Automotive Aftermarket Overview: Positioned for Success post-COVID-19

The COVID-19 pandemic has disrupted virtually every corner of the world, and has brought much economic activity to a virtual standstill. Yet many industries with historically strong and stable fundamentals are good candidates to bounce back quickly once recovery begins, and the leading players in those industries remain attractive investment opportunities. The automotive aftermarket is a great example.

This sector—which consists of all vehicle post-purchase products and services, ranging from oil changes to transmission replacements—is large, expanding, and resilient. Since 2000, it has grown at a 3.9% CAGR, and was able to hold its own during prior recessions.1 For example, between 2007 and 2009 the automotive aftermarket grew 1.1% while U.S. GDP remained flat—and quickly and sharply rebounded to pre-recession levels after that.2

Several converging factors are driving strong demand in the sector:

  • Increase in the number and age of vehicles in operation, which hit 16-year highs of 278 million and 12.2 years, respectively.3 More older cars on the road means greater need for aftermarket repair and maintenance.
  • Continual rise in the miles American vehicle owners drive each year, which jumped from around 2.8 billion in 2003 to more than 3.2 billion in 2019.4
  • Non-discretionary nature of a large portion of aftermarket purchases: Owners need replacement parts and service if they want to keep their vehicles on the road.

The result is a robust market that topped $220 billion in revenue in 2019.5

The strength and size of the automotive aftermarket create attractive opportunities for buyers. So does the fact the market remains extremely fragmented, largely consisting of “mom and pop” operators that provide buyers with an extensive pipeline of acquisition targets. The service slice of the market is a good example: The top four players in collision repair account for just 4% of the total number of repair facilities. In oil changes, the top five players represent just 13% of overall oil change locations.

This is not to say the automotive aftermarket sector has escaped COVID-19’s impact. With most of the country’s vehicle owners in government-ordered lockdowns, people are driving fewer miles, reducing the need for services and parts. However, that will change quickly as restrictions are lifted, enabling Americans to return to their jobs and driving habits. In fact, we likely will see a sharp increase in miles driven as people remain wary of air travel or public transit. We’re already seeing a rebound, as the decline in miles driven is 19% less severe than the bottom hit during the week ended April 10.7

In a new report, Harris Williams delves into the specific dynamics and opportunities that buyers and business owners should know about in the automotive aftermarket, including the key factors that could increase the emphasis on the automotive aftermarket in a post-COVID-19 world and several ways buyers can participate in the sector.

Published May 2020

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Sources:
1. AAIA
2. ibid
3. ibid
4. U.S. Federal Highway Administration
5. AAIA
6. Industry consultants and industry research
7. INRIX