Joyride Is Nearly Over for Auto Parts Stocks
An affordability crisis has people holding onto their cars, fueling optimism about the repair industry. But shares don’t have much more room to run.
The upside in shares of parts retailers has already been priced in.
Photographer: Andrea Morales/Bloomberg
Used-car sales have sputtered and new-car revenue growth looks uninspiring. But top-line growth is still strong in one corner of the auto market: parts. The jump in car prices has made drivers more inclined to hold on to their vehicles, and the aging fleet means a greater need for maintenance. That helps explain the recent bull market in stocks of parts retailers. But while the trend may have room to run, the extraordinary updraft in the stocks probably doesn’t.
First, consider the affordability crisis that created these unusual dynamics. The average new-car payment surged to $730 in March, up 27% from the one before the Covid-19 pandemic. Used-car payments are up 34% in the period to $541. According to an old rule of thumb, you’re not supposed to spend more than 10% of your after-tax take-home pay on your auto payment, so you’d need to gross more than $100,000 a year to afford an average new car (or around $75,000 for a used one.)