The aftermarket: Wall Street's view

Jan. 1, 2020
CHICAGO — The aftermarket in a nutshell? Strong, but with some potential hazards ahead.

CHICAGO — The aftermarket in a nutshell? Strong, but with some potential hazards ahead.

“The [industry] fundamentals are still very strong, but for the next two to three quarters there will be some bumps along the road,” says Tony Cristello, managing director, BB&T Capital Markets, during his presentation “The Aftermarket on Wall Street” at the 2011 Global Automotive Aftermarket Symposium in Chicago.

Last year the economy greatly improved, showing growth from the recession. Gross domestic product expanded at a modest clip, but it was an even better year for aftermarket growth. The total aftermarket was up about 44 percent on an equity performance basis, compared to a 13 percent improvement for the overall economy on the S&P Index, Cristello says.

The global automotive aftermarket is also growing. Over time, consumers will continue to spend money and boost aftermarket sales and therefore company value, but those in the industry have to be patient. And there are other challenges to consider.

US new vehicle sales are still depressed — in levels last seen in the early 90s — with fewer new vehicles for dealers. Though bad for dealers, this is good news for the aftermarket.

The US vehicle PARC continues to age, and we are seeing a contraction in the US franchised dealer base. For each dealer that closes its doors, more money is being filtered to the independent aftermarket.

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But this increases competitiveness within the industry and further complicates sales comparisons. Also, consumers are under a great deal of pressure to deal with surging fuel prices, inflation in food prices and the housing market, to name a few stresses. Both of these issues will impact dollars spent in the aftermarket.

About half of GAAS attendees polled during Cristello’s presentation indicated they expect 2011 mimic 2010.

The good news is that there is still a lot of opportunity in the industry to surpass 2010 figures.

There is an expectation of greater merger and acquisition activity in the market overall as corporate balance sheets are showing strong improvement and private equity firms are looking invest.

So where do we see the most activity? The service and professional installers are the most fragmented market segment and have shown the least opportunity. The core aftermarket suppliers are still fairly fragmented but with long term global opportunity. However, the biggest consolidation growth by far has been seen in the retail and do-it-yourself segment, Cristello says.

Opportunity also remains in the commercial segment, he says. But the concern is that the market may get over saturated, hurting the overall market.

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“However globally, we are in a very interesting time,” Cristello says.

In the US, vehicle ownership is positively correlated with GDP, and this relationship seems to hold globally.

For the global aftermarket, the largest opportunity over time is going to be growth in those emerging markets.

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