Has AutoZone Peaked? The Future Demand for Automobiles in the U.S.


Today there are 242 million registered cars on the road, which equals the last 16 years of new car and light truck sales. This is down from the peak of 248 million in 2008.

I recently read a report called "Transportation and the New Generation" (TNG) by U.S. PIRG Education Fund and Frontier Group. The statistic that intrigued me the most was, "According to the Federal Highway Administration, from 2000 to 2010, the share of 14- to 34-year-olds without a driver's license increased from 21 percent to 26 percent." How will this trend strain demand into 2015? Are there other trends which might provide clues to future demand for the automobile?

I decided to take a look at industry statistics and demographics which may provide clues on the future demand of both auto parts and car and light truck sales.

Comparison of car and light truck statistics 2005 vs. 2011

2005 2011 % change
Average age of car and light trucks on the road, years 9.5 10.8 13.68%
Average age of cars only, years 10.1 11.1 9.90%
Average age of light trucks only, years 8.7 10.4 19.54%
Car and light truck sales, millions 17.44 13.04 -25.23%
*Scrapped vehicles as a % of new registrations 58.3 100.5 72.38%

Source: R.L. Polk , Ward, FHA, NADA

The average age of car and light trucks on the road increased to 10.8 years, up 13.6% from its 2005 average. Separating the data, light trucks average age increase more sharply, up 19.5% from the 2005 average. Many light trucks are used for semi-commercial/small business purposes, as a result the average age increased more sharply. As this occurred many auto parts retailers stocks benefited from this change. Autozone and O'Reily Auto Parts are up 300% since 2005. Stocks of auto makers like GM, Ford and Chrysler all were hit badly in this period. Will this continue?

2005 2010 % change
Number of registered vehicles, millions 241 242 0.41%
Number of Licenses Drivers, millions 201 210 4.48%
US Population 15-34, in millions 82.22 85.36 3.86%
US Population 35-69, in millions 126.83 134.51 6.06%
US Population 74+, in millions 26.65 27.98 4.99%
Total Population 236 248 5.17%
Licensed Drivers to population 85.29% 84.73% -0.66%
Sources: Federal HighwayAdminstration and US Census

The amount of registered vehicles was flat between 2005 and 2010 at 242 million. At the same time the population available to drive grew by 5.15% in the same period. The amount of licensed drivers grew less than the available-to-drive population at 4.48%. Since 2005, 15% of the available-to-drive population do not have driver's license. Who are they? Why did they choose not to get a driver's license? According to the report previously mentioned, they are the 14- to 34-year-old group.

Are the Auto Parts Retailers near a market top?

Although the amount of registered cars remained at 242 million since 2005, the Auto Parts retailers benefited from an increase in the average age of the car. The sweet spot of the auto parts retailer may soon be over as some demographic and cultural changes in driving and car ownership are appearing in the stats. As less of the newly able to drive choose not to get a license, the amount of cars that remain on the road will decline. The TNG report stated that some of the reasons are related to costs, living in cities, easier public transportation options, and more comprehensive driver exams. The report did not look at the elderly, the part of the population which is expected to grow the most in the next decade. This group is limited to purchases as they become physically unable to continue to drive.

As the trend of 15- to 34-year-olds without a license continues, the current unlicensed 29- to 34-year-olds will be in the 35 to 69 age group by 2015, diminishing that group's demand for automobiles in the future. Now consider the large loss of drivers at the 70-or-higher age as that age group is expected to expand the greatest over the next five years. What you get is all driver age groups declining and a measurable decline in the demand for the automobile (new or used) in the US. With 300% or higher gains in AutoZone and O'Reily's Auto, I will give them a couple of more quarters until you see these demographic changes hit their earnings and stock prices.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing

Referenced Stocks: AAP , AZO , F , GM , ORLY



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