively, by 2016. This would inflate the potential aftermarket opportunity to $20.3 billion in today’s dollars.

If it holds true, that’s nearly $5 billion in growth in aftermarket volume during the next eight years. Not explosive, but not recessionary either.

So utter a few choice four-letter words during the months to come, of the economic variety or otherwise, and continue to do the things that make your business successful. This too shall pass.

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