December 21, 2021
It’s a great time to be in the aftermarket car-parts business. Just check out how things are going for Advance Auto Parts, whose business covers every nook and cranny of this market.
When Advance announced its Q3 2021 earnings in November, CEO Tom Greco reported rising revenues and all-around optimism for the chain, which operates nearly 5,000 stores in the U.S., mostly in the Northeast and Midwest. Advance has two primary buyers: consumers who fix their own cars; and private repair shops that install parts like brakes, belts, tires, and transmissions.
But Advance takes things much further: It has an expansive parts-catalog business, an academy for training automotive technicians, and a technology arm providing software and multimedia projects like animations that show consumers how a repair will be done. Its website and ecommerce operations are modern and mobile. And, as required of any business related to horsepower and socket wrenches, Advance sponsors racing events and competitors.
Let’s take a quick look at three reasons why the near-term outlook for the automotive aftermarket industry outlook is bullish, using Advance as an example.
Cars and light trucks are staying on the road longer than ever. The Wall Street Journal reported that the average age of U.S. cars and light trucks hit an all-time high of 12.1 years in 2021. Moreover, many of those cars are outside of warranty but not yet ready for the scrapyard.
These are the kinds of cars that DIY mechanics fix and maintain on their own. The less-mechanically inclined would probably rely on independent garages. These are prime markets for Advance Auto Parts and its counterparts in the aftermarket business.
The average list price for new cars in the U.S. exceeded $40,000 in July 2021, according to Kelly Blue Book (KBB). And buyers with immunity to sticker shock face another challenge: The global shortage of computer chips is pinching new-car inventories.
KBB notes that while used-car prices hit all-time-highs in the summer of 2021, the average of just under $26,000 was still far more economical than buying new. Economy-minded motorists often change their own oil. Those handy with tools often feel comfortable replacing belts and disc brake pads. And they’re less inclined to pay full retail for visits to the dealer’s repair shop.
What about the looming shift to electric vehicles? Yes, electric motors have far fewer moving parts than internal combustion engines, requiring less maintenance and fewer repairs and replacements.
But mass adoption of electric cars is years in the future. Data from an Advance strategic planning document from April 2021 predicts that in 2030, internal-combustion/hybrid vehicles on the road will still outnumber their electric-powered cousins by a factor of 20-to-1.
It’s true that the current auto part aftermarket chains face significant competitive challenges. Amazon and Walmart aren’t going away, for instance. Even so, there’s evidence that these giants’ forays into the aftermarket has run out of steam — primarily because chains like Advance have risen to the challenge and started recapturing lost market share.
Even without a mass market in electric vehicles, it’s looking like there will be plenty of electricity in the aftermarket industry in the coming decade.
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