The global economic downturn has had devastating effects car manufacturers as consumers worldwide have put off buying new vehicles and have chosen to keep and maintain their current ones. While this has severely affected the likes of General Motors (GM), Ford (F), and Toyota (TM), it provides unprecedented opportunities for auto parts stores, parts suppliers, and auto repair specialists.
While there are dozens and dozens of auto parts store chains throughout the country, the only publicly traded companies that are large enough to take advantage of the current economic situation are Advance Auto Parts (AAP), AutoZone (AZO), O’Reilly Automotive (ORLY), and The Pep Boys – Manny, Moe and Jack (PBY). AutoZone is the biggest player in the industry with an $8.8 billion market cap, and it appears to be the best positioned for the near future with its network of more than 4200 stores in the United States, Puerto Rico, and Mexico. Although it’s priced near historic highs, AZO stock’s price to earnings ratio is the lowest of the four, and its gross and operating margins dwarf those of its competitors.
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In the parts supplier space, there are really only two major players: Genuine Parts Company (GPC) and LKQ Corporation (LKQX). The interesting thing about these two companies is that they don’t necessarily compete directly against one another. GPC provides new parts to wholesale and retail customers, while LKQX provides mostly recycled parts to body shops and repair centers.
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GPC’s parts are sold under the NAPA brand, which is well-established and respected by the general public. In the U.S. alone, GPC distributes over 380,000 products through 58 NAPA distribution centers, and it services over 5,800 NAPA retail auto parts stores, of which approximately 1,100 are company-owned. The company’s NAPA AutoCare, NAPA Collision Center, and NAPA Truck Service Center programs support their wholesale efforts by providing business tools and support to a growing network of independent automotive service and repair businesses. Investors will like GPC’s high dividend which is currently around 4.6%.
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While LKQX does distribute some new products that are purchased directly from manufacturers, the bulk of their business comes from recycled products that are obtained primarily by the obtaining and dismantling of salvaged vehicles. Products supplied by LKQX range from engines to wheels to bumper assemblies to paint and auto body supplies, and the company is well positioned to take advantage of drivers who want lower-cost options for costly repairs, as well as for insurance and warranty companies that want to reduce their claim expenses. Though LKQX’s stock price has nearly doubled from its low in December, 2008, it is well below its 52 week high.
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Finally, while the list of companies that specialize in providing auto repairs and maintenance is long, only Monro Muffler Brake, Inc (MNRO) and Midas Inc (MDS) are large enough to benefit significantly from these economic times. With its more than 700 company stores in the Northeast and Midwestern areas of the United States, MNRO is by far the bigger of the two companies. Unfortunately, MNRO does not benefit from growing business in the other parts of the country. For a nationwide alternative, an investor might look at Wal-Mart (WMT) which has a significant car care business.
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[tags] car manufacturers, auto parts, United States, Puerto Rico, Mexico, NAPA, engines, wheels, bumper, auto body, insurance, warranty, AAP, Advance Auto Parts Inc., AZO, Autozone Inc., F, Ford Motor Co., GM, General Motors Corp., GPC, Genuine Parts Co., ORLY, OReilly Automotive Inc, PBY, Pep Boys-Manny Moe & Jack Inc., TM, Toyota Motor Corp., WMT, Wal-Mart Stores Inc. [/tags]