Auto Parts Companies Price Collapse

[Ross812]

Several of these companies have been compounders for a number of years. It seems the adoption of the electric car is causing the price of these companies to contract because maintenance cost is expected to go down.

 

http://ei.marketwatch.com//Multimedia/2017/07/05/Photos/NS/MW-FP692_AutoPa_20170705141802_NS.png?uuid=4840e3b8-61ae-11e7-98ce-9c8e992d421e

 

Do you think the multiple compression is justified? I understand the electric drive train is much simpler and does not have near the number of moving parts, but surely there are still plenty of wear items on electric cars to replace. It seems like the all electric car is still a years off from mass adoption due to their limited range right now and we have a long way to go from their 2% market penetration to mass adoption that will hit the auto part companies' bottom line.

[rb]

WOW! Is ORLY really down 19% today or do I have a data problem? This is insane.

 

In all fairness these stocks have a really good run. All of them except AZO are ahead of S&P on a 5 yr basis.I think they got a little ahead of themselves. But down 20% in a day on a SSS miss is some really quick correcting.

[Gregmal]

For a market that is cruising and at all time highs, I think it's super important to note the stealth corrections that have taken place over the past few years in a number of sectors. Commodities, oil, biotech, social media, REITS, retail. This one has all the markings of the next one to get hit.

[thowed]

The other factor mentioned has been that Amazon is coming for them, though I have no idea if this is just a rumour or is based on insider knowledge.

 

Now you've just got to decide if it's time to buy the correction, or if this type of market volatility is a bad sign generally...

[Jurgis]

Amazon Prime Now 2 hr delivery service has Auto Parts "department". Currently selection in it seems to be crap. Amazon could grow the selection if they pushed for this business.

 

I personally don't find Amazon Prime Now service useful at this point, but YMMV and all that.

[eclecticvalue]

The other factor mentioned has been that Amazon is coming for them, though I have no idea if this is just a rumour or is based on insider knowledge.

 

Now you've just got to decide if it's time to buy the correction, or if this type of market volatility is a bad sign generally...

 

Yes they are working with Dorman Products (DORM)

[LC]

Amazon Prime Now 2 hr delivery service has Auto Parts "department". Currently selection in it seems to be crap. Amazon could grow the selection if they pushed for this business.

 

I personally don't find Amazon Prime Now service useful at this point, but YMMV and all that.

 

I think Amazon could do a great job with auto parts. A piece of my car fender broke a few months back. Step 1 was to find the part # from the manufacturer's website, Step 2 was to go on Amazon and see what prices looked like. Much cheaper to get the part from Amazon and have a body shop (or yourself) install it.

 

I remember my father used to do this, he would bring the car to the body shop, get the part # he needed from the mechanic, and went to the auto parts distributor to buy the part and bring back to the mechanic. Saved the giant markup from the body shop (who were just ordering the part and adding a markup).

 

Online manuals/Amazon (or Ebay) make this a lot easier.

[rb]

Amazon Prime Now 2 hr delivery service has Auto Parts "department". Currently selection in it seems to be crap. Amazon could grow the selection if they pushed for this business.

 

I personally don't find Amazon Prime Now service useful at this point, but YMMV and all that.

 

I think Amazon could do a great job with auto parts. A piece of my car fender broke a few months back. Step 1 was to find the part # from the manufacturer's website, Step 2 was to go on Amazon and see what prices looked like. Much cheaper to get the part from Amazon and have a body shop (or yourself) install it.

 

I remember my father used to do this, he would bring the car to the body shop, get the part # he needed from the mechanic, and went to the auto parts distributor to buy the part and bring back to the mechanic. Saved the giant markup from the body shop (who were just ordering the part and adding a markup).

 

Online manuals/Amazon (or Ebay) make this a lot easier.

I don't think that's really relevant here. These parts stores serve 2 kinds of customers: DIYers and mechanic shops. They also have all the parts catalogues, you don't need to go on the internet to search for it. For both kinds of customers it's important to get the parts quickly.

[LC]

Not sure I follow...I'm saying Amazon can make headway into the auto parts business because they can probably match the selection and delivery of auto parts stores. Maybe 1 day excess lag time but that may be worth it depending on the price difference.

[rb]

Not sure I follow...I'm saying Amazon can make headway into the auto parts business because they can probably match the selection and delivery of auto parts stores. Maybe 1 day excess lag time but that may be worth it depending on the price difference.

