Heavy-Duty Vehicle Aftermarket: Critical Fleet, Essential Services

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Key Takeaways

• Heavy-duty vehicles play key revenue-generating roles in a wide range of industries.  

• A fragmented industry of aftermarket companies provides essential services to this large and equally essential fleet of vehicles.  

• Investors see a significant opportunity to create value by consolidating and professionalizing this subsector. 

Essential, Diverse, and Resilient

Regardless of economic conditions, trash must be hauled, power lines must be repaired, and emergency services must be delivered. In each case, there’s a heavy-duty vehicle playing a crucial role. Beyond these essential services, heavy-duty vehicles are key to ongoing operations and revenue generation for a vast array of enterprises across industry sectors.

All of this creates strong and resilient demand for a wide array of participants in the commercial vehicle value chain, such as upfitters. Joe Conner notes that most heavy-duty vehicles are application-specific, and therefore must be customized and upfit to serve a particular purpose. And because uptime is critical, fleet owners need ready access to high-quality aftermarket parts and service when a maintenance need occurs.

Jershon Jones adds that the sector is also highly fragmented for both upfitting and aftermarket services. “It can be difficult to appreciate the sheer breadth of the landscape of specialized upfitters and component providers in the segment,” he says. “Many are family- or founder-owned operations that are focused on a regional addressable market. This offers a great opportunity for M&A and institutional investment.”

That opportunity is most pronounced for more sophisticated companies. Automotive technologies are rising in use in commercial vehicles, which creates opportunity for those with more advanced aftermarket capabilities and services. “During our recent visit to Work Truck Week, it was evident that technologies such as driver assistance systems and safety-focused collision avoidance systems are making their way into the heavy-duty space,” says Elliott Yousefian.

There is also increasing focus on mechanisms to improve ergonomics, such as technologies that make equipment easier to lift and move, thus protecting worker safety and wellness. Finally, there are technologies being implemented to improve fleet efficiency and management, such as route optimization systems and clean idle systems to keep the vehicle operating without idling the diesel engines and therefore minimizing fuel consumption and emissions.

While EV-based platforms are just emerging in the sector, many aftermarket businesses are anticipating the impact this evolution will have on them. Michael Meyer, a vice president, shares that the earliest shift to electronic vehicles is occurring in municipal government and regulatory-influenced use cases. As these entities move to electric vehicles, they are replacing their fleets earlier than their typical replacement cycle.

“This creates a pull-forward of demand for upfitters,” he says. “In addition, as the ICE powertrain vehicles are pushed out by these new EV fleets, it creates opportunity to resell them in the secondary market, which drives additional demand for upfitters to retrofit the vehicles for new uses.”

In the medium term, the most likely uses of EV will be short, route-based delivery, lighter weight transport and in urban environments where the charging infrastructure is more likely to be in place. While widespread EV adoption is certainly years away, upfitters, distributors, and service providers that are thinking about adapting their business models will be best positioned to capitalize on the shift.

The Fragmentation Factor

Given the fragmentation in the segment, there is significant opportunity to help these businesses think through scaling their services and distribution to a national level. There are many ways to scale, including through multi-service and multi-niche platform strategies.

Because heavy-duty vehicles are so specialized, consolidation is most likely to occur around particular types of chassis. For example, the same base chassis may be upfitted for an ambulance or a delivery truck, but not for heavy-duty towing. Efficiencies can be gained through this approach, but the degree of specialization required to upfit for each use case remains significant.

“Most people who buy specialty fleet vehicles don’t know exactly which make or model they want. They know the purpose they want the vehicle to serve, and they want to get the vehicle on the road and keep it there,” says Conner. It is the dealer or upfitter that helps determine the chassis, engine and vehicle size required to meet the customer’s needs, creating a differentiation opportunity for those with a well-developed consultative approach to sales.

“Businesses that can excel at service and after sales support in this environment stand to win,” adds Jones. “Those that have reach, inventory availability and sophistication stand to benefit their customers and are well positioned to succeed.”

An Essential Service for a Critical Fleet

Heavy-duty vehicles are typically highly utilized and generate revenue, which drives stable demand for aftermarket parts and services. With tech adoption continuing to accelerate and EVs on the horizon, those aftermarket upfitters and parts and service suppliers that invest in new capabilities, greater sophistication, and scale will most likely become the providers of choice. The investors accelerating this evolution stand to benefit as well.

To learn more about value-creation opportunities within the automotive aftermarket sector, please contact our senior bankers.