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Aftermarket Financial Symposium: Leveraging for Growth

By Michael Freeze

The first-ever Aftermarket Financial Symposium brought the industry together to discuss the financial realities of this ever-changing industry. The first-ever Aftermarket Financial Symposium brought the industry together to discuss the financial realities of this ever-changing industry.

While July's Aftermarket eForum addressed the state of industry-wide technology standards, industry executives returned last month to the Windy City to discuss the financial health of the industry during the first Aftermarket Financial Symposium. The Automotive Aftermarket Industry Association (AAIA) hosted the symposium at the Chicago Hyatt Regency O'Hare. The inaugural gathering covered a range of financial-related issues, such as mergers and acquisitions, private equity groups and strategic planning.

AutoZone's Executive Vice President and CFO Michael Archbold started the first day, with his presentation Perspectives on Key Financial Issues From the Operating Side. From the very beginning, Archbold addressed those issues by stripping them down to their essence.

"We need to be unreasonable thinkers," proclaimed Archbold. "The answers are there; they just need to find a voice."

Archbold covered a wide range of categories from planning to corporate governance. He also emphasized the importance of debt.

"There is no fear of debt. Debt serves a very valid purpose in setting one's capital structure," said Archbold. "It lowers the overall weighted average cost of capital. It can drive value - tremendous value - to the overall organization, as well as the shareholder."

The symposium also hosted a panel discussion with Parts Depot CEO Rollie Olson, Bank of America Business Capital Executive Vice President Ira Kreft, BB&T Capital Markets Managing Director Rex Green, Comerica Bank Vice President Chad Fietsam and TD Capital's Tom Rashotte.

The panel members seemed to agree that the future of the industry, as a prospect for investment, is looking bright.

"...clearly, the aftermarket is the place to be," said Rashotte.

Other speakers shared the same bullish sentiment. Founder of the Capstone Financial Group, Dan Smith, shared his mergers and acquisitions expertise with the symposium's attendees. Smith's equity group specializes in transactions in the aftermarket.

Smith gave a list of the positive qualities that attract private equity groups to invest in the aftermarket industry. According to Smith, these reasons include having a strong track record of growth and being a recession-resistant and highly fragmented industry.

"Investors are intrigued by three things," said Smith. "Demographics, demographics and demographics."

Smith elaborated further by mentioning the industry's "hobbyist culture" and enthusiast-driven atmosphere. Both of those qualities belong to the baby boomer and generation "Y" (those born from 1977 to 1995) age groups. Both demographics, which together total almost 150 million consumers, possess great buying power.

One of the more entertaining speakers of the symposium, Chris "Chubby" Frederick, president of the Automotive Training Institute, presented an overview of the financial health of the service dealer.

Frederick works with shop owners from across the country to help them increase profits and improve their overall businesses. He pointed out that most shops are "repair" shops when they need to be "service" shops.

"The majority of businesses wait for broken cars to come in," said Frederick. "Dealers are stuck in a paradigm shift."

If this type of thinking continues, Frederick warned, the business could "disintegrate around the owner."

"The ones who work on their business instead of working in their business will make the maximum profit," said Frederick.

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