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Attendance booms at AAPEX/SEMA

Monday, November 29, 2010 - 01:00

Immediately upon our arrival at the Automotive Aftermarket Product Exposition (AAPEX) in Las Vegas, we had to endure the line at the taxi stand, with the length of wait for a cab generally serving as a pretty good indicator of overall attendance — if not success — of the show.

All kidding aside, however, we would guess that total attendance was likely 20 percent above 2009 levels, and though impossible to measure, we would characterize industry enthusiasm as up by 50 percent over last year.

As outsiders looking in, we have seen some segments of the aftermarket outperform consistently since late 2008, namely distributors and some installers, with the supplier base finally joining the peloton as 2009 progressed. In fact, looking back at all of our meetings during the show, we simply can’t recall an instance where an industry participant was complaining that trends were poor or was concerned about business prospects heading into 2011. Clearly the word “cautious” has been dropped from its paring with “optimism” with respect to the industry outlook. With so much exuberance, should we be worried that this is the peak? Well, our take is that 2011 should prove to be another very solid year for the aftermarket.

That said, we think that some institutional investors remain somewhat divided in their take on the space, particularly after what has been such a strong showing in aftermarket equity returns, as they attempt to reconcile the strength in fundamental trends with (1) the potential sales lift provided by weather over recent quarters and (2) the potential for demand to wane heading into the holiday season.

This year has certainly seen its fair share of pronounced seasonal shifts in weather, and there is no doubt that extreme temperatures increase part failure rates. So while the anniversary of favorable weather in 2010 could provide a modest headwind into 2011, we don’t think anyone in the industry is entirely crediting the surge in sales trends to favorable weather. Near term, however, we think one could argue that the severe heat seen this summer has now set the stage for accelerated failure rates of batteries, belts and hoses this winter. And just like last year around this time, and perhaps every year heading into the holiday season, investors begin to worry that sales will decline substantially between Thanksgiving and yearend as the consumer shifts all available discretionary wallet funds towards holiday spending and away from auto maintenance and repair. A valid concern, and one supported simply by seasonal aftermarket trends. So yes, we expect there to be a slowdown over the next several weeks, but we don’t expect it to signal the wind down.

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