CHICAGO — The vehicle service contract industry continues to attract significant interest among investors and consolidators. Macro fundamentals are compelling, and the industry demonstrates growth, strong margins and recurring cash flow, all according to “Vehicle Service Contract Industry,” a new report from Colonnade Advisors.
“In 2018, the industry was $35 billion at retail with significant opportunity for expansion; there were 132 million vehicles that did not have a VSC but were eligible,” analysts wrote. “Since 2010, more than 60 companies in the VSC industry have changed ownership, and we expect sellers to continue to benefit from strong demand among financial investors and strategic buyers for well-run businesses in the sector. New entrants and consolidators should enjoy industry tailwinds for several years.”
Among the macro trends benefiting the VSC industry are continually increasing penetration rates, growing used-car sales, and enhanced dealer/owner focus on F&I profitability as margins on sales continue to compress. However, increased dealership consolidation could put some providers on shaky ground.
“Although the industry is growing, there has been increased risk for individual F&I products providers due to dealership consolidation. Since 2008, there are 2,855 fewer dealership owners and 1,675 fewer rooftops,” analysts warned.
To read the report in its entirety, click here.