OCR Text |
Show BRIGHTENING OUTLOOK FOR REPLACEMENT AUTO PARTS Dating back several quarters, the common stock performance of auto replacement parts firms has been sub-par sub-par contrasted with the more comprehensive com-prehensive market averages. Certainly the devastating fuel cost increases have taken their toll on motorists driving habits, and in particular their discretionary driving patterns. Yet, the firms involved in af-termarket af-termarket auto parts appear poised to produce a better financial showing in 1981 than last year's restricted results. This stock market segment may well, in fact, cast off the negativism perceived per-ceived in it by investors. , Historically, a reversal of poor operating results often changes investor in-vestor thinking, and we believe this may be the scenario over the near term for this temporarily neglected business sector. In light of our expectations for betterment, we certainly do not advise disposing of these fine equities at this time. AUTOS A NECESSITY As opposed to some critical fuel periods of the past, the current supply-demand supply-demand relationship is quite favorable. This has powerful implications for future mileage rates, and for the resultant need for replacement parts. Owing to the superior road network in this country compared with other nations, it is logical to expect the auto will remain paramount in personal transportation requirements for the foreseeable future. Its importance remains vital even though the ill effects of operating costs are being felt. And since private vehicles do still account for the bulk of our travel, the need for repair parts and maintenance services will persist. In the final analysis, the pace of demand is determined by the numerous vagaries of weather, the economy mileage, time and usages. A FIELD FOR TRANSITION A look under the hood reveals a substantial difference in the nature of our "space age" autos. The new units are far removed from their less complex predecessors because of fuel, safety, and pollution limitations. Initially, the changes were prompted in part by legislation, but the upthrust in vital fuel costs has decidedly altered consumer buying preferences. The era ' of smaller cars is here and here to stay with potential miles per gallon ' continuing as a primary determinant in car purchase patterns. At the same time, the substantial downsizing programs adopted by the automakers have presented fresh opportunities not only for supplier concerns but also for makers of replacement parts as well. COMPONENTS OF THE EIGHTIES The massive auto products changes have opened the field to new inroads by plastics, synthetics, and electronics. Into the replacement fraternity has been brought a new breed of parts, including sophisticated equipment to diagnose problems and even to properly service the novel components. New growth avenues are opening not only to streamlined procedures and methods but also to firms catering to service and maintenance. In our opinion, electronic automotive applications ap-plications will register good advances over the near term. PROFIT PUSHERS Aftermarket suppliers should benefit from several favorable factors during 1981 and into coming years. Extended financing arrangements are now common, implying longer ownership intervals and consequent increases in repair services and parts. Repair postponements can only be temporary. Soaring fuel costs will also spur more frequent tuneups, etc., as conservation measures. Over the past decade the average age of cars has increased smartly, which is of prime importance to replacement parts firms. The Research Department of Bab-son's Bab-son's Reports is of the opinion that the economic betterment projected for the latter part of 1981 will translate into a refilling of depleted parts inventories to meet a rebound in replacement business. |