With strong growth in new vehicle sales, you’d think auto parts manufacturers would be wringing their collective hands over a shrinking Do-It-Yourself (DIY) or Do-It-For-Me (DIFM) market. In fact, a couple of emerging opportunities and challenges could be a boon for the right auto parts stocks.
First, the opportunity: Although market forecasts say new vehicle sales will hit 13.6 million in 2014, the average age of vehicles on the road is 11.4 years — the highest in history, according to Polk, the automotive research unit of IHS. With so many older vehicles still on the road, auto parts manufacturers have a clear opportunity to continue to profit from strong demand for automotive maintenance.
Second, the challenge: General Motors (GM) expects to spend $1.7 billion on parts, labor and loaner cars because of 13.8 million recalled vehicles in the U.S. And time is of the essence in the repair of 2.6 million vehicles with faulty ignition switches that have led to fatal crashes. As callous as it sounds, some auto parts manufacturers will be able to turn lemons into lemonade.
But not all auto parts stocks will benefit equally from the sector’s megatrends. Here are two auto parts stocks to drive now and two to ditch: