Frost & Sullivan Product Report: Climate Control

The automotive heating, ventilating and air conditioning (HVAC) aftermarket is characterized by commoditization and low margins. In 2009, manufacturer-level revenues from compressors, condensers, evaporators, radiators and heater cores declined 3.2 percent year-over-year to $944 million. Units continued to grow at a slower pace, and average price decline was the worst since 2006 driven by proliferation of low-cost imported parts.

However, not all is doom and gloom for the HVAC aftermarket. Air conditioning and heating are now considered “must-haves” and customers expect them to be standard on their vehicles. The increase in number of light-duty vehicles in operation (DoT Class 1-3) from 266 million in 2009 to 280 million in 2015 will result in higher replacements in the aftermarket. As North Americans keep their vehicles longer on the roads, newer opportunities for HVAC repair and service will emerge. The average age of vehicles in North America is expected to increase from 9.5 years in 2009 to 10 years in 2015.

In a market where demand is high and competition intense, even a small differentiation in price or technology can result in huge shifts in market share. The challenge for the aftermarket is to meet this demand in spite of these shifts. At the OE level, there is emphasis on product innovation, resulting in HVAC systems with more capabilities. The result is that HVAC systems are becoming more complex technologically, more intelligent with automatic temperature control capability, and entail a higher use of electronics and computers. In the aftermarket, this results in the utilization of new components such as sensors, as well as the use of technologically improved existing components. Aftermarket technicians are therefore required to have a thorough understanding of the system design, and access to repair tools and replacement parts. Any delays from vehicle manufacturers to release repair-related information as well as scan tools hurts the aftermarket.

Another trend affecting the aftermarket is the shift to smaller and lighter vehicles to meet CAFÉ standards. Similarly, there is increasing emphasis on hybrid and electric vehicles (EVs). These vehicles will provide greater opportunities for sales and service of HVAC components than conventional automobiles. Since these units cost twice as much or more than a conventional belt-driven unit, they will result in higher revenues. Further, the heater systems on hybrids and EVs require a helper pump, sales of which can provide another potential revenue source for the HVAC aftermarket.

The current challenge for the aftermarket is the ability to bring in some form of differentiation for HVAC components – either in their design or capabilities. At the service level, it could be in the form of higher repair skills and access to the same tools and equipment that new car dealers have. Only then will the aftermarket be able to see premiums attached to HVAC components and service, build brand awareness, and drive industry revenues.