Is the Auto Parts Industry Booming or Failing?

Educational

Nov 25th, 2018

Is the Auto Parts Industry Booming or Failing?

In this blog post, we critically look at the automotive parts industry and investigate whether this industry is booming or facing a downtime.

The automotive industry is a large group of companies and organizations that designs, develops, manufactures, markets and sells automotive parts. Many companies in the automotive parts industry manufacture and produce vehicle parts such as engines, engine parts, tyres, batteries, body and chassis. 

The rise and fall of the auto parts industry have always gone hand in hand with the automobile industry. If the automobile industry collapses, then the auto parts industry will follow suit. To check whether the auto parts industry is booming or not, we have to consider whether the automobile industry is on the rise or going through a downtime.

Is the auto parts industry booming or failing?

The US automotive industry competes with automotive industries from other nations, most notably Germany and Japan. It also carries the burden of fuel economy as well as meeting government regulations on emission safety and control. 

The US automotive industry suffered massive losses due to the 1990–1991 recession, but there has been a tremendous turnaround in fortune in recent years. The increase in fuel prices, which hurt the sales of cars, has been solved through with relatively low fuel consumption cars and the production of electric vehicles.

In 1991, capital spending by the automotive industry in the US was estimated at $17 billion. Due to negative cash flow, it had to raise outside capital. It was a wrong time for these automotive companies as evidenced by a drop in their credit rating, making borrowing of loans more expensive and complicated.

Recent activities in the automotive industry

Great things have happened to the automotive industry recently that have led to a significant increase in production and, consequently, an increase in the need for automotive parts.

In December 2017, primary automotive dealers in the US recorded a total of $17 million in car sales, which was a slight decline from $17.55 million the previous year. This sales slide will result in a significant reduction in the sale of automotive parts. The last significant sales reduction occurred in 2009 when a major commercial crisis hit the automotive parts worlds. It was a horrific period: the US sales market plummeted to $10 million annually, and General Motors and Chrysler went bankrupt. If this decline continues until the end of the year, the automotive parts industry will suffer.

Past downturns in the automotive parts industry

The automotive parts industry is not new to downtimes – it has suffered bad times and enjoyed the good. It’s therefore in an excellent position to face any challenge posed by a reduction in sales of automobiles.

Increase in production of electric cars and their spare parts

The arrival of electric vehicles has been a significant factor in the decrease in sales of the automotive parts industry. Many car owners now prefer to purchase an electric car rather than purchase a spare part to fix their old car. The automotive parts industry is fighting back by pushing more electric cars parts into the market.

Globally, electric vehicles made up about 1% of the total sales of cars in 2017, with a drastic increase in percentage more recently. Chevy Bolt, Tesla and Nissan all produce electric cars. These companies have invested large amounts of money into the automotive parts industry, which is helping the industry stay afloat. 

Recently, Chevy Bolt recorded a colossal sale of 50,000 cars globally, which has increased demand in their spare parts. The Tesla Model 3 is in high demand globally. It has already recorded over 500,000 pre-orders this year, which has translated into a surge in demand spare parts.

Increase in demand for self-driving cars

Self-driving cars are on the rise in popularity. This has led to an increase in sales for the automotive parts industry. Waymo, Tesla, Uber and General Motors are all investing vast amounts of money in the development of these fantastic vehicles. Other automotive companies are conducting deep searches into automotive parts that will help them develop a brand-new set of self-driving cars. The recent development of the Cadillac Super Cruise required a whole host of spare parts.

Rise in road accidents

The recent increase in the number of road accidents can be traced to distracted driving. Many drivers now focus on their smartphones rather than the road, which has led to severe accidents. The increase in the number of damaged cars due to collisions has led to a higher demand for spares. 

Increase in online sales of automotive parts

It is expected that by the year 2020, the automotive parts industry in Europe will be earning nothing less than 20 billion dollars from online sales. Amazon has played a cogent role in driving up online sales of automotive parts. Many automotive parts companies now sell their parts in online retail stores like Amazon, Craigslist and eBay.

After considering all of these aspects, we can safely say that the automotive parts industry is currently enjoying a boom in sales.