Senior professionals from the Harris Williams Transportation & Logistics Group recently attended AAPEX and SEMA, the marquee annual events for automotive aftermarket professionals. Here, they share key takeaways from these notable shows and their perspectives on M&A in the space. 

What is the current outlook for the auto aftermarket sector? 

With AAPEX and SEMA in the rearview mirror, we are optimistic about what lies ahead for the automotive aftermarket. This year’s events mark another step in a return to normalcy, characterized by strong attendance across both shows and resiliency among automotive aftermarket businesses despite broader economic turbulence. While multiple factors will influence the success of sector participants, several key themes dominated conversations with industry operators and investors this year in Las Vegas.

What stood out at the events? 

As the core focus of SEMA, trends in the enthusiast segment are always top of mind for both exhibitors and attendees. The past several years brought unprecedented change in the enthusiast sector. For example, the early stages of the pandemic drove consumers to rediscover their roots as automotive hobbyists, while bringing a younger cohort of enthusiasts into the segment for the first time. Although some believed this was a temporary spike in demand driven by stay-at-home isolation and stimulus checks, the core automotive enthusiast segment has proven to be resilient. Despite notable pressures on the average consumer from inflation, a softening job market, and general macroeconomic uncertainty, enthusiast demand is experiencing a steady upward trajectory after navigating unprecedented peaks and subsequent troughs. 

Were there any thematic challenges on the minds of attendees? 

Participants across the broader aftermarket have become familiar with navigating operational challenges. Resilient demand through the pandemic was quickly followed by new challenges to supply chains and labor models. To survive, companies throughout the sector were forced to make quick shifts to inventory, pricing, and distribution strategies. Today, the ramifications of those actions are being felt. The ability of management teams to adapt to inventory de-stocking, decreasing input costs, and growing pricing pressure are differentiating the best operators from the rest of the market. The long-term growth trajectory, financial profile, and relative attractiveness of businesses in the space will be determined by how they navigate these normalizing market conditions over the next six to twelve months. 

How is the industry evolving with the expected growth in electric vehicle sales? 

AAPEX and SEMA also highlighted a more recent phenomenon that only those closest to the aftermarket might have predicted. While exhibitors on both shows’ floors sought to showcase new products that meet the future demands of electric vehicle owners, upfitters, and service providers, the prevailing sentiment is shifting towards a drivetrain agnostic future. Large OEMs have recently announced that reductions in domestic EV production capacity are imminent, largely driven by lack of consumer demand. Set against this backdrop, exhibitors were surefooted in displaying the latest trends and technology catered to a predominately internal combustion-powered fleet. While the makeup of tomorrow’s car parc is still far from certain, it is clear that automotive aftermarket participants are betting on a lengthening road ahead for internal combustion vehicles. 

A Shifting Frontier 

At this year’s AAPEX and SEMA events, optimism for the future of the auto aftermarket and its many avenues for differentiation were on full display. Across the landscape, we’re continuing to see value-creation opportunities emerge from several key themes, including supply chain disruptions, labor challenges, technology advancement, and electric vehicle adoption. These areas present sector participants with plentiful ways to separate themselves from the pack and drive long-term growth.

For further discussion on M&A opportunities in the auto aftermarket sector, please contact our senior professionals.