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Show REPLACEMENT AUTOMOTIVE PARTS As the calendar year winds down for firms catering to the aftermarket automotive sector, it appears that 1979 will be yet another twelve-month period of sales and earnings progress. Although it is anticipated that 1979's expected advances will not be as large as those tallied in the preceding year, nevertheless the results will be positive. Looking ahead, the outlook continues bright. Aided by the substantial number of vehicles on the road expecially those in the key three-to-ten-year category coupled with the growing complexity of today's cars and trucks, the longer-term prospect for suppliers is quite favorable. FUEL QUESTION Gasoline dislocations or shortages earlier in 1979 brought about some skittishness by investors in this market segment. However, as the year unwound, un-wound, availability of gasoline improved im-proved and more credence was given to' potential annual mileage rates and sales of automotive replacement parts. There is no question that the trouble which erupted subsequently in Iran and the possibilities of even further Middle East dislocations could worsen fuel availability for the U.S. Hence, it's a reasonable assumption that a return to long gas lines could recur. However, for the moment the problem has abated, along with some of the adverse gusoline-relatc-u psychology so prevalent a few months back. It is worth noting that even a temporary letup in "panic thinking" improves the prospects for a more normal now U auto parts in the coming months. I'PTlcK IN i)E.M AND LIKELY Allowing for a reasonably adequate fuel supply in 1980, we feel there w ill be no dramatic reversal in mileage-driven rates. We anticipate tiis despite expectations ex-pectations of increasing cast levels. American motorists traveled a record 1.5-trillion miles in 1978, up some -40 billion from the preceding year. Most Americans drive to work, and cars, trucks, and taxis account for some 90 percent of total personal travel. This pattern may be altered in the future, but essentially we look for still more of the same near term. Hence the substantial mileage traveled annually an-nually should assure continued high demand for replacement automotive parts. Also favoring high parts demand is thestream of healthy auto sales units of the past 3 to 4 years now entering the prime replacement-parts period. Most autos three years old or more are beyond standard or extended warranties. FINANCIAL ENHANCERS Several factors highlight the relatively optimistic scenario we envision en-vision for replacement parts demand. There is still a net increase in number of vehicles on the road. This is to say that auto scrappage rates in recent years have not outpaced auto sales rates. Hence, the pool of parts candidates can-didates is getting even larger. Also, given the emphasis on fuel conservation, con-servation, many consumers may opt to fix or tunc up their autos to maximize fuel efficiency levels. Noteworthy too, the extended repayment periods on automotive debt imply longer terms of auto ownership with the consequent need for more replacement parts. In general, the level of profitability from parts sold for replacement purposes is higher than it is for original equipment, not to mention the fact that the replacement market is a much more stable area of operations. The Research Department of Bab-son's Bab-son's Reports has recently evaluated the prospects for firms in the automotive replacement parts field and has concluded that the outlook for their continuing financial success is quite bright. Hence, we are advising our clients to maintain stock commitments in this investment sector of their portfolios for longer-term appreciation potential. |