That's the thing, when you're talking auto parts 1 day excess lag time is forever in this world. Here we're talking more like 20 minutes delivery time. 2 hours is a long time and it's usually for a part that needs to be ordered from a DC. 1-2 days is for really weird/really expensive parts. The parts at the part stores aren't badly priced so there's not that much headway to be made there.

 

Also many times you realize you need some part after you started the job and opened the car up. So you're talking either order after the job is started or multiple orders per job. Either way lag times are killers. People don't like to have their cars incapacitated for days and the pricing just isn't there to make it worth it. Plus the part stores offer a whole bunch of ancillary services (such as borrow a tool, diagnostics, etc) that's hard to do online.

 

I'm not saying that Amazon won't sell more parts in the future, but it's not a field they're set up for, and they don't have a competitive advantage over the parts people.

[meiroy]

Some could be great takeover targets for Chinese companies -- a few of those are decades behind and they need to catch up.

 

[HJ]

I think it probably is relates to the lack of cars that are 4-10 years old, which would be otherwise going through their "prime maintenance years", compounded by the tightening of subprime auto credits at the very low end, which is killing used car prices at the very low end, and reducing reasons to fix up a 10 year old car, either by people who will trade it in or by the dealers who will fix it up and on sell.  It's certainly industry wide, and likely a problem that is worse than simply 2 consecutive warm winters as explained by the managers, but also not quite as structural as "being Amazoned", ... yet....

 

 

 

[orthopa]

I think the amazon argument has some legs but for the people who are really comfortable working on cars and have time to burn because the part isn't that necessary. If your on Amazon searching for a part your car is running and the part isnt necessary. That or you can ride your bike or walk to work.

 

Say your battery is dead. Going to wait for amazon for 2 days or ship a 30 lb battery?(can you even ship a battery?) Could do Walmart but they have always been there. Your alternator dies. Same thing. Going to wait 2 days? What about your core?  You going to ship that back?What if you accessory belt needs to be changed at the same time?

 

Ever change a water pump and tear the gasket? Break a bolt reefing on it with a breaker bar? etc.

 

Secondly I think honestly if you took the vast majority of women/wifes/gfs (extrapolating from my wife) and told them they could save 10-15% by fixing their EGR valve or their TPS sensor IAT sensor etc of have someone do it....they are having someone do it. Question then is where are the garages getting their parts?

 

I am pretty handy with cars and can do 80-90% of repairs outside of major tear outs/rebuilds and sometimes the part cant wait or its not worth waiting 2 days to get it.  Not to mention even as society has become more thrifty the vast majority of people are becoming less familiar with car repair.  Ever see people on the side of the road with AAA there to change a tire for christ sakes!

 

If anything it may go a long way for AAP, AZO, ORLY to lower their prices just a smidge because some stuff is just ridiculous if you have a reasonable idea of what stuff should cost.

 

Is ORLY worth 20% less now then a week ago because of one SSS miss? I doubt it.

 

 

[Fly]

Not sure I follow...I'm saying Amazon can make headway into the auto parts business because they can probably match the selection and delivery of auto parts stores. Maybe 1 day excess lag time but that may be worth it depending on the price difference.

That's the thing, when you're talking auto parts 1 day excess lag time is forever in this world. Here we're talking more like 20 minutes delivery time. 2 hours is a long time and it's usually for a part that needs to be ordered from a DC. 1-2 days is for really weird/really expensive parts. The parts at the part stores aren't badly priced so there's not that much headway to be made there.

 

Also many times you realize you need some part after you started the job and opened the car up. So you're talking either order after the job is started or multiple orders per job. Either way lag times are killers. People don't like to have their cars incapacitated for days and the pricing just isn't there to make it worth it. Plus the part stores offer a whole bunch of ancillary services (such as borrow a tool, diagnostics, etc) that's hard to do online.

 

I'm not saying that Amazon won't sell more parts in the future, but it's not a field they're set up for, and they don't have a competitive advantage over the parts people.

 

As someone who has spent time wrenching on cars, I can't stress the above post enough. Many projects start as a simple repairs, but snowball quickly into something more in depth. Several trips to the nearest auto parts store are often required.

 

Mail order would work for a few obscure parts and/or types of cars that aren't commonly stocked at the local store. Also, what are the cost implications for shipping hazardous liquids (oils, lubricants, cleaners etc etc) for a company like Amazon?

