The Automotive Aftermarket Remains Cautiously Optimistic

March 1, 2022 This time last year the automotive industry was only cautiously optimistic. The last stimulus payment was to be made March 15 and enhanced unemployment benefits were scheduled to cease in September, so there was concern that sales might decelerate in the second half of the year.

Instead, sales, profit margins, and inventory levels have all improved. For the six companies that comprise the Hilco Parts Index (the Index), net sales were $73 billion for the 12 months ending with the fourth quarter of 2021. Compared to the 12 months prior, sales increased 13.5% on a nominal basis. For stores open at least 12 months, organic sales were up 10% – 15% for the quarter and, in some cases, nearly double that on a two-year stack basis.

In 2020 the challenge was COVID-19. After learning how to co-exist with the virus, the challenge in 2021 became the supply chain. So far in 2022, the challenge is inflation that has been exacerbated by lingering problems with the supply chain. A significant portion of aftermarket sales are nondiscretionary and not sensitive to rational price increases. For now at least, the industry continues to successfully defend its margins by increasing prices to the consumer. However, the cost of labor inflation is acute and the ability to pass on these costs to the consumer is less assured.

Companies in the Index are reporting that the battle for talent is intense. The level of absenteeism is not the issue but the level of turnover and associated training is driving up costs. In the back half of 2021, companies in the Index reported inflation in the mid-single digits and their outlook for the 2022 calendar year is more of the same.