The pre-Covid-19 (2019, IHS) total was 278M vehicles, with 84M of those older than 16 years by 2023 at an average age of 12.2 years. Disruptions in 2008/2010 and 2020 have disrupted an expectation of aging of about 4% longer life per year.
The threats are in the details of the numbers. Governments in many developed countries have set targets and aspirations to sell electric (and other new energy) vehicles in greater numbers towards a target of more than 50% of new sales by the 30s. Vehicle manufacturers are pledging at various levels to address those aspirations. Towards those objectives, USD$3T or more will be spent globally restructuring the vehicle industries and supply chains and transforming energy infrastructures.
The fundamental transformation of energy and vehicle sectors sees vehicle dealers in the USA as key players in contact with consumers seeing the transitions with immediate impacts. The impacts will be felt in investment costs, talent needs, and margins. In the near to mid-term, these look like this:
EVs have 20 – 30% fewer parts. This points to a gross revenue reduction for parts.
The mechanical aspects of EVs reflect a 20-30% reduction in parts count. The internal combustion engine (ICE) and many pneumatic, hydraulic, and mechanical subassemblies of vehicles aren’t present. This will most likely reduce the volume of service calls and parts sales from dealers as vehicles age.
Parts for older cars will become less available and grow more expensive. Service parts for older cars will become more difficult to procure.
Service costs to older vehicles increase as the ‘supply chain,’ and reductions in availability from traditional vehicle manufacturers reduce general availability. Even as the production rate for new ICE vehicles is reduced to EV production, the original equipment manufacturers in the traditional supply chains have reduced volumes and margins from manufacturers for new vehicle production. The OEM parts volume production capacity can’t simply be shifted to ‘pull inventory’ production methods. The ‘brand equity’ value touted by dealer associations of having parts to repair vehicles, even when no longer in production, will be substantially reduced by lower parts availability (as already seen during Covid-19 parts shortages).
As vehicles last longer, they will become increasingly harder to fix because of the lack of parts.
Longer life of vehicles has a side effect less obvious on the repair and parts supplies for older vehicles. The supply chain for parts from wrecked and worn-out vehicles is lower simply because there are fewer serviceable parts to recover. This has a larger effect on older than younger vehicles (such as 30% of vehicles older than 16 years in 2023) and puts additional pressure on younger vehicles. Even dealer service groups don’t maintain more than a fraction of the legacy parts for older vehicles no longer being produced, especially mechanical parts.
Vehicle repair costs will go up because of the cost of labor for repairing more complex vehicles. A $500 repair will become average, especially for older vehicles. In addition to the cost of parts, people with the skills to work on older, more complex vehicles will become scarcer and have higher wages.
Talent costs for repair technicians and related equipment will continue to increase as newer vehicles have a high electronics component level. The electronics will continue to increase as a proportion of service calls in ICE or EV vehicles. The legacy focus on certified mechanics with older vehicle skills will see more demands for the specific skills and training useful in dealerships, manufacturing, and generally in the wider economy. The increased talent costs will drive even a ‘one hour’ repair to have a labor and shop overhead of more than USD$200 without any parts costs. These costs will increase warranty costs to manufacturers and repair costs to consumers by up to 25% in the near term as the electronic complexity of vehicles increases.
The next post in the series will add four more reasons that Auto Dealerships in the US are coming under pressure over the next decade. You can find related posts on our web page at www.ekalore.com/alien-invaders
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