Chris Bovis, Partner
The single biggest question we receive from business owners is about understanding the right time to sell. Unfortunately, there is no neon sign and owners almost always look at tomorrow as a slightly better time. Most business owners are constantly waiting for a slightly better day tomorrow before they decide to sell.
Looking at the data from 2020 and the forecasts for 2021, business owners need to understand that today is yesterday’s tomorrow.
The challenges of the last 12 months, and the uncertainty of the upcoming 12 months has shown that automotive is one of the most resilient, essential industries in the country. Nothing brought the importance of trucking to the American people like empty store shelves. This moment in time may show the criticality and resilience of the automotive industry clearer than any other period.
Overall, automotive has weathered the storm of COVID well, rebounding faster than most segments. A snapshot of those statistics include:
- Of the 756,000 jobs lost in the auto industry, 80% have already been recovered as of Jan 8, 2021*
- Automotive Parts Spending has rebounded rapidly**
- Q1 2020: $484.6B
- Q2 2020: $484.6B
- Q3 2020: $585.0B
- Miles driven has trended back strongly despite predictions of long-term work-from-home trends**
- Q1 2020: 769,94B
- Q2 2020: 595.00B
- Q3 2020: 727.54B
- Online purchases place an increased reliance on logistics and delivery vehicles***
- Groceries +42%
- OTC Medicines +36%
- Personal Care Products +30%
- Household Supplies +24%
- Apparel +20%
The average age of vehicles on the road continues to increase. There are likely a number of factors contributing to this, including vehicles lasting longer and deferred purchases. However, the longer a vehicle is in service, the more service it needs. It has also created a shortage of used vehicles and a dramatic increase in used vehicle prices. As new vehicle purchases are pushed further out, and used vehicle prices continue to rise, a shift to new vehicle purchases is unavoidable.
This is good news for both short- and long-term industry health. Wards Automotive reports 16.9M new vehicles sold in 2019 and a drop to 14.5M a year later. They predict a return above 16M sold in 2021 and a continued, even more dramatic shift to light trucks, SUVs and CUVs.
Perhaps most critically, there is a trend away from public transportation. People view their personal vehicles as the safest form of travel, especially when compared to urban public transportation and air travel. What would have been a short flight 14 months ago is likely a road trip today.
There is a range of views about when restrictions will be lifted. This includes optimistic opinions that heard immunity could be reached as soon as Q2 2021, and pessimistic views suggesting that will be well into 2022. Most likely the return to more traditional business, mobility, entertainment options, and consumer behavior will be late 2021.
The return to “normal” will adopt the best of the changes in seen in 2020. The convenience of and familiarity with online shopping will mean that it will remain a larger part of the consumer landscape than before, but likely lower than its peak around Q2 2020. People will slowly return to air travel with business travelers leading the way, tempered by conservative company travel policies.
The final potential bonus for the automotive industry is the combination of pent-up consumerism and increased savings rate. People are tired of being at home and are craving the freedom they once had. Being at home with fewer spending options, the average household savings rate has doubled.
There will be a region-by-region wave of spending as people are increasingly more comfortable being in public. Thankfully, restaurants and locally owned stores will be busy. Perhaps some of this will divert spending from automotive, but it will increase miles driven resulting with the need for more maintenance or repairs.
Regardless of and individual business’ earnings or sales revenue, the economic trends of the industry have never been more clear or favorable for automotive business valuations and outlook.
As business owners look for that neon sign, it may be flashing right now. The industry has proven itself like never before, and the future indicates continued growth. These are the two most critical elements when investors look for places to put their money in increasingly uncertain times.
With interest rates remaining low and an estimated $5 trillion sitting on the sidelines looking for industries to invest in, for business owners, today is the tomorrow they were waiting for.
*US Bureau of Labor Statistics
**SEMA Market Research
*** McKinsey & Company