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Has AutoZone Peaked? The Future Demand for Automobiles in the U.S.
Posted by: Carmine Romano (IP Logged)
Date: May 2, 2012 10:38PM

Today there are 242 million registered cars on the road, which equals the last 16 years of new car and light truck sales. This is down from the peak of 248 million in 2008.

I recently read a report called "Transportation and the New Generation” (TNG) by U.S. PIRG Education Fund and Frontier Group. The statistic that intrigued me the most was, “According to the Federal Highway Administration, from 2000 to 2010, the share of 14- to 34-year-olds without a driver's license increased from 21 percent to 26 percent." How will this trend strain demand into 2015? Are there other trends which might provide clues to future demand for the automobile?



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I decided to take a look at industry statistics and demographics which may provide clues on the future demand of both auto parts and car and light truck sales.

Comparison of car and light truck statistics 2005 vs. 2011

20052011% change
Average age of car and light trucks on the road, years9.510.813.68%
Average age of cars only, years10.111.19.90%
Average age of light trucks only, years8.710.419.54%
Car and light truck sales, millions17.4413.04-25.23%
*Scrapped vehicles as a % of new registrations58.3100.572.38%

Source: R.L. Polk , Ward, FHA, NADA
*2010

The average age of car and light trucks on the road increased to 10.8 years, up 13.6% from its 2005 average. Separating the data, light trucks average age increase more sharply, up 19.5% from the 2005 average. Many light trucks are used for semi-commercial/small business purposes, as a result the average age increased more sharply. As this occurred many auto parts retailers stocks benefited from this change. Autozone and O’Reily Auto Parts are up 300% since 2005. Stocks of auto makers like GM, Ford and Chrysler all were hit badly in this period. Will this continue?

20052010% change
Number of registered vehicles, millions2412420.41%
Number of Licenses Drivers, millions2012104.48%
US Population 15-34, in millions82.2285.363.86%
US Population 35-69, in millions126.83134.516.06%
US Population 70+, in millions26.6527.984.99%
Total Population2362485.17%
Licensed Drivers to population85.29%84.73%-0.66%
Sources: Federal HighwayAdminstration and US Census


The amount of registered vehicles was flat between 2005 and 2010 at 242 million. At the same time the population available to drive grew by 5.15% in the same period. The amount of licensed drivers grew less than the available-to-drive population at 4.48%. Since 2005, 15% of the available-to-drive population do not have driver's license. Who are they? Why did they choose not to get a driver's license? According to the report previously mentioned, they are the 14- to 34-year-old group.



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Are the Auto Parts Retailers near a market top?

Although the amount of registered cars remained at 242 million since 2005, the Auto Parts retailers benefited from an increase in the average age of the car. The sweet spot of the auto parts retailer may soon be over as some demographic and cultural changes in driving and car ownership are appearing in the stats. As less of the newly able to drive choose not to get a license, the amount of cars that remain on the road will decline. The TNG report stated that some of the reasons are related to costs, living in cities, easier public transportation options, and more comprehensive driver exams. The report did not look at the elderly, the part of the population which is expected to grow the most in the next decade. This group is limited to purchases as they become physically unable to continue to drive.

As the trend of 15- to 34-year-olds without a license continues, the current unlicensed 29- to 34-year-olds will be in the 35 to 69 age group by 2015, diminishing that group's demand for automobiles in the future. Now consider the large loss of drivers at the 70-or-higher age as that age group is expected to expand the greatest over the next five years. What you get is all driver age groups declining and a measurable decline in the demand for the automobile (new or used) in the US. With 300% or higher gains in AutoZone and O’Reily’s Auto, I will give them a couple of more quarters until you see these demographic changes hit their earnings and stock prices.


Stocks Discussed: AAP, AZO, ORLY, GM, F, FIATY,
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Re Has AutoZone Peaked The Future Demand for Automobiles in the U S
Posted by: Carmine Romano (IP Logged)
Date: May 30, 2012 11:42AM

Pep Boys Deal falls apart. This indicates professional investors may not buy the fix it yourself model. Although, PEP Boys is more of a do it for me model. Working on a PEP Boys story now. For DIY business's As demographics indicate a aging population , an investor has to ask how many 65 year olds really install their own brakes?


Stocks Discussed: AAP, AZO, ORLY, GM, F, FIATY,
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Re Has AutoZone Peaked The Future Demand for Automobiles in the U S
Posted by: Carmine Romano (IP Logged)
Date: June 27, 2012 08:32AM

Autozone down $23 in pre market as ORLY bring down same store sales forecast by 1/2.


Stocks Discussed: AAP, AZO, ORLY, GM, F, FIATY,
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Re Has AutoZone Peaked The Future Demand for Automobiles in the U S
Posted by: Invest E Gator (IP Logged)
Date: June 27, 2012 04:10PM

Im not sure that AZO has peaked, per se, but I question the future strength of their eps growth potential. You make an interesting point about licensing, and that adds to this but I also look at average car age, and that new car sales are starting to go up, implying that this should be replacing older cars on the road. Btw, have you looked at ORLY by chance? There is an interesting riddle going on here where AZO takes on debt to buy back shares while ORLY issues shares to fund growth, normally I would shun such a thing but its still working out well for ORLY. Do you have any thoughts on them? .


Stocks Discussed: AAP, AZO, ORLY, GM, F, FIATY,
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Re Has AutoZone Peaked The Future Demand for Automobiles in the U S
Posted by: Carmine Romano (IP Logged)
Date: June 29, 2012 12:59PM

I have not researched ORLY. I will say this all these DIY retailers have added new stores in the last five years yet the amount of cars on the road has been flat. So you may have a saturation. Longer term, the aging pop. will move from DIY to the Do it for me model of Pep Boys as I indicated in my latest atricle. I did not see new cars sale up maybe fleet sales like hertz or avis might have a buy cycle.


Stocks Discussed: AAP, AZO, ORLY, GM, F, FIATY,
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