Hidden Treasure Awaits in Leftover Clunkers

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The wild response to the government's "Cash for Clunkers" program may have helped some 700,000 drivers breathe in that ephemeral new-car smell, but this Fool's nose detects the sweeter scent of long-term opportunity.

The program's resounding success certainly culled some older vehicles from the roads and converted them to scrap, but I believe that a cultural shift into thrift will challenge the new-car sales market for years to come. New-car retailer AutoNation (NYSE: AN) is expanding operations to position for recovery, but I consider the move drastically premature.

On the other end of the spectrum, scrappy steelmaker Schnitzer Steel (Nasdaq: SCHN) is expanding its presence in the self-service market for used parts. Schnitzer announced last week that it will offload its full-service retail parts business to LKQ (Nasdaq: LKQX), in exchange for six self-service auto-parts facilities and an undisclosed sum of cash. After this move, Schnitzer will operate 45 self-service facilities under the Pick-n-Pull brand in 14 U.S. states and Western Canada.

Geographically focused near the company's existing scrap operations, the acquired operations will enhance Schnitzer's vertical integration between its auto-parts and metal-recycling business segments. Furthermore, I believe that shifting focus from retail to self-service operations will allow to company to benefit from an emerging micro-trend within the shift to thrift.

Cost deferment hits households
Although AutoZone (NYSE: AZO) recently reported another double-digit increase in adjusted net earnings for the fiscal fourth quarter, management noted a disturbing development. The company's sales mix has shifted toward lower-margin items such as filters and brake pads, a move that to this Fool suggests that drivers are delaying necessary repairs. Logic dictates that big-ticket repairs can be deferred for only so long. Over the long haul, I continue to foresee strength in the markets for both new and used auto parts, and retailers such as Genuine Parts (NYSE: GPC) and Advance Auto Parts (NYSE: AAP) are bound to benefit.

When penny-pinching households finally address those deferred auto repairs, I believe that lower-cost, self-service facilities such as those acquired by Schnitzer Steel will find themselves bustling with activity. Schnitzer's auto-parts segment still represents a small portion of the company's overall business, and prospective investors are encouraged to focus research upon the broader metal-recycling market and companies such as Sims Metal Management (NYSE: SMS). For positioning itself to benefit from a shift to thrift, however, I believe that Schnitzer's long-term prospects just turned a little steelier.

Do you believe that a shift to thrift will have a lasting impact on the face of American industry? Please share your thoughts on the topic in the comments section below, and join Motley Fool CAPS to share your forecasts for the individual companies mentioned. CAPS is absolutely free, and it helps investors make dollars while pinching pennies.