North American Parts Aftermarket To Reach $53 Billion In 2006, New Study Predicts.

The North American aftermarket for light vehicle components and parts is projected to increase at an annual rate of 3.5 percent, reaching $53 billion by 2006, according to a new research study (See table 1).

Insert Table 1.

The study, Automotive Aftermarket in North America,

published by the Freedonia Group, found that the best growth prospects are for electronics products such as premium sound systems and safety controls. Gains will be tempered by product improvements made by the OEMs of light vehicles. However, opportunities will result as more of these vehicles reach prime aftermarket service age, which will boost demand for aftermarket products going forward.

Among the three countries in the region, Mexico will experience the fastest rate of growth, the study predicted.

Overall new product quality and resulting durability began to improve significantly during the 1980s, as new technologies and improved electronic systems were gradually introduced into the vehicle platform. As these vehicles penetrated the total vehicle population, they began to displace older vehicles which required greater levels of maintenance and repair.

In the years since, the aftermarket has experienced a resultant slowing of demand, which is likely to last at least several more years, Freedonia said. However, as these "new quality" vehicles continue to age, they will begin to require additional service and repair, and this will lift aftermarket demand between 2001 and 2006.

"New quality" vehicles typically exhibit service lives that are longer than those of "old quality" vehicles, which is reflected in the continuing increases in the average age of light vehicles in the park.

The largest product category in the aftermarket will continue to be mechanical products, which include non-electric/electronic engine hard parts and chassis, drivetrain and suspension parts and components, according to the study. However, growth will be limited by the improved part quality of these already highly durable products.

Electronic parts and components will witness the highest annual growth rates, a direct result of the continued transformation of the automobile from a mechanical machine with electronic enhancements into a software-driven device. Demand for electronic controls and modules will be strong, while demand for auto sound equipment could receive a significant boost from the advent of satellite radio, the study said.

Replacement rates for electrical parts will remain stable, with some categories seeing demand suppressed due to new technologies such as highly durable light emitting diode (LED) lighting.

The growth in the exterior and structural parts category will be comparatively low, a result of decreasing accident rates and the recent decision by the U.S. National Highway Traffic Safety Administration not to mandate stronger side and back window glass technologies, the study said.

The dominance of professional service providers -- the so-called do-it- for-me (DIFM) market -- will continue and grow, with new vehicle dealers showing surprising strength as they pursue additional share in the lucrative parts and service market, according to Freedonia.

The do-it-yourself (DIY) segment of the aftermarket will continue to lose share to DIFM providers as vehicles become increasingly difficult to diagnose and repair. An aging population less inclined to engage in vehicle repairs will also have a major impact on DIY demand going forward, Freedonia said.

The companies supplying parts and components to the North American aftermarket are currently recovering after over half a decade of intense merger and acquisition activity. Many of the remaining companies are significantly larger, but some have experienced difficulties both integrating acquisitions into their organizations and dealing with often excessive debt loads.

The acquisition rate has declined significantly since 2000, reflecting the cooling economy. In addition, several high profile bankruptcies in the sector have apparently given corporate leaders second thoughts about the prospects of achieving sustainable, profitable growth through acquisition, the study said.