[JayGatsby]

These companies don't seem especially cheap to me even with the price collapse... they could have simply been overvalued before.

[rb]

These companies don't seem especially cheap to me even with the price collapse... they could have simply been overvalued before.

That's true. That's why I haven't rushed to buy them. They've had a very good run for years. My comments were more about how the business works.

 

But even if these have had a big run and they're overvalued. Usually things that had a good run correct kinda sorta slowly over time. It's weird to see these big compressions where you see a 20% valuation correction in one day. You kinda expect that to happen more over like 6 months or so.

[rkbabang]

For things that you can wait 2 days for, I've found Amazon to be cheaper than my local Autozone.  I've so far bought windshield wipers, brake rotors, and brake pads off of Amazon.  Although having the part immediately is important if you need an alternator or something.  I've changed an alternator on the side of rt128 once, I called a friend to pick it up and bring it too me while I was sitting there. Waiting two days for it wouldn't have been an good option, I would have to had the car towed.

 

[Jurgis]

I'm not really interested in this topic, but everyone harping about 2 days should change that to 2 hours for Prime Now.  8)

[rkbabang]

I'm not really interested in this topic, but everyone harping about 2 days should change that to 2 hours for Prime Now.  8)

 

Will they deliver to you on the side of the highway?  30 minute drone delivery to wherever you are, now that would kill the autoparts brick and mortar stores.

 

[CorpRaider]

Apologies if this is discussed above, but just in case some of us are trying to figure out why the other bloke is so eager to sell, there are some (many?) who believe that the advent of fully autonomous EV's with their far fewer moving parts and far more complex electronics/computer systems and potential changes in ownership to an on-demand fleet of "mobility solutions" will wipe this sector from the face of the earth.

[rb]

Apologies if this is discussed above, but just in case some of us are trying to figure out why the other bloke is so eager to sell, there are some (many?) who believe that the advent of fully autonomous EV's with their far fewer moving parts and far more complex electronics/computer systems and potential changes in ownership to an on-demand fleet of "mobility solutions" will wipe this sector from the face of the earth.

Because that time is many, many years in the future.

[rkbabang]

Apologies if this is discussed above, but just in case some of us are trying to figure out why the other bloke is so eager to sell, there are some (many?) who believe that the advent of fully autonomous EV's with their far fewer moving parts and far more complex electronics/computer systems and potential changes in ownership to an on-demand fleet of "mobility solutions" will wipe this sector from the face of the earth.

 

Because that time is many, many years in the future.

 

I think you have two too many manys.  It is years in the future, but not as many as most people think. If auto parts stores exist only in rural areas the companies which survive the transition will be a small fraction of the size they are now.

[rb]

Well as long as EVs don't become price competitive you won't have mass adoption. Let's put it this way, I wish I could drive a Tesla instead of my BMW. But I just can't justify the cost. Now unpack that:

 

1. I already drive a rather expensive car so I'm further along cost wise than other people. The proposition in much worse for the guy driving an entry level Chevy.

2. I actually want to have an EV. But there are many others for whom an EV is against their religion (think rolling coal types).

 

Once EVs become price competitive it'll probably take 15 years or so to replace the existing fleet. So yea, while I personally wish for this process to happen quickly, the realist in me knows It'll take a long time.

[LongHaul]

Amazon and Rock Auto and the internet will only get more competitive vs the stores.  Amazons faster shipping and probable lower prices will only threaten the AZO's of the world more and more.  RockAuto is great also.

 

1.  The auto parts stores are some of the highest ROIC retailers I can think of.  I question the sustainabilty.

EBIT margins are super high and A/P are very high.

2.  It has turned into an oligopolistic business where a few remaining players are hosing consumers on parts they need often right away.

3.  There are really 2 sections of their business - competitive stuff and other.    Competitive stuff are cleaners, oil, etc that Walmart, etc sells.  These have lower margins.  Then the hard parts is probably lower turn and super high gross margins.  60%+ would be be unusual.  That is ripe to come way down.

 

Frankly - I think the CEOs of these stores are idiots who have jacked up prices and are just opening up the door to get killed long term.  Hard to predict when though. 

 

[DooDiligence]

Anyone seeing Amazon stepping up to buy one of these guys?

 

Wouldn't it be funny if Amazon started adding more & more B & M to their mix? (next stop FAST)

 

Bricks are hard to break but easy enough to buy.

 

(Just a flight of fancy with no factual basis for presentation...)