CHICAGO, Aug. 17, 2017 /PRNewswire/ --The macro fundamentals in the vehicle service contract (VSC) industry are compelling, and the industry demonstrates growth, strong margins and recurring cash flow. The industry totals $33 billion at retail and comprises a large and important component of automotive sales and profitability. New entrants and consolidators should enjoy industry tailwinds for several years.
- The market size of the "sweet spot" for aftermarket VSC sales is estimated to continue to grow and cyclically peak in 2024. Despite the recent dip in new car sales, the market for the purchase of VSCs post-OEM warranty is increasing, estimated at 85 million vehicles in 2016 and growing to 108 million vehicles by 2024.
- New car sales are expected to continue to exceed pre-financial crisis levels for the next few years; the attachment rate of VSCs on new cars sales continues to increase.
- Used cars sales are growing. These vehicles typically outlive their OEM warranties and have higher maintenance needs, creating demand among consumers that are increasingly accustomed to buying vehicle protection products.
- Consumer demand for VSCs is significant: an estimated 46% of Americans do not have cash on hand to pay for an emergency expense of $400 or more. As the average age of vehicles increases and drivers hold their cars longer, the need for protection plans is increasing.
- Dealership margins remain under pressure, and F&I products provide significant profitability.
The pace of M&A in the VSC industry is increasing, driven by demand from investors, low interest rates and availability of capital. Private equity is attracted to the industry by its high margins, strong cash flow, fragmentation and growth and making platform and add-on acquisitions to existing portfolio companies. More and more, industry participants are considering vertically integrating, potentially disrupting market dynamics among the pure plays. Administrators, seeking to grow revenues and improve margins, are acquiring to increase and protect product distribution, improve scale and capture more of the value chain. Sellers and administrators are bringing the payment plan function in-house. Insurance companies, looking to preserve books of business or enter the industry, seek the acquisition of administrators. Colonnade Advisors expects strong demand for well-run companies in this industry to continue.
In its latest industry commentary, Colonnade Advisors explores trends, growth drivers and M&A in the VSC industry. For the full industry commentary, see www.ColAdv.com.
CONTACT: Gina Cocking, email@example.com
SOURCE Colonnade Advisors