Oct. 21, 2010
Market for auto parts jumps as older cars stay on road
Weak economy is a time to tinker
Motorists toughing out a weak economy are opting to fix their old cars instead of buying new ones, creating a boon for auto-parts sellers.
Big auto-parts chains are thriving. Their stock valuations have seen dramatic increases. Shares of Advance Auto Parts (AAP), AutoZone (AZO) and O'Reilly Automotive (ORLY) are near 52-week highs.
The retailers are benefiting from a confluence of factors, not the least of which is that too few people are willing to buy new cars when credit is tight and unemployment is high.
"People who are not buying new cars are hanging on to their old cars and repairing them," says Michael Odell, CEO of the Pep Boys (PBY) chain, which has 600 stores, with plans to add 35 more.
As a result, the average fleet age for all cars and trucks in the U.S. was 10.2 years in the latest R.L. Polk survey, up 21% in the past 14 years.
In the early part of the last decade, the auto industry was selling more than 16 million cars a year, vs. the 10 million-plus that sold last year. That created a bulge of old cars, and those jalopies represent the sweet spot for auto-parts retailers because they often need substantial repairs, says analyst Colin McGranahan of Bernstein Research.
Auto-parts dealers have adapted by stocking more basic repair items, such as alternators, starters and brakes instead of the bling-bling accessories popular in better economic times.
The industry is banking that even when the economy recovers, people will hang on to their cars longer. "People have realized their cars will last longer than five years," says Judd Nystrom, senior vice president of Advance Auto Parts.
Also driving the parts industry:
Driving more miles. Americans cut back on driving when gas prices rose a couple of years ago. Now, car mileage is starting to rise again, Federal Highway Administration figures show. The more miles driven, the more servicing that cars need.
• Fewer auto dealers. General Motors, Ford and Chrysler collectively closed hundreds of car dealers, creating fewer places for car owners to get their cars serviced. More have turned to independent mechanics, who often get their supplies from parts sellers.
More auto-repair school graduates are getting jobs at independent garages instead of at auto dealerships, says John Frala, professor at Rio Hondo College in Whittier, Calif.
• Higher used car values. Since fewer new cars are being sold, there are fewer trade-ins, which has caused used prices to rise in the past two years. Since used cars are worth more, owners are willing to spend more to keep their more valuable assets in good working order.
• Do-it-yourselfers. With more people out of work and short on cash, more are trying to fix cars themselves, McGranahan says. They depend on auto-parts shops.
Read more: Market for auto parts jumps as older cars stay on road | freep.com | Detroit Free Press Market for auto parts jumps as older cars stay on road | freep.com | Detroit Free Press