How to Value: Auto Parts Stores

Industry Description

The Automotive Parts and Accessories Stores industry contains establishments retailing new, used and rebuilt automotive parts, repairing automobiles, and installing automotive accessories (NAICS 441310).

The following are some basic characteristics of the Automotive Parts and Accessories Stores industry:

  • Automotive Parts and Accessories Stores industry have a combined revenue of $73.6 billion, with a growth rate of 1.3% in 2022-2027
  • There are approximately 45 thousand companies as of 2022
  • Automotive Parts and Accessories store employs approximately 542 thousand people

Not included in the scope of this analysis are Tire Dealers or Automotive Mechanical and Electrical Repair and Maintenance.  These are potentially the subject of other guides in the How To Value series.

Industry Trends

The Auto Parts industry is in the mature stage of its lifecycle.  The concentration of industry operators is moderate. Most small, locally run establishments employing fewer than 10 people.  Some key external factors that are influencing the Auto Parts and Accessories stores industry are (i) economic and supply chain recovery post-pandemic, (ii) car technology complexity, (iii) shift in services and product offerings and, (iv) change in online distribution networks. Each of these is described in further detail below.

The COVID-19 pandemic created an interesting dynamic for the Auto Parts industry. Historically, during periods of economic prosperity, consumers may opt to purchase new vehicles rather than repairing old models. Conversely, during economic downturns, consumers increasingly opt for do-it-yourself (DIY) methods over industry services. During the pandemic, demand for industry products and services hung on a delicate balance. The number of vehicle miles driven lowered due to stay-at-home mandates which lowered or delayed demand for industry services. However, supply chain issues, especially in semiconductors, created a gap in new car availability, thus creating a significant secondary market for previously owned vehicles which needed more industry repairs. 

The largest customers, totaling an estimated 90%, are households engaging in DIY repairs and auto mechanics. With advancements in car technology, there is a rise in industry competition. According to Cox Automotive analysis in Q4 2021, there was a 71.8% increase in the number of electric vehicles (EV) sold, despite a 21.3% decrease in total vehicles sales. Web-connected cars, EVs, and self-driving cars are growing in popularity and increasing more custom or specialized designs. Customers are more likely to source specific parts and schematics directly from car manufacturers to conduct vehicle repair, rather than employ services from industry operators. This poses a potential risk to the industry.

On the other hand, the rise in technology innovation poses an opportunity for industry retailers to offer future-forward services like virtual repair and remote diagnostics. Successful operators have been able to make technological improvements, such as advancing systems to manage inventory and expanding portfolio offerings of other retail equipment for cell phones, GPS systems, and battery-electric vehicles.

According to Auto Care Association and AASA, auto parts e-commerce is changing distribution networks. For decades, “two step distribution” was the primary distribution channel from manufacturer to warehouse distributor (WD), to the auto parts retailer, to the consumer. Online retailing has opened new distribution channels. For example, internet retailers are circumventing auto dealers/ retailers by sending orders directly from consumers via WDs. In addition, manufacturers are increasing selling direct to consumers (DTC). These distribution changes pose a threat to industry operators.

Key Performance Metrics

In evaluating the Auto Parts and Accessories industry, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions.

  • Sales Mixture and Profit Margin by Product/ Service Type
  • Percentage of Retail/Wholesale vs Internal Revenue
  • Monthly Sales per Employee
  • Parts to Labor Ratio
  • Stock Turns per Annum
  • Return on Investment (ROI)
  • Fill Rate percentage
  • Accessories per Vehicle Delivered

Industry Organizations & Publications

The following organizations publish useful information:

  • Cox Automotive
  • Aftermarket News
  • Alliance Automotive Group
  • Auto Care Association
  • Automotive Aftermarket Supplier Association (AASA)

Guideline Information: Private Purchase Transactions

Most auto parts store are privately owned. Data regarding the sale of 100% of closely held auto parts store is generally a good source of information to appraise a subject company. The following are typical appraisal multiples from sale of auto parts store:

  • Revenue multiples between 0.31 and 0.62 times
  • Gross Profit multiples between 0.79 and 1.5 times
  • EBITDA multiples between 3.1 and 9.4 times

In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.   

Guideline Information: Publicly Traded Companies

Most Auto Parts and Accessories stores are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.  

The five largest publicly traded U.S Auto Parts and Accessories stores, which include retailing automotive parts and accessories, ranked by market capitalization are:

  • O-Reilly Automotive, