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Covid-19’s Impact on The Automotive Aftermarket, Post-Covid Growth Drivers and Market Shifts

DuckerFrontier, June 17, 2020

The pre-COVID automotive aftermarket trajectory was a steady upward trend post-Great Recession in line with the growing number of vehicles in operation, aging car parc and increased annual miles driven per vehicle. Regardless of automotive OEM production levels, U.S. vehicles in operation (VIO) have continued to increase, largely due to increased average age of vehicles over the last ten years, increased vehicle ownership rates and general population growth dynamics. The average age of vehicles in the U.S. is anticipated to continue to grow based on increasing integration of passive and active collision mitigation systems and improved powertrain performance and longevity.

While the population of all vehicle segments have continued to increase (except for domestic cars), the mix of vehicles will continue to favor both domestic and imported SUVs/trucks in the U.S. car parc.

  • Light truck segment (e.g., SUV, CUV, Pick-up, etc.): accelerated growth in recent years relative to total vehicle population and sales levels, which has been primarily driven by decreasing fuel prices and stabilization of previous volatility, new model introductions and consumer preference shifts toward CUVs over traditional sedans/cars
    • Aftermarket sales growth in the light truck segment is somewhat offset by recent consumer prevalence to opt for higher trim levels that are equipped with high-end audio, infotainment, and advanced driver assistance systems (ADAS)
  • Import vehicles: recent growth can be attributed to substantial share gain and adoption of Japanese CUVs and pick-ups
    • Consumer research outlets (e.g., Autotrader, CarGurus, etc.) has shifted demand away from the historically strong domestic SUV/truck segment, as imports provide higher residual values, lower cost of ownership (e.g., higher quality powertrain, chassis, etc.) and higher durability/lifetime

Post-Pandemic Automotive Aftermarket Environment

The automotive aftermarket is a relatively recession resilient industry, however, an unprecedented decrease in total mileage driven have caused revenue declines of more than 50% in most segments; revenue will likely return to previous levels by year end, but the landscape may shift significantly.

DuckerFrontier’s post-COVID market outlook anticipates a shifting market landscape in terms of market consolidation within the supply chain and sales channels, as well as an increasing presence of e-commerce sales.

  • There will be decreased independent repair/sales channel presence as some locations will likely go out of business, providing opportunity for consolidation as scaled participants with more liquidity look to acquire distressed entities or convert debt
  • Low-cost country parts, which account for ~25% of the market will likely face further trade barriers, offering more opportunities for domestic suppliers to regain lost share
  • The e-Commerce segment has largely outperformed the rest of the aftermarket in recent months as some retail locations remain closed and consumers opt for online delivery to limit exposure

When the COVID pandemic reached its peak in the U.S. in March, much of the automotive aftermarket was deemed essential; however, the market took some heavy losses as consumer miles driven declined sharply and part replacement went stagnant. Total miles traveled are down ~50%; critical wear and tear replacements have declined as a result. In addition, specialty products and vehicle/performance upgrades have been impacted most (e.g. vintage vehicle products, spoilers, etc.).

Leading Segments for Growth

All areas of the automotive aftermarket have been impacted through COVID over the past two months; however, segments are beginning to show signs of growth. Valuations across segments remain largely in-line with pre-COVID trajectories, except for Automotive OEMs that experienced broad sweeping shutdowns and production declines. Below are segments that DuckerFrontier has identified as potential growth areas post-COVID for the automotive aftermarket.

  • Automotive production: light vehicle production estimates are down anywhere from 15%-20% as OEMs are forced to shutdown production
    • Once production resumes, OEMs plan to meet previous production levels and output to account for lost time; the market is unlikely to normalize until the 4th quarter 2020 or first quarter 2021
  • Automotive sales: some dealerships have stayed open; however, annual sales will be impacted at 10%-20% on average
    • Potential pent-up demand post-crisis for pick-up trucks and SUVs
    • Outlook largely dependent on larger economic health
    • Pre-owned market will come back faster based upon relative pricing and the surplus of returned lease vehicles
  • Aftermarket product manufacturing: Production operations remain open for ‘vehicle critical products’, but participants cite actual production of parts changes day by day
    • Recovery will vary by vehicle segment as manufacturing returns to pre-crisis levels, with additional upside attributed to domestic manufacturers taking share from imported products that will face additional barriers
  • E-Commerce: Online retailers have traditionally focused on specialty parts, which has been somewhat offset by an increase in demand for necessary part replacement that brick and mortar stores have been unable to fulfill given current market conditions
    • Expect continued increase in online ordering to mitigate exposure concerns
    • Companies will likely shift focus to online sales models in reaction to consumer demand preference shifts
  • Brick and mortar retail: storefronts are opting for “curbside pick-up” with lower support staff and services offered
    • Continued e-Commerce growth and lack of cash-at-hand for smaller brick and mortar participants, will likely result in further bankruptcy claims
  • Installers: installers have largely remained open, with state by state variance that has created some disparity in business performance on a regional basis (e., Northeast and Midwest businesses hit harder than the Smile states)

DuckerFrontier’s Transaction Advisory and Automotive & Transportation team is at the forefront of key trends impacting the industry amid COVID-19 disruptions. Visit our COVID-19 Resource Hub for the latest insights and implications for global business, or contact us to connect with a team member.

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