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By Auto News
MEMPHIS, Tenn. , Aug. 13, 2020 (GLOBE NEWSWIRE) -- AutoZone, Inc. (NYSE: AZO), the leading retailer and a leading distributor of automotive replacement parts and accessories, plans to hire more than 20,000 new AutoZoners (employees) nationwide to meet the growing demands of its Retail and
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Activist investors targeting auto-parts retailers are taking hits to their investments, and Amazon isn’t helping.
When hedge fund Starboard Value LP disclosed a stake in Advance Auto Parts Inc. in 2015, it said the stock, then at $171, could more than double. The retailer’s shares have instead nearly halved since then, after warning weak sales will continue for an industry that’s also drawn interest from billionaire Carl Icahn. Advance Auto’s peers O’Reilly Automotive Inc. and AutoZone Inc. also have also plunged this year amid disappointing demand.
Perhaps the biggest bogeyman weighing on the shares is Amazon.com Inc., which sent shockwaves across the retail industry in June with its $13.7-billion acquisition of Whole Foods Market Inc. The online juggernaut has also been making inroads with autos, launching a car-research site and a parts marketplace last year. While car-part distributors -- with their technical expertise, trove of components and ability to quickly deliver to mechanics -- are more insulated from e-commerce than other retailers, though they’re not invincible.
“We fear an increased level of price transparency -- these companies either more aggressively price or promote their products to drive the same level of sales growth,” Seth Basham, an analyst at Wedbush Securities, said of the auto-parts retailers. “I don’t think it’s a primary driver of what’s been hurting same-store sales in the industry this year, but that doesn’t mean there can’t be a bigger impact going forward.”
The more immediate challenges dragging on the industry include economic uncertainty for low-income customers, higher gas prices and warmer weather that has eased the wear and tear on consumers’ cars, Advance Auto Chief Executive Officer Tom Greco said Tuesday.
Starboard’s view is that Amazon is a mild headwind -- at most -- to the industry, a person familiar with its strategy said. The New York-based hedge fund is pleased with Advance Auto’s efforts to cut costs and bolster its online presence and sees earnings improving early next year, said the person, who asked not to be identified because the matter is private.
Further encroachment by online rivals could pose a threat to industry profit margins that are in excess of 20 per cent -- part of what initially drew investors like Starboard and Icahn to the aftermarket parts business.
With the average age of vehicles on American roads approaching 12 years, investors also are betting an older vehicle fleet will mean more repairs and parts replacement. To capture that expected growth, Icahn has strung together several companies that deal in automotive parts, including service and retail chain Pep Boys, Auto Plus and parts supplier Federal-Mogul.
For now, e-commerce represents a sliver of the $277-billion aftermarket parts business, according to estimates from Wedbush and the Auto Care Association, an industry trade group. Online sales were about $11-billion last year, with EBay Inc.’s roughly 40-per-cent share being the largest, Wedbush estimates. Amazon had about a 25-per-cent share, though it’s growing at a rapid clip, Mr. Basham said.
Amazon launched the Amazon Automotive store in 2006 and has been expanding its inventory since then. It’s added a parts-finder filter that lets shoppers enter the make and model of their cars to find the correct parts.
“We’re continually expanding our selection and improving the customer experience with things like our Part Finder, Amazon Garage and, most recently, Amazon Vehicles,” a company spokeswoman said in an email.
Icahn Automotive, which owns Pep Boys and Auto Plus, and Starboard declined to comment. Spokespersons for O’Reilly, AutoZone and Advance Auto also declined to comment.
In trying to assess the potential threat from Amazon and other online parts sellers like RockAuto and EBay, analysts are honing in on retailers’ exposure to the consumer-facing “do-it-yourself” market, as opposed to the “do it for me” approach in which retailers sell to professional mechanics. The do-it-yourself market could be more vulnerable because consumers who aren’t in a hurry to buy a new wiper blade or spark plug may go online to find the cheapest price.
The do-it-yourself segment already is lagging, according to the Auto Care Association, which estimates sales will grow at a compound annual rate of 3.8 per cent in the five years ending in 2017, compared with a 4.4-per-cent increase for the do-it-for-me market.
The slower growth also is a reflection of cars getting increasing complex and loaded with technology, which contributes to more repairs necessitating technicians, said Behzad Rassuli, senior vice president of strategic development at the Auto Care Association. Some bumpers, for instance, now are built with embedded sensors that need to be properly calibrated.
“The opportunity for the consumer to repair their own vehicle has been dwindling,” Mr. Rassuli said.
Mr. Icahn said as much when speaking about his acquisition of Precision Auto Care Inc. in June, the latest addition to his chain of auto-repair shops. He’s also planning to take advantage of higher utilization of cars driven by the growth of ride-hailing businesses, he told the Wall Street Journal in an interview at the time.
Greg Henslee, O’Reilly’s CEO, has said the impact of companies like Amazon will be limited because they will struggle to sell component to consumers who don’t know what’s wrong with their car. Online retailers “will continue to take a little bit of market share here and there,” Mr. Henslee said on an earnings call in February. “I don’t see them nearly as one of our most prominent competitors.”
