Much has been written about turnaround sensation Ford
While the story is no doubt a good one for the economy and the psyche of America, I have written extensively about industry trends that point to a long-term decline in new car sales. This doesn't mean Ford will struggle once the restructuring led by Alan Mulally is complete. The Fool's own John Rosevear has highlighted many times why he believes Ford will be successful into the future. John has been spot-on, but I believe there is a better way to gain exposure to the automotive sector.
Another big quarter for aftermarket parts
Aftermarket auto parts retailer O'Reilly Auto Parts
The trends continue
Standard Motor Products makes original equipment manufactured parts for automakers in addition to its aftermarket parts business, but CEO Larry Sills pointed to the aftermarket business as the engine for Standard's growth. On the recent third-quarter conference call, he listed the reasons for the continued success of not only his business, but also the aftermarket parts industry as a whole. Let's hear it from Sills.
- "The average age of the cars on the road is now greater than 10 years, which I've read is the highest it's been in almost 50 years. Obviously, older cars equal more repairs."
- "The car dealers are closing down, several thousand so far. The car dealers are the industry's biggest competitor, both with the repair and the sale of parts."
- "We believe there's been some pent-up demand that is hard to quantify, but believe there's been some pent-up demand from people who just didn't spend any money at all in 2009 and that repair work slopped over into 2010."
Sills also commented on this summer's extreme heat, which was favorable to parts retailers and repair shops because it caused vehicles to break down more often. So, essentially the perfect storm of trends has helped push the industry to a breakout growth phase. While the weather is tough to predict, the other trends that Sills spoke about are expected to last, especially as the economy remains stagnant and unemployment remains high.
How to play it
The aftermarket parts manufacturers are a good way for investors to take advantage of the continuation of these trends, while also gaining some exposure to Ford through their original equipment business. BorgWarner
Ford investors have been rewarded by a cost-cutting-led turnaround that has propelled the company back from the precipice of bankruptcy. However, the company will need more than cost-cutting to sustain its growth. Car buying has been declining significantly now for years and that is one trend Ford will have difficulty changing. If the trend does change, investors can gain exposure through these parts manufacturers, while also benefitting if car sales continue to lag, which I believe they will.
Andrew Bond owns no shares in the companies listed. Ford Motor and Borg Warner are Motley Fool Stock Advisor selections. Try any of our Foolish newsletter services free for 30 days. The Fool has a disclosure policy.