How Auto Parts Stores Benefit From High Used Car Prices
Motorists Want to Keep Cars Running Longer
Inflation is continuing to push up prices throughout the economy, and that’s been especially true for used cars. The average price of a used car in January was 40.5% higher when compared to the same period in 2021. Meanwhile, prices rose 12.6% for auto parts and equipment throughout those 12 months.
Analysts say it’s significant that the cost of parts and used cars are increasing at different rates in terms of the impact on consumer trends: there’s a greater willingness to fix up older cars and keep them running when a replacement vehicle is so pricey. This trend could hold as the industry expects supply-chain issues to keep some new cars from hitting the market through 2023.
Auto Parts Companies Enjoying the Ride
Looking at recent earnings reports from several of the nation’s top auto parts companies, it’s clear business has been robust lately. Advance Auto Parts (AAP) posted an 8.2% year-over-year sales increase in Q4 2021, beating analyst expectations. Competitor O’Reilly Automotive (ORLY) reported revenue grew by 13.3% last year, which marked a 2.4% increase over 2020.
While analysts note inflationary pressures could eventually cause auto parts sales to slow, there’s another avenue for growth as well. Though US vehicle miles are still below pre-pandemic levels, there’s reason to believe Americans will be driving more this year. With more people on the road using older cars, the need for replacement parts and equipment increases.
Competitors Chase Market Share
Market observers predict larger auto parts companies will now focus on separating themselves from competitors. O’Reilly recently reported plans to lower prices in a bid to gain market share. Advance Auto Parts says it’s aiming to sell more high-margin items, including private-label brands.
Analysts argue these moves will take business away from smaller “mom and pop” auto parts stores. These shops have less sophisticated logistics that leave them more exposed to the supply-chain slowdown, limiting their ability to lower prices. Similarly, people who need their car for work prioritize product availability, and may gravitate toward larger auto parts stores as supply shortages persist.
Looking ahead, market observers argue a gradual return to normalcy, post-pandemic could be a benefit for auto parts stores, unlike furniture and home improvement sales.
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