Auto Parts & Accessories Retailers
Date February 2019
- Unadjusted U.S. retail sales for motor vehicle and parts dealers were up 3.0 percent for the 12 months ended December 2018, indicating an improving market
- Year-over-year for November 2018, the number of vehicle miles driven increased 0.4%, continuing the steady increase seen for the past several years and indicating increasing demand for replacement parts and accessories
- Gas prices have come down in recent months, decreasing 12.0% in January 2019 over one year ago, which may increase driving rates going into spring
Approximate net recovery on cost
Multi-faceted liquidation strategies yield highest recovery values: In order to maximize the gross recovery value, the liquidation strategy for an auto parts retailer/service center would include a portion of the inventory being sold through the retail stores/service centers, with a bulk sale through wholesale channels to liquidate the balance of the application-specific “hard parts” inventory remaining at the end of the retail sale.
Over-the-counter non-application parts such as chemicals, waxes, tires, tools, wiper blades, batteries, etc. would be sold during the retail sale. The higher the percentage of total inventory sold through retail stores, the better the gross recovery on a blended basis. The highest recovering inventory categories on a blended basis would typically include chemicals/fluids, batteries, oil, wiper blades, tires, and tools.
The lowest recovering categories would include brakes, cooling and fuel system parts, ignition parts, hoses and belts, and steering and suspension parts. Additionally, Gordon Brothers’ recovery assumption would not include “core” values associated with re-manufactured parts.
Industry outlook: Car usage, as measured through the number of vehicle miles driven as well as U.S. motor vehicle registrations, is expected to increase over the next five years, which could potentially generate an increase in demand for auto parts and accessories.
Disposable income has risen over the past five years leading to growth in demand for Auto Parts industry products and services. The continued aging of vehicles has also supported this trend. Despite new car sales growing an annualized 1.2 percent over the past five years, the average age of a U.S. vehicle has increased at an estimated annualized rate of 0.9 percent to almost 12 years during the same period.
Based on information from IBISWorld, new car sales are expected to decrease in the next five years as higher interest rates and increasing prices are forecasted to discourage consumers from purchasing new vehicles, driving an annualized increase in Auto Parts industry revenue of 1.3 percent. As older vehicles require part replacements more frequently than newer ones, demand for industry products should support the increase.
However, the increased popularity of fuel-efficient vehicles, coupled with rising regulations, encouraged many consumers to purchase electric or hybrid vehicles in the past five years. According to InsideEVs, electric vehicle (EV) sales increased 37.1 percent and 26.0 percent in 2016 and 2017, respectively (most recent data available).
Given the level of specialization needed for electric car repair, newer EV owners are more likely to outsource repair to mechanics or dealerships that provide such services, potentially reducing demand for parts sold by industry operators.