Who Wins in the ‘Golden Era’ of Car Ownership?

Consumers are better off than ever. These stocks should benefit.

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There’s never been a better time to for the typical American to own and operate a car.

That’s the conclusion drawn by economist Mark J. Perry, a professor at the University of Michigan and a scholar at the American Enterprise Institute. In a recent AEI blog post, Perry uses five charts to reveal the five biggest today’s cars have improved over their predecessors: longevity, fuel efficiency, safety, low financing, and cost.

For stocks in the auto space, each of these metrics has positive implications. Let’s take a closer look at each of these ownership positives and see who the potential winners might be.

Longevity

According to Perry, “the average age of cars on the road in the US reached an all-time high this year of 11.4 years, which is a full 3 years longer than the average age of cars in 1995.”

Perry ascribes this change to the fact that vehicles today are of better quality, more durable and more reliable than in the past. I think this is somewhat true, although I also think that the Great Recession forced consumers to hang to cars a lot longer than they ever wanted to. Moreover, the bottom dropping out of the housing industry in 2008-09 hurt purchases of construction-related vehicles such as pickup trucks.

For automakers, especially those who sell a lot of pickup trucks such as Ford (F), General Motors (GM) and Fiat’s (FIATY) Chrysler via its Dodge Ram brand, the fact that there’s an aging fleet of vehicles out there means a greater likelihood that consumers will look to replace those vehicles in the years to come.

Another potential group of winners here is auto parts suppliers, because older cars still require routine maintenance. Players such as Advance Auto Parts (AAP), AutoZone (AZO), O’Reilly Automotive (ORLY) and Pep Boys (PBY) provide the majority of that maintenance.

Fuel Efficiency

In addition to lasting longer, cars are getting better gas mileage. Perry shows that “the average fuel economy for US light vehicles in July reached 24.5 mpg, establishing a new all-time record high for fuel efficiency … In just the last six years, average fuel economy has increased by 19%, from 20.6 mpg in 2007 to 24.5 mpg this year.” The increased fuel economy means lower costs for consumers at the pump, and that makes us all better able to cope with a rise in gasoline prices.

This is a circumstance that’s good for consumer discretionary spending, as it means more money in our pockets. It could also mean a boost in overall revenue for companies that make up the Consumer Discretionary SPDR (XLY). Some of the largest components of that index include Comcast (CMCSA), Disney (DIS), Home Depot (HD), Amazon.com (AMZN) and McDonald’s (MCD).

Safety

On the safety front, Perry argues that “motor vehicle fatalities in the US, adjusted per 100 million vehicle miles traveled, have consistently declined over time, according to data compiled by the National Highway Traffic Safety Administration.”

This safety improvement is hard to quantify in terms of productivity and the potential impact on the economy and specific stocks, but the safer Americans feel behind the wheel, the more economic activity we’re likely to see. In other words, people feeling safe on the roads likely means more travel, more travel spending and more spending on leisure activities.

Potential beneficiaries of this trend include stocks that in the PowerShares Dynamic Leisure & Entertainment ETF (PEJ). Some of the fund’s top holdings include Starbucks (SBUX), Wynn Resorts (WYNN) and Starwood Hotels (HOT).


Article printed from InvestorPlace Media, http://investorplace.com/2013/08/who-wins-in-the-golden-era-of-car-ownership/.

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