Even if their expertise diagnosing car troubles offers some protection, traditional parts retailers still are under pressure to improve their digital experience, especially since a buyer will often go online to ensure a part is in stock before picking it up at a store.
Advance Auto is investing heavily in technology to ensure a “consistent experience every time, both in-store and online,” Mr. Greco said on the company’s earnings call Tuesday. He told analysts consumers will have a “faster and more frictionless experience” online.
If you’re a parts retailer, “you’re definitely concerned,” Wedbush’s Basham said. “You’re thinking about ways to defend your turf and to capitalize on the way consumers are changing their behaviour.”
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Auto parts maker Tenneco is buying Federal-Mogul from Carl Icahn's Icahn Enterprises in a deal worth $5.4 billion in cash and stock.
Tenneco will then separate the combined companies into two separate stocks in a tax-free spinoff, one focusing on "aftermarket and ride performance," the other on "powertrain technology."
"We expect to be meaningful stockholders of Tenneco going forward and are excited about the prospects for additional value creation," Icahn said in a statement. "This transaction is an excellent example of our general modus operandi at Icahn Enterprises, by which we seek to acquire undervalued assets, nurture, guide and improve their condition and operations, and ultimately develop them into more valuable businesses, which greatly enhances value for all shareholders."
Icahn acquired control of Federal Mogul, a maker of wiper blades and spark plugs, in 2008. The activist investor then took it private in January 2017.
Tenneco shares jumped more than 6 percent in premarket trading Tuesday.
The sale to Icahn, made up of $800 million in cash and 29.5 million shares of Tenneco stock, is expected to close in the second half of the year.
Parts Authority announced today that they have acquired IMC from AutoZone.
LAKE SUCCESS, N.Y.--(BUSINESS WIRE)--Parts Authority, one of the largest distributors of automotive and truck parts to the aftermarket auto parts industry throughout the United States, today announced it has entered into a definitive agreement to purchase Interamerican Motor Corporation (“IMC” or the “Company”) from AutoZone, Inc, (NYSE: AZO). IMC operates 26 locations across 9 states and is the second largest distributor of OE quality import replacement parts in the United States. For over fifty years IMC has been committed to offering its customers a robust parts catalog sourced from hundreds of foreign focused suppliers, including original equipment brands. The transaction is expected to close in the coming weeks.
"We are excited to add IMC to the Parts Authority platform. This acquisition is an expansion of our product offerings, customer touch points and geographies. The Company’s leadership in European replacement parts is a logical fit with Parts Authority’s current catalog," said Randy Buller President & CEO of Parts Authority. "We believe the expanded inventory depth of the combined organization will significantly benefit both IMC’s existing customer base as well as Parts Authority’s customers. In addition, the IMC footprint expands Parts Authority into key new geographies of Florida, Texas, Northern California and the Pacific Northwest. As with any acquisition, we are most excited about bringing on great people. IMC’s management team and team members will add tremendous value to our organization and we are excited to welcome them into the Parts Authority family.”
“Parts Authority’s culture of customer service, operational excellence and integrity combined with IMC's leadership in selling to the import segment creates an exciting growth platform”, said Kelly Mundt VP of Corporate Strategy of IMC. “This is a fantastic home for our team members”, she continued.
“While we believe IMC is a valuable asset and a leader in European and Asian branded replacement parts, the sale of IMC will allow AutoZone to focus on our core business.,” said Bill Rhodes AutoZone’s Chairman, President and CEO. ”We believe IMC will be better suited to a different ownership structure where they will get the time, attention and investments necessary to optimize their business model.”
Jefferies LLC acted as sole financial advisor to AutoZone in the proposed sale of Interamerican Motor Corporation.
About Parts Authority:
Parts Authority, founded in 1972, is one of the largest distributors of automotive and truck parts to the aftermarket auto parts industry in the United States serving customers in the commercial channel, including installers, dealerships, fleets and national accounts as well as in the e-commerce channel. Headquartered in Lake Success, NY, Parts Authority has over 150 locations, including IMC, across the Northeast, Mid-Atlantic, Ohio, Georgia, Florida, Texas, Arizona, California and the Pacific Northwest. Parts Authority is led by President & CEO Randy Buller and a management team with long-tenured industry experience. Parts Authority has grown through both organic initiatives as well as through acquisitions. Over the past several years Parts Authority has acquired over a dozen companies as part of its geographical expansion initiative.
As of February 10, 2018, AutoZone sells auto and light truck parts, chemicals and accessories through 5,514 AutoZone stores in 50 states plus the District of Columbia and Puerto Rico in the U.S., and 532 stores in Mexico, 26 IMC branches and 16 stores in Brazil for a total count of 6,088.
AutoZone is the leading retailer and a leading distributor of automotive replacement parts and accessories in the United States. Each AutoZone store carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories, and non-automotive products. Many stores also have a commercial sales program that provides commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers, service stations, and public sector accounts. Additionally, we sell automotive hard parts, maintenance items, accessories, and non-automotive products through www.autozone.com, and our commercial customers can make purchases through www.autozonepro.com. AutoZone does not derive revenue from automotive repair or installation.
For Parts Authority
David Serrano, 516-300-1265, ext 3299
EVP and Chief Financial Officer
Ray Pohlman, 866-966-3017
Brian Campbell, 901 495-7005