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Home > News > Industry Activities > Gas Prices, Longer-Lived Cars Lift Auto Parts Stocks

Gas Prices, Longer-Lived Cars Lift Auto Parts Stocks

By VANCE CARIAGA , 2015-01-12 11:13:02

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For years, auto parts retailers like AutoZone and O'Reilly Automotive have delivered steady financial gains, thanks to an aging fleet of cars on the road.
 
As recession-weary consumers put off buying new vehicles, the average age of cars has continued to rise. So has demand for replacement parts and repair work. The upshot for the aftermarket parts industry has been a consistent flow of new business.
 
Leading auto parts retailers such as AutoZone (NYSE:AZO), O'Reilly (NASDAQ:ORLY), Genuine Parts (NYSE:GPC) and Advance Auto Parts (NYSE:AAP) have produced years of top- and bottom-line growth. They continued to do so in 2014, and are expected to keep it up this year.

Meanwhile, the stocks — all part of IBD's Retail/Wholesale-Auto Parts group — generally have enjoyed a steady rise in value. The group touched a record high on Dec. 31, and on Friday was up 23% from an October low.
 
The industry's new wrinkle is that the stocks have kept climbing even as new-vehicle sales in the U.S. reached their highest point since the middle of last decade.
 
U.S. light vehicle sales hit 16.44 million units in 2014, according to a Jan. 5 report from Sterne Agee. That was the highest total since 2006. Those numbers are expected to keep ticking higher this year.
 
Numerous industry forecasters — including Kelley Blue Book, TrueCar, LMC Automotive and J.D. Power & Associates — project that new-vehicle sales will reach about 17 million units in 2015.
 
In theory, a rise in new-car sales should hurt the aftermarket parts industry. In the past, more new cars on the road meant less need for replacement parts and repair work.
 
That's no longer necessarily the case. Morningstar analyst Liang Feng points out that a rise in new-car sales doesn't translate into fewer older cars on the road.
 
"Investors have been concerned that new vehicle sales will reduce aftermarket parts demand, but what we are seeing is that even people buying new vehicles are keeping older cars as second vehicles or selling them to someone else. So you still see demand," Feng told IBD. "We've also seen an increase in the overall used-car market because vehicles are lasting longer."
 
The average age of light vehicles on the road in the U.S. stands at 11.4 years, according to the most recent estimates from industry researcher IHS Automotive. That figure is expected to hold steady this year and then tick up to 11.5 years by 2017 and 11.7 years by 2019.

 

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