If this were a race, aftermarket manufacturers would be leaving the other channels in the dust. A recent Aftermarket Analyst report by Capstone Financial Group places manufacturers at the front of the pack for 2004 stock price gains with an average 51-percent increase.
The positive postings were most profoundly reflected in Tenneco Automotive, which saw a 2004 gain of 158 percent, according to the Capstone report. In comparison, the S&P 500 experienced a gain of only 8.9 percent for the entire year.
Wholesalers and distributors were the next best performers with 16.7 percent in average gains, states the report, pointing out that Genuine Parts and The Coast Distribution System led the way with 36.9- and 35.9-percent gains, respectively.
But suppliers should not break out the champagne just yet; in 2003, retailers led the way in stock gains, says Jonathan Taylor, senior associate for Capstone Financial, who adds, “Year to year, the underperformers often become the top performers” and vice versa.
“The manufacturing sector has been picking up in terms of their orders,” he says, attributing the 2004 boon partly to favorable exchange rates. Simply put: “They can sell their items cheaper” in overseas markets.
This news comes as a bit of a surprise considering we reported last November that auto manufacturers slowed down production late last year. In result, the downturn in vehicles produced was thought to negatively affect a number of aftermarket manufacturers, many of whom do business with both the OEs and aftermarket distributors.
But Taylor concedes that it’s for this very reason that a number of manufacturers came out on top because, theoretically, aftermarket sales are a good hedge against lagging OE sales.
“If you have fewer (new) cars being bought, you have more cars on the road; it increases the general age of vehicles on the road.” And more older cars on the road translates to more of a demand in aftermarket parts, Taylor adds.
Though retailers undershot the S&P 500 by experiencing an average 1-percent drop, Taylor says he’s not surprised.
“Consumers, in general, are overspent,” he shares. “You wonder how much more Americans can buy. It’s hard to imagine we’ll need anything else.”
Another contributor to 2004 retail stock performance — which included posted losses of 24.3 percent for Pep Boys and 10.8 percent for CSK — could be AutoZone’s Pay-On-Scan success, or lack thereof.
“They weren’t as successful as they had hoped,” Taylor says, speculating the POS program led to disappointment on Wall Street as well. Others in the industry are predicting an eventual fade-out of AutoZone’s consignment-based system.
Distributors, whose stock performance fell right in the middle, have consistently been solid performers, says Taylor. Being middle-of-the-road certainly has its advantages.
The Aftermarket Analyst report adds that mergers and acquisitions (M&As) last year were the highest they’ve been since the late ’90s, with 9,964 M&A transactions in 2004, a 14.8-percent increase over 2003. The transactions represented $777 billion in value, a 43.7-percent increase over the previous year, according to the report, which adds 2004 also saw an all-time high in buyouts of U.S. companies by private equity groups.
Capstone expects 2005 to be another all-around strong year and a continuation of last year’s trends as they relate to stock performance and M&As.
