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AHEAD OF THE TAPE MARCH 1, 2011
Auto-Parts Stores Watch New Cars Fly By
By KELLY EVANS
This spring, high-flying auto-parts retailers may be in for a fall.
The sector has been one of the brightest spots in retail the past year.
The three big chains—AutoZone, O'Reilly Automotive and Advance
Auto Parts—have expanded aggressively, snapped up smaller
competitors and benefitted from consumers' propensity to fix up
cars rather than buy new ones.
But the times they are a-changing. Auto makers on Tuesday will
post February sales figures expected to total about 12.6 million units
at an annualized pace, up from 10.5 million a year ago.
While a far cry from the peak 17 million sales pace of 2000, the
rebound so far has still proven stronger than expected.
That may be good news for the U.S. economy, but not for auto-parts
chains.
New-car sales above the 14 million mark are seen as a tipping point for a significant slowdown in
replacement-parts demand. That may be a ways off—and the three big parts retailers may have room
still to expand given that they have only a combined 20% share of the national market.
Still, the inflection point may be closer than investors had expected, especially if banks continue to ramp
up auto lending.
The spike in oil prices only makes matters worse. "Very simply, when gas prices spike, people drive
less," says Stifel Nicolaus retail analyst David Schick. "And when people drive less, parts break less."
It is a "double-whammy" for the retailers, he adds, when people are more willing and able to trade in
fixer-uppers for new cars offering better mileage.
TrueCar.com estimates the average fuel economy for
vehicles sold by U.S. manufacturers in February was
20.5 miles a gallon, up from 19.4 a year ago. Deutsche
Bank notes that, by next year, more than 130 hybrid
and electric vehicles will be on the market, up from a
dozen during the oil-price spike in 2008. At current
levels, oil prices are more likely to support car-buying
than to suppress it.
View Full Image After a 72% run in 2010, auto-retailer shares are
Bloomberg News
already showing weakness. Shares of Auto-Zone, which
New-car sales above the 14 million mark are seen as
a tipping point for a significant slowdown in releases fiscal second-quarter results Tuesday, are
replacement-parts demand. That could mean trouble down about 7% this year. The S&P 500, meanwhile, is
for chains such as AutoZone.
up some 5%.
Better times for auto makers may come at the expense of auto-parts retailers.
Write to Kelly Evans at kelly.evans@wsj.com
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