Auto Aftermarket to Decline in Wake of Clunkers

The now defunct CARS program, or Cash for Clunkers, requires that engines be disabled at the dealer and then the body shredded within 180s days. With 719,000 vehicles removed from the road, the auto repair business will suffer as an unintended consequence of the trade-in replacement program because it shredded vehicles in their prime repair years.

According to the latest research from the consulting group Frost & Sullivan, the net impact on the repair business will be felt largely in two areas — part sales and lost labor revenue coming from removal of the clunkers vehicles.

Consumers are unlikely to see much in the way of reduced maintenance costs as the actual number of vehicles replaced was quite small and geographically dispersed compared to the overall population.

There were no surprises last month in another Frost study, which showed that all minor maintenance is being performed less frequently compared with older data. This appears to be a direct result of the Great Recession, as vehicle owners are making small changes to save money, which seems to translate into longer periods of time or more miles between minor maintenance performances.

However, because scrap yards were allowed to remove starters and alternators from clunkers, cores for rebuilding should be readily available, meaning consumers might see substantial drops in prices for these parts.

Matt Scruggs, a Research Analyst with the Frost & Sullivan North American Automotive & Transportation Practice, told us that an estimated $32,556,257 in service business will be lost in 2009. The vast majority of financial loss will be taken by local or regional independent shops, specialty service centers, or tire company chains.

Car dealers will not be negatively affected since they remain in the best position to capitalize on maintenance and repairs because of their monopoly on warranty work. Moreover, they also will benefit form the increase in new vehicle sales, however fleeting it was.

The projected aftermarket retail parts sales decline in 2009 is higher, at $58,151,124, reflecting the higher prices of the parts used on the Clunkers. See the chart for examples of how smart Clunkers customers were.

The shift to frugal that started in July of 2008 as the current economic crisis unfolded is in evidence in the cars bought. In fact, all of the top trade-ins from clunkers were expensive to run and expensive to maintain domestic trucks.