Auto Parts Sector Feeling The Pain From Bankruptcy Of Major Auto Makers

• On 1:26 pm EDT, Wednesday September 23, 2009

67 WALL STREET, New York - September 23, 2009 - The Wall Street Transcript has recently published its Auto Parts Report report offering a timely review of the sector to serious investors and industry executives. This 21 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Increase in Profit -- Brand Mix -- Cash for Clunkers -- Well Positioned Companies -- Automotive Aftermarket -- Expanse of the Market -- Sector Status -- Positive Outlook -- Aftermarket Fundamentals -- Macro Environment -- Organic Sales Results -- Earnings Growth

Companies include: Toyota (TM); Ford (F); Honda (HMC); Johnson Controls (JCI); BorgWarner (BWA); Tata Motors (TTM); Daimler (DAI); Advance Auto (AAP); Pep Boys (PBY); AutoZone (AZO); O-Reilly Auto (ORLY); Monro Muffler (MNRO); LKQ Corporation (LKQX); Copart (CPRT); Solera (SLH); Midas (MDS)

In the following brief excerpt from the 21 page report, an industry expert discusses the outlook for the sector and for investors.

David Silver is a Research Analyst for Wall Street Strategies. He is a graduate of Tulane University's A.B. Freeman School of Business, where he received his Bachelor of Science in management with a dual degree in finance and accounting. Mr. Silver actively covers companies in the transports, autos and beverage sectors. He is routinely invited to appear on business-oriented television and radio shows, including Fox News, Fox Business News, the Business News Network of Canada, WCBS Radio, and the Wall Street Journal Radio. In addition, Mr. Silver has been quoted in major business publications and Web sites such as The Wall Street Journal, Forbes, MarketWatch.com, CNNMoney.com and Autoweek.

TWST: Are people keeping cars longer?

Mr. Silver: Absolutely. The average vehicle in the United States forecast for clunkers was still over 9 years old. That's an astronomical thought - the average age of a car on the road today was bought in 2000. You see a lot of new cars on the road, but then again you see a lot of early-2000s vehicles that still look in great shape, and they still probably have another four or five years on them. So that goes back to the quality issue, that these companies are producing much better cars so they are able to last longer. Earlier, back in the end of the 1990s and early 2000s, everybody thought that auto sales would continue to move higher. We had a 16-, 17-million range at the beginning of this decade, and then the quality of every car company continued to increase almost exponentially. Now you aren't seeing a set of people trading in their car every five years when they are done with the payments because there are so many problems.

TWST: Is the fact that people are keeping their cars longer positive for the parts industry?

Mr. Silver: It's part of the parts industry. They are producing higher-quality parts that are lasting longer. It's also part of the actual auto manufacturers, that they have more quality, they are using better parts. While they are definitely increasing quality, they are trying to get the most for the cheapest part. They are willing to spend a little more to make sure that their quality is high. That's forcing an entire change in the auto parts industry. We are at the back end of that change now, where all of these companies are producing the best that they can instead of trying to be the low-cost option. Additionally, both automakers and auto parts need to adjust to the new market of much fewer sales in a given year.

TWST: Are the problems with the Big Three trickling down throughout the industry?

Mr. Silver: Absolutely. General Motors and Chrysler had their problems well documented. Ford continues to have a huge debt problem - they have more than a $130 billion worth of debt still on their balance sheet. And that has really trickled down through to the parts companies because these companies also have similar debt problems. Several of the companies that I have covered have already entered into Chapter 11 or Chapter 7 bankruptcy protection, including Lear Corporation (LEA) and Visteon Corporation (VC). You are seeing that filter through, and then you heard the announcement from General Motors and Chrysler about all the dealerships that they were closing to make more of these dealerships be super dealerships. Instead of having a nice, family-run business, they are going to sell 500 cars a month with 17 brands underneath this umbrella instead of the guy that's only going to sell eight or nine cars.

TWST: Are there any up-and-coming companies that people may not be paying attention to that are worth taking a look at?

Mr. Silver: With respect to the actual automakers, Tata Motors (TTM), people have probably heard of it. It is an Indian company, but they are making extremely small, inexpensive vehicles. While they haven't really been able to turn around Jaguar and Land Rover yet, I do think that they are taking steps in the right direction. And also Tesla - it is not a publicly traded company, but I think this is going to be one of the big companies. It's a big name to watch over the next 10 years. They really have only one model right now, and it is the only fully electric, highway-ready vehicle on the market today. They come out with their second model, the Tesla Model S, during 2010. And they are already taking orders; they already have backlog of about six months. So that's another of the companies to watch.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 21 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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