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Long-Term Trends for the Light-Duty Automotive Aftermarket

The automotive aftermarket has a 50-year trend of growth and resiliency. Americans still utilize the automobile as the gateway to countless activities from the base necessities to luxuries like travel. The aftermarket broadly offers consumers greater choice and value in maintaining their vehicles, attributes that perform well in good and challenged economic conditions.

Parts and services sales rely on a couple of critical factors. Miles driven is the best predictor of parts replacement and service. Additionally, vehicle age is also an important driver as older vehicles result in more parts and service sales.

The long-term trend for the primary measurement of our economy…Gross Domestic Product (GPD)…has shown a steady growth for almost 50 years. The light duty automotive aftermarket is a very stable market with long-term positive trends similar to the GDP. Charts 2 and 3 below along with the supporting sets of data show these trends…even thru recessions and other major impacts to our economy.

The Covid-19 impact in 2020 is following a similar pattern of dip and recovery to previous recessions (see chart 1). Miles driven in January and February 2020 were each over 2% higher than in 2019. The impact of Covid-19 began in March. By April vehicle miles were 40% lower than in 2019. After April vehicle miles increased significantly and by September were only down 8.6% as compared to 2019.

Driving to and from work represents 30% of light vehicle miles driven. While the long-term viability of working from home for select occupations remains unknown, the short-term impact is largely offset by the automobile being viewed as safer than air or other public transportation. Other top automobile uses include other work-related travel, visiting friends and relatives and driving to school, daycare and church. (1)(2) As people have begun to resume their normal activities miles driven has increased and is projected to continue to increase in the future. (3)

In addition to the positive miles driven trend there are other consistent and positive trends for the light vehicle aftermarket:
• The average age of light vehicles has been increasing. As vehicles age, they need greater service and more replacement parts.
• The total number of light vehicles in use has steadily increased. More vehicles on the road results in a larger market for service and parts.

The two premier organizations representing the automotive industry…the Auto Care Association and the Automotive Aftermarket Suppliers Association (AASA)…show the light-duty automotive aftermarket is large and stable…currently about $300 billion in sales for parts and service…and is projected to continue growing in the future.

In summary, the light-duty automotive aftermarket is a very stable and highly predictable market. Short-term economic disruptions are overcome and sales return to a steady growth pattern.

(1) U.S. Department of Transportation (DOT), Federal Highway Administration (FHWA) (2019) Highway Statistics 2018 (details)
(2) Center for Sustainable Systems, University of Michigan 2019. Personal Transportation Factsheet Pub. No. CSS01-07
(3) Auto Care Association / Automotive Aftermarket Suppliers Association (AASA) Channel Forecast Model – Chart 6

Chart 1

Chart 2

Chart 3

Chart 4

Chart 5

Chart 6

M&A research in the world of COVID-19

There are many factors and influences within the automotive aftermarket, including some that were unimagined until recently. Given the dynamic and unpredictable events of 2020, how can we determine the future of the automotive aftermarket?

For the purposes of market analysis, we use historic data from similar times in the past, blended with the unique changes in our current environment to get a perspective for the future of our industry. We have seen and recovered from slow-downs in the past and will do so again this time.

The light duty automotive aftermarket is a very stable market with long-term positive trends. Simply put, parts and services are sold when vehicles are used. After the Great Recession vehicle miles increased at about 1.3% per year (CAGR) from 2011-2019 and sales closely matched the mileage trend.

What was the Covid-19 impact? From early March 2020 to mid-April, miles driven dropped 57%. By May 1st mileage had started to increase but was still down 44%. (1)

The predominant mode of travel in the United States is by automobile and light truck, accounting for about 69% of passenger miles traveled in 2018. Driving to and from work represents 30% of light vehicle miles driven. Other top uses include work related travel, visiting friends and relatives and driving to school, daycare and church. (2)(3) Vehicle use obviously drives maintenance, parts consumption, and even collision and repair. As people have begun, although slowly to resume their normal activities, miles driven will continue to increase and the aftermarket will rebound.

The market is indeed dynamic. When large numbers of people stayed at home and did not drive, the miles driven dropped significantly. While more people have returned to their workplaces, the lingering work-from-home impact will likely affect the aftermarket to some degree. The variables that determine the durability of the work-from-home trend are complex and largely unknown at this point. At the time of writing, the impact of widespread home offices on productivity, morale, and profitability are not known.

The long-term work-from-home trend is also a study in human behavior. Densely populated cities, with often fewer miles driven per capita are seeing an exodus to the suburbs and less dense, and less expensive areas were cars are a necessity and mobility and pandemic restrictions are reduced. With no relevant data in our history, the viability of work-from-home and its widespread impact remains speculative.

There are always opportunities. Some companies are more aggressive in finding or making the opportunities necessary for profitable sales. Other companies may just be in the right place at the right time with their offering. In some cases, consolidation can be a savvy option to achieve profitability in a challenging market by reducing operating expenses, inventory, equipment, and facilities.

Like most business activity, M&A slowed in Q2 as investors evaluated their current holdings and developed short and long-term plans to move forward. Now, some investors are beginning to look for troubled businesses. Others are cautiously resuming searches for appropriate bolt-ons to current investments as well as strong platforms based on solid historic performance and future market potential.

M&A in the automotive aftermarket is moving forward. Activity and interest from investors and companies looking for opportunities that match their criteria is increasing. Investors believe in the long-term stability of our market and its long-term growth potential, backed by historic data and performance. Selecting the right opportunities is a key to success.

HMA’s extensive automotive market experience allows us to find the right opportunities for our clients, both buyers and sellers. We do extensive and transparent research rooted in our wide network of contacts and resources developed over decades in the industry. HMA delivers a significant level of detail in acquisition searches that are tailored to each client’s needs.

John Nodson
Vice President, Research
Hart Marx Advisors
jhnodson@hartmarxadvisors.com

(1) Source: Auto Care Association Factbook 2021, Jefferies Group, Arity, Municipal Open Data Portals, TomTom, GTCOM, AutoNavi
(2) U.S. Department of Transportation (DOT), Federal Highway Administration (FHWA) (2019) Highway Statistics 2018 (details)
(3) Center for Sustainable Systems, University of Michigan 2019. Personal Transportation Factsheet Pub. No. CSS01-07

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