Why the aftermarket industry is ripe with opportunity | Global Franchise
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Monday 28th November, 2022

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Why the aftermarket industry is ripe with opportunity

Insight

Why the aftermarket industry is ripe with opportunity

Five reasons to consider investing in this timeless sector

In August 2019, car dealerships were flush with parked cars. Flash forward to August 2021, and previously full lots now sit barren. Caused, among other things, by a shortage of semiconductor microchips and other supply chain issues, many automotive plants have had to modify their production or even shut down until the necessary parts can be sourced and acquired.

While dealerships report prepandemic-level profits, production cannot keep up with the demand, and prices have begun to soar. However, new cars are not the only hot commodity on the automotive market. Used car prices have also begun to climb, fueled by the lack of new products entering the market and by rental companies, desperate to replenish their fleets.

As we move into the second half of 2021, aftermarket car care companies are uniquely poised for rapid growth because the U.S. population is holding onto their cars for longer. The effects of the pandemic have begun to permeate our global economy in ways that many never foresaw and have opened the door for brands like Christian Brothers Automotive and other car care companies in new fashions.

Here are five reasons to invest in an aftermarket auto care franchise right now:

1. Aftermarket companies are recession-resistant

According to CNN Business, around 40 per cent of U.S. households make some sort of car purchase every year and annually spend more than $600bn on their cars. This provides owners of aftermarket care businesses with a steadfast customer base, which replenishes itself as generations grow up and grow old.

While this is a benefit to both dealerships and aftermarket companies, many families have been unable to make new car purchases due to economic hardships created by the pandemic, limited stock caused by a lack of production and other pandemic-related factors. As a result, more people are driving older vehicles that require more regular care and are turning to aftermarket companies for service.

Driving also has also become an increasingly popular mode of transportation as people are avoiding crowded buses, trains and airplanes. Automotive aftercare companies have weathered the economic storm, as they continue to provide needed services.

2. Drivers are keeping their cars longer

Based on a recent survey by IHS Markit, the average age of cars on the road in 2021 is somewhere between 11.5 and 12.1 years. While the average age has continually risen in recent years, the fallout from the pandemic further exacerbated these trends.

Furthermore, people are putting more mileage on their cars before choosing to replace them. Gone are the days of buying a new car after it hits 100,000 miles – now the average mileage of cars on the road has doubled to over 200,000 miles.

As cars are on the road longer and at increasing mileage levels, they are more likely to need consistent car care and experience more unforeseen breakdowns than newer models. According to Consumer Reports, the average annual maintenance cost for a 10-year-old car is almost double that of the annual cost for a five year- old car.

With both new and used cars becoming increasingly expensive, aftermarket companies remain essential to those clinging to their older vehicles.

3. A return to the roads

Across the country, people are returning to the office after nearly an entire year of working from home. While some companies like Apple, Facebook and Google are starting with a hybrid approach to remote work, companies like Bank of America, Morgan Stanley and JPMorgan Chase expect to have their employees back into the office after Labor Day 2021.

While the workforce floods to the streets to once again take up their daily commutes, their cars have been sitting dormant since March of 2020 and likely require long, overdue maintenance. Parked cars can develop flat or low tires, depleted batteries and stale oil that can all contribute to breakdowns if left unchecked.

This summer we’ve seen drivers get back to traveling with great fervor. In fact, AAA reported that 43.6 million friends and families were looking to take a road trip this summer – the highest number recorded in recent decades. Rental car companies, which sold off a majority of their stock to outlast the pandemic, are now faced with a shortage of cars to rent to eager travelers. To make up for these shortages, these companies have turned to used cars to fill their parking lots.

Aftermarket car companies benefit from returning commuters whose cars require long overdue services, and rental fleets that have been driven into the ground by the high demand of travelers.

“Aftermarket car companies benefit from returning commuters whose cars require long-overdue services”

4. A return to the suburbs

This year, we’ve seen a housing boom like no other as people exited crowded cities. Without a need to commute to work every day, many employees saw the opportunity to move into areas that were more spacious and less expensive. Others moved back in with parents as the economic pressures of the pandemic became too great. On both sides of the spectrum, several city-dwellers are returning to the suburbs.

The aftermarket automotive industry plays an instrumental role across urban, suburban and rural economies. Rural and suburban areas are less accessible by public transportation, making those who live within them more dependent on cars than those living in urban areas. Studies show that the farther people live from urban areas the more likely it is for the household to own more than one car.

Aftermarket companies are uniquely positioned to see a growth in their customer base within the next few years as car ownership steadily increases in key communities for development.

5. Growing industry sales performance

According to recent studies, aftermarket industry sales are expected to grow by roughly 11 per cent in 2021 totaling around $325bn. This falls in line with recent positive trends in automotive franchise sales, which were up 7.8 per cent in 2019 – the largest increase seen in five years.

With the circumstances created by the pandemic, the automotive aftermarket industry is ripe with the opportunity for sustainable growth. Those looking for franchise opportunities with aftermarket brands will find that aftermarket repair companies lead the charge with sales, followed by oil change, collision repair and finally auto parts franchises.

The author

Brad Fink is the vice president of leadership and franchise development for the 2021 JD Power and Associates top-rated full service aftermarket automotive maintenance and repair company, Christian Brothers Automotive

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