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Auto Parts 2018Auto Parts PerformanceAccording to data from the Auto Care Association’s 2017 Fact Book cited in an AutoZone investor presentation, the retail auto parts industry generated $54 billion in revenue during 2016, with a 5-year CAGR (Compound Annual Growth Rate) of +3.9%.The Automotive Aftermarket Suppliers Association (AASA) puts the market at $267 billion; however, this is dominated by “do it for me,” or DIFM, and includes labor costs. DIFM parts accounted for 25% more than DIY parts, and the remainder is labor costs.There were approximately 260 million light duty vehicles on the road in the US during 2017, serviced by 35,000 parts stores. Competing for the DIY market are general retailers, such as Sears and Wal-Mart/Sam’s Club. Amazon is also entering the market. DIY Automotive Parts Market Size, 2010–2016YearTotal% Change2010$43 billion--2012$46 billion+7.0%2014$49 billion+6.5%2016$54 billion+10.2%Gabelli & Company Automotive Aftermarket Outlook, November 2016Market DriversVehicle owners whose vehicles are older than 5 years are the target market for auto parts retailers, since most manufacturers’ warranties have expired. There are approximately 88 million vehicles in this category.Because of improved vehicular quality, car owners keep their cars longer and are more willing to invest in repairs and replacement of parts. In addition, the warranties on the large number of vehicles sold during 2012–2013 are about to expire.The increasing numbers of miles driven causes more wear and tear on vehicles. As of August 2016, US miles driven was a record 3.2 trillion.Replacement Rates of Auto Parts, by Percent Changed from 2005 to 2013Most-Often Replaced Part% ChangeLeast-Often Replaced Part% ChangeWheel bearings+57%Timing chains-85%Thermostats+43%Fuel filters-82%AC condensers+41%Drive belts-78%Antifreeze+40%Ignition switch-65%Coil springs+10%Steering rack-57%IMR Strategy & Analysis (Gabelli & Company Automotive Aftermarket Outlook), November 2016Big Chains in the Driver’s SeatFor the third consecutive year, AutoZone was the largest auto chain in North America, as ranked by number of company-owned stores. It expanded from 5,644 stores during 2016 to 5,806 during 2017, an increase of 2.9%. The #2 auto chain, Advance Auto Parts, also maintained its position in the list. It has 5,189 company-owned stores, but it also serves 1,250 Carquest locations, for a total of more than 6, 10 Auto Parts Chains, May 2017ChainCompany- Owned Stores2016 Revenue#1: AutoZone, Inc.5,806$10.6 billion#2: Advance Auto Parts5,189$9.57 billion#3: O’Reilly Automotive Inc.4,829$8.6 billion#4: Genuine Parts Company1,368$8.1 billion #5: Icahn Automotive (Pep Boys & Auto Plus)1,228NA#6: Fisher Auto Parts 500NA#7: Uni-Select Inc.255$1.2 billion#8: Replacement Parts Inc.177$222 million#9: Auto-Wares Group172$323 million#10: Automotive Parts Headquarters124$112 millionAftermarket Business World, May 2017The Road AheadContrary to popular opinion, sales of new cars do not negatively affect the aftermarket. Increasing new car sales reveals broad economic growth and consumer confidence, which are both good for auto parts retailers.AASA predicts that from 2017 through 2026, independent, non-chain retailers will lose market share to auto dealers, tire dealers and independent chains. A significant factor is more complex parts, which will increase the cost of doing business.According to a study by IHS Markit, by 2040, the number of new vehicles purchased will decrease, but the number of miles driven will increase. It predicts that 30% of vehicles will be electric. Ride-hailing services will own fleets of self-driving cars.Consumer Aftermarket Service Preference, November 2016Car AgePrefer DealerPrefer Independent0–3 years61%39%3–6 years51%49%6–9 years38%62%9–12 years18%82%12–15 years16%84%15+ years6%94%Gabelli & Company Automotive Aftermarket Outlook, November 2016The Online Parts CounterHedges & Company forecasts online auto parts retail sales will total $8.89 billion during 2017, a 16% increase over 2016, with sales exceeding $10 billion during 2018.Amazon is the auto aftermarket’s biggest online retailer, which doesn’t even include the approximately 33% of Amazon’s third-party sales. According to an article in Barron’s, Amazon’s auto parts prices were 22% less than chains’.Almost half of all online auto parts ($4 billion) were purchased on mobile devices. According to Google, 59% of searches for car batteries, 61% of off-road parts, 57% of truck parts and 70% of parts & accessories to modify appearance were via mobile.Growth Forecast for Online Purchases of DIY Vehicle Parts, 2013–2018YearTotal SalesOnline SalesOnline Sales GrowthOnline Percent of All Sales2013$47.2 billion$4.6 billionNA9.70%2014$49.0 billion$5.5 billion+19.6%11.20%2015$50.8 billion$6.6 billion+20.0%13.00%2016$52.8 billion$8.0 billion+21.2%15.20%2017$54.8 billion$9.5 billion+18.8%17.30%2018$57.0 billion$11.5 billion+21.1%20.20%Internet Retailer (U.S. Auto Parts Network), September 2015Bumps in the RoadAlthough the current market for DIY auto parts is strong, as parts become more complex and computerized, vehicle owners who would otherwise fix their vehicles will require technicians to make more repairs.Farther into the future, companies, such as Uber, will be disrupting transportation and transforming it into mobility as a service, or MaaS. They are likely to own fleets of cars and will service them in-house or in partnership with a large auto repair company.Many auto parts retailers are scrambling to improve their online experience to capture the Millennial market. Retailers without an easy-to-use, well-designed Website with customization capabilities are likely to have a small share of this market.AutoZone Quarterly Performance, 2017Financial MeasureQ1 2017Q2 2017Q3 2017Q4 2017Total revenues$2.47 B$2.29 B$2.62 B$3.51 BRevenue growth3.4%1.4%1.0%3.3%Retail store sales$2.39 B$2.21 B$2.53 B$3.40 BRetail store sales growth3.7%1.6%1.1%3.5%eMarketer Retail, November 2017 (quarters are fiscal quarters)Additional AnalysisEven though the biggest market for aftermarket auto parts is the owners of older cars, people who own newer cars also buy parts and accessories. They are more likely to buy products that enhance the appearance of their vehicles. For example, they over-index on glass cleaners, 106; tire dressing, 140; tire foam, 129; and wax/polish, 111.Millennial vehicle owners are very interested in personalizing the interior, rather than the exterior of their vehicles.Amazon is highly competitive in the auto parts DIY sectors, as it is paying manufacturers 30% more for merchandise, and taking a loss on some products.Auto parts stores have several advantages over Amazon and other retailers. First, they have knowledgeable staff members who can answer would-be amateur mechanics’ questions. Some customers also appreciate the opportunity to bring an old part into the store to make sure they are buying the correct new part.Sources: AutoZone Website, 11/17; Gabelli & Company Website, 11/17; Aftermarket Business World Magazine Website, 11/17; Hedges & Company Website, 11/17; Bloomberg Businessweek Website, 11/17; eMarketer Retail Website, 11/17; V12 Data Website, 11/17; Motley Fool Website, 11/17.Updated: November 2017? 2017 Media Group Online, Inc. All rights reserved. ................
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