Report: The Economic Outlook for Auto Parts Retailers Looks Good
August 24, 2018—As reported by Seeking Alpha, over the past year the three major pure play replacement auto parts retailers—Advance Auto Parts, AutoZone, and O’Reilly—have largely recovered from their 2017 swoon.
So does the future still look good for these companies or should investors expect another wipeout? Demand for replacement auto parts is generally driven by two major factors and two lesser but still important factors—the age of vehicles on the road, miles driven, weather and gas prices. So, here's a look at each factor.
Age of Vehicle Fleet
Arguably, the number one thing that determines demand for replacement parts is vehicle age. Even if a vehicle is not being driven, things can wear out or degrade and break down.
On this front, there is good news. The average age of light vehicles on the road is at an all-time high of 12.1 years. Even with new car sales ramping up after the great recession, the average age of light vehicles on the road still increased by two years over the past decade.
Perhaps even more good news is that new car sales seem to have plateaued recently. Over this past quarter, we’ve seen very strong consumer spending reads from several major retailers, so it wouldn’t be surprising to see new car sales begin to pick up in the future.
With all this in mind, there'd likely need a huge boom in new vehicle sales to start to bring down the average age of the nation’s light vehicle.
Total number of miles driven is probably the second most important factor in replacement auto part sales. Here again there is some good news: