Car part prices are heading higher

CarParts.com CEO says supply chains are 'very tight'

Auto part prices will continue to rise into year-end as cost pressures show no signs of abating, according to one industry executive. 

Higher costs for products, shipping containers and labor will result in auto part prices rising another 5% by year-end, CarParts CEO Lev Peker said. Prices have already increased about 5% to 7% this year. 

"Everything is back ordered," Peker told FOX Business. "Everything takes weeks or months. It's a very tight supply chain right now."

Ticker Security Last Change Change %
PRTS CARPARTS.COM 15.90 -0.05 -0.31%

He added that the whole process of moving product through the supply chain takes two months longer now than before the pandemic.

The industry, like many others, has grappled with a shortage of containers and cargo ships which has expanded shipping times. Once the ships arrive at port they face another delay due to slow unloading times caused by a labor shortage. Then, a shortage of delivery truck drivers adds to wait times. 

All of that has resulted in higher costs that are being passed onto the consumer. 

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The auto-part industry has historically been able to raise prices on the customer due to the infrequent nature of purchases. Customers typically don’t need to buy the same part for one or two years or longer, and don’t really know how much those components should cost.

Peker believes the current period of higher prices is likely transitory, but he doesn't know when there will be a leveling off. 

"Is it going to go for six months, nine months, 12 months, that I'm not sure about," he said. 

CarParts.com isn’t alone in warning that auto parts prices are headed higher.

"We're beginning to see some pretty significant inflation on certain product categories," said AutoZone CEO William Rhodes on the company’s third-quarter earnings call in May, adding that his firm would "pass those costs along" to customers.   

Ticker Security Last Change Change %
AZO AUTOZONE, INC. 1,643.07 +57.91 +3.65%
AAP ADVANCE AUTO PARTS, INC. 205.66 +1.95 +0.96%

Advance Auto Parts CFO Jeff Shepherd said on his company’s quarterly conference call in June that higher costs for product, freight and labor caused the company to model 3% inflation going forward. 

Both Advanced Auto Parts and AutoZone are scheduled to report their quarterly results on Aug. 24. 

CarParts.com on Thursday evening reported strong quarterly results. 

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Second-quarter sales surged 32% year over year to a record $157.5 million. Net income was $2.1 million, or 4 cents per diluted share, up from $1.6 million last year. 

Earnings before interest, taxes, depreciation and amortization hit a record $8.3 million. 

Peker says his company has benefitted from the do-it-yourself mentality spurred by the pandemic and the wide availability of videos on YouTube and elsewhere that show consumers how to care for their cars themselves. 

A third driver of growth, although less significant, was the used-car boom caused by the chip shortage. CarParts.com expects to see a bigger benefit from the recent surge in used-car sales down the road as the vehicles go out of warranty and owners are more apt to fix issues on their own. 

CarParts.com’s typical customer has a vehicle that is 6-14 years old. The average age of a customer’s car is 12 years and getting older.    

Peker is enthusiastic that his company’s recent success is just the beginning. 

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CarParts.com reiterated its long-term forecast of 20%-25% compounded revenue growth and 8%-10% EBITDA margin. 

"We're loading up on inventory, we're opening new facilities and we're getting ready for next year," Peker said. 

CarParts.com shares were up 61% this year through Friday while AutoZone shares had gained 37% and Advance Auto Parts shares were higher by 31%.