Americans Will Prove to Be Formidable Do-It-Yourself Mechanics

With the price of living on an ever-increasing trend, Americans are having to find more resourceful ways of cutting costs. They are cutting discretionary spending and forgoing large purchases such as new automobiles.

The one problem that inherently comes with Americans opting out of a new automobile purchase and sticking with an aging automobile is that the aging automobile, more often than not, will need several repairs done. These repairs also represent significant costs to American families as having a mechanic repair an older vehicle for which a warranty has expired can be quite costly.

This is where the versatility of the American consumer shows up. Americans are pulling out their toolboxes, putting on their mechanic's hats and fixing their vehicles themselves. This is certainly bad news for mom and pop mechanic shops, but good news for the auto part suppliers who these "do it yourselfers" now rely on for parts.

This trend has actually found its way into the recent stock prices of such auto parts suppliers like Autozone Inc. (AZO) and Advance Auto Parts Inc. (AAP) as year to date both of these stocks are in positive territory, up 2% and 1.6%, respectively. Now that may not sound like a significant amount, but considering the overall market performance, any company that is in positive territory must be doing something right.

What differentiates AZO and AAP from their competitors such as Pep Boys (PBY) is that they focus specifically on supplying parts to the "do it yourselfer" and do not operate service shops in addition to a retail store. This model allows them to focus solely on their retail stores without having to worry about a struggling service shop bringing down the profits and raising the costs.

The odd thing about AZO and AAP that makes them very attractive for an option buyer is that they, along with the overall market, have seen their share prices dip recently from their June highs. They should be in for a correction when the market realizes that nothing has changed about their business model and that they will still perform well under current consumer conditions as people continue this "do it yourself" trend.

Look for these companies to rebound soon, making them a good call option purchase for the option traders out there and a sound investment in troubled economic times for the more risk-averse investor.

Disclosure: No position.

Comments

[dirtynails:]

There are two kinds of repairs on cars, and the average car owner has neither the ability nor the equipment to do the high-tech kind (fuel injection, data bus, GPS, etc). On the other hand, the AZO/AAP customer is strictly low-tech, doing the absolute minimum to keep an older car rolling - oil and filter, fluids, brake pads. Parts supplier service operations are for customers who don't even have the physical space or skill to do that. However, the SUV/European sports sedan crowd is not going to get their hands dirty - they will probably forgo an $800 major service at their dealer and go low-ball at the mom and pop mechanic shop for any repair/service their warranty doesn't cover. As soon as the economy turns around, they will once again bask in the prestige and ease of full service dealerships.

2008 Jul 10 09:18 AM

[eshell:]

The money saved from not buying a new car should be morenthan enough to repair the current car in a shop. So this argument about notbuying a new one brings business to azo is false. The real potential comes from those that normally brings to shop and now are doing it themselves. The main problem in this total picture is the aggregate reduction of miles driven by >7 yr cars.
Following the logic of the auther, one would expect cooper tire to go up as more people would opt for the lower end tire rather than the name brands. Although this is happening, the total ware and tear on the tires are way down. Thus, a sightly larger share of a swiftly shinking pie is not too helpful. Check CTB for yourself. You may see a short term boost of people putting on break pads to their existing cars. But, by not driving them as much as before, these new oes will last a long LONG time. Think about it: at a time 1 tank gas will cost you the change of a pair of breaks, what do you do? You do the breaks yourself and keep driving, or you cut down on driving? When you do it, I do it, she does it, what happens to the tire ware? By inference, what happens to other parts on car?

2008 Jul 10 11:49 AM

[eshell:]

Didn't the new found demand come from the "agreement"? The fact that the agreement forces the management to buy back its own stock at a time mit does not have the money to do so and at a time that the CEO's own account is dumping azo shares is not a sign that the price is supported by public view that the business is going strong and thus massive retail investors buy orders coming in. Using the balance sheet to buy bak is nothing more than forcing the bond holders to buy some of your shares.
I have a better idea, why don't all the hedges buy some of the large ticket items and let them sit on the hedge funds balance sheet for 9 months. By the time the call options make money, you can return the copies of ALL-DATA CD's (unopened) back to AZO. You are happy, they are happy. Employees get focked just like the sears employees are getting now.

2008 Jul 10 12:35 PM

[notsosmart:]

except for some basics the newer cars cant really be correctly repaired by the do it yourself people.the mom -pop mechanics charge 1/2 of what dealers charge & you can speak to the person who does the work.my 2 cars go to the same person for many years.he is not cheap but fair,good & reliable(great service & del.when promised)so that im lucky as i still drive my 1991 caprice.around here sales tax on an average new car $1,200 & up.

2008 Jul 11 02:40 PM

[GHarri:]

The DIY craze crosses so many lines. These days, it's usually the way to go, but sometimes it's just not the best bet, even from a financial standpoint. Good thread on that here:
digits.hrblock.com/ssD...

2008 Jul 17 11:46 AM