For Immediate Release
Chicago, IL – March 7, 2022 – Today, Zacks Equity Research discusses O’Reilly Automotive ORLY, AutoZone AZO, CarMax KMX and Advance Auto Parts AAP.
Industry: Auto Retail Parts
Growing demand for complex-technology embedded cars is providing impetus to the Zacks Automotive- Retail and Wholesale- Parts industry. The introduction of high-tech vehicles has led consumers to take more professional help, opening up more opportunities for the industry. While chip famine may cause near-term obstacles, the overall prospects of the industry participants, including O’Reilly Automotive, AutoZone , CarMax and Advance Auto Parts, hold promise thanks to rapid digitization, aging vehicles and the soaring popularity of electric vehicles.
The automotive sector’s performance depends on its retail and wholesale network. Through dealership and retail chains, companies in the Zacks Auto Retail and Wholesale industry carry out several tasks. These include the sale of new and used vehicles, light trucks as well as auto parts, execution of repair and maintenance services, along with the arrangement of vehicle financing.
The industry, being consumer cyclical, is dependent on business cycles and economic conditions. Consumers and businesses spend more on big-ticket items when they have higher disposable income. On the contrary, when income is tight, discretionary expenses are the first to be slashed.
Importantly, the coronavirus pandemic has brought considerable changes in the operating environment, with the industry laying more emphasis on e-commerce retailing, and the trend is here to stay.
3 Key Themes
Tech Advancement Creating Opportunities: The industry is undergoing a radical change with evolving customer expectations and technological innovation acting as game changers. An increase in the number of new, complicated and high-tech vehicles has compelled consumers to opt for more professional assistance instead of opting for DIY (“Do It Yourself”).
Widespread usage of technology and rapid digitization are resulting in a fundamental restructuring of the automotive market and auto parts suppliers need to develop a detailed roadmap to make the most of the opportunities in a changing market scenario.
Increasing Longevity of Vehicles Serving as a Catalyst: The increasing average age of vehicles is driving the demand for auto parts. Per IHS Markit, the average age of U.S. vehicles hit a record of 12.1 years in 2021. The aging vehicles are a boon to the retail and wholesale auto parts industry. In a bid to ensure the long-term functioning of the aging vehicle population, customers are making investments to replace faulty vehicle parts and components, thereby boosting sales of retail and wholesale parts.
Chip Shortage Acting as a Spoiler: Shortage of semiconductor supply is hampering the balance between demand and supply and is adversely impacting vehicle production. Several auto companies have been forced to make production cuts, and the situation doesn’t appear to ease out till at least mid-2022. This is limiting the demand for retail and wholesale auto parts.
Also, rising commodity costs, a tough labor market and logistical challenges are acting as headwinds. Consequently, near-term revenues and earnings of industry