Unusual dynamics through the pandemic, particularly regarding used vehicles, will continue to shape the number and type of vehicles on the road for the aftermarket to repair, according to Todd Campau, S&P Global Mobility’s Automotive Aftermarket Practice Lead.

In a wide-ranging presentation at the AIA Canada National Conference in April, Campau observed that there were signs of both the new car and used car markets returning to something approaching normal, but that there was still a way to go.

“The supply chain seems to be working its way out. And I actually would say that, while there are still challenges with unemployment and other things, I think Canada may be slightly ahead of the U.S. in coming out of the economic challenges [of the pandemic].

“We’re starting to see inflation in Canada softening. We’re starting to see GDP return more towards normal,” he continued.“The labour market’s a little tight for sure, but it seems like we’re getting back towards normal behaviour,” which is good for the aftermarket.

Campau cautioned that inflation was still a factor, however.“We’re still dealing with high costs, but those things are actually, in a way, good for the aftermarket, because people will often delay new vehicle purchases.” Instead, they’ll opt to repair the vehicles in their driveway. “And we, in the aftermarket, are happy to help with that,” he quipped.

He noted that although the aftermarket does compete with the dealer base in service business, and is enjoying the impact of tightened new vehicle supply and people holding onto their older cars, it also relies on new car sales filling the future aftermarket. And this, he says, is still rebounding.

“We’re not back to pre-2020 levels, but we are moving in the right direction. In three or four years, we think we’re going to eclipse that two-million unit threshold again. But it’s not without some challenges, and it has been a little slow in coming.

“This is not unique to Canada,” Campau added. “This is the story across the board. In the U.S., we’re starting to see a return towards normal numbers, but it was very challenged [during the pandemic], and I would say it’s pretty fragile. One of the things that I have personally learned is that a confluence of factors drive the aftermarket – maybe uniquely so, because we repair the vehicle for its whole life cycle.

“So I would say this [recovery] is still fragile. We think it’s going to continue in this direction, but we see big inflation. If we see big unemployment [rates] happen again and costs staying high, this could give the aftermarket a little bit of time. Globally speaking, we still have not recovered to pre-pandemic levels either. We were forecasting about a hundred million vehicles a year globally; we don’t see that coming until probably closer to 2030 again.”

Another significant factor, he noted, is the average age of vehicles on the road, which in Canada is 10.5 years, in significant contrast to the U.S. where it’s 12.5. Campau predicted that light trucks and SUVs would continue to encroachon passenger vehicle share, and observed that, although currently still small in numbers, EV buyers in Canada are opting for light trucks and SUVs at a much higher rate than U.S. EV buyers.

One of the most atypical events over the last few years has beenthe impact that a dip in the Canada-U.S. exchange rate has had on cross-border sales of used cars. With the focus mostly on five- and six-year-old vehicles, the advantageous exchange through parts of the pandemic fuelled a significant spike in used vehicles heading out of Canada and into the U.S.

“Prior to the pandemic, it was less than a hundred thousand a quarter, or about 300,000 a year. The pandemic shot that up; there’s a couple quarters that were almost 200,000 a quarter. That’s pretty significant. That’s about 1% of your fleet leaving per quarter, and that’s why your VIO number was [actually down]. It’s not a direct correlation, but when you see the exchange rate down here, the numbers seem to have moderated.

“We keep thinking we’re out of the used-vehicle crunch in the U.S., but new vehicles are still not moving the way they’d like them to. So those are two factors that I think are driving this. I think it will go back more towards [a figure] like 300,000 a year, but we need to see some of these other factors moderate them.”

He pointed out that, in reality, there’s not really much that the aftermarket can do to affect that migration. “I don’t think the aftermarket’s doing anything wrong. This is a function of economics. Enterprising U.S. companies are coming up here and saying, ‘I can buy a vehicle for $30,000 in Canada, because of the exchange rate, and sell it for $40,000 in the U.S.’ There’s not much the aftermarket here can do to retain those vehicles,because you can’t go give that person that money.

“So I think it’s really kind of just trying to block and tackle as best as we can. And hopefully the exchange rate goes down once the U.S. market gets back to normal. So we’re not losing them because of anything we’re doing. We’re losing them just because of the economics of the situation right now.”