With more people hanging on to their older vehicles in the recession, the price of used cars is going up. The trend is providing a boost to some auto companies and their stocks.
The reason? More motorists are keeping their old cars because they simply cannot afford a new car. New car sales are still in a slump, and that translates to fewer trade-ins of older models. With the Cash for Clunkers program draining the market of a large percentage of used cars and even car rental agencies holding tight to their older models, prices are rising for used cars at dealerships and auction houses.
Fewer 2008 and 2009 used-vehicle models are available than in peak sales years. There will be fewer 2010 models, too, if the new-car industry sells 11.5 million units in 2010 as predicted, according to Tom Webb, chief economist at Manheim Consulting.
Sales of new vehicles remain down. From 2008 through 2010, the industry will have sold some 35.2 million new vehicles, down from the peak sales years of 1999 through 2001, when it sold about 51.5 million units.
Because of this, more people are fixing and maintaining their older vehicles. Autozone (NYSE: AZO) shares are up 37% year-to-date and up a stunning 81% since the start of 2009. Its third-quarter sales were $1.8 billion, an increase of 9.9% from the same quarter last year. The Pep Boys’ (NYSE: PBY) second-quarter sales increased to $504.9 million from $488.9 million last year. Net income was $10.6 million or 20 cents per share, compared with $7.7 million or 15 cents a share in the year-earlier quarter.
Advance Auto Parts (NYSE: AAP) stock is up 39.71% and O’Reilly Automotive (NASDAQ: ORLY) has climbed 34% year-to-date.
Investors are keeping a close watch on used-car retailer stocks, which are showing sudden signs of life. As used-car prices continue to rise, the stocks may be set for a boom. Carmax (NYSE: KMX) shares are up 15% since the beginning of this month and AutoNation (NYSE: AN) shares have climbed 10% since the end of July. Copart (NASDAQ: CPRT), which runs car auctions, has been in the dumps most of the summer. It’s seen an uptick of 5% since Sept. 1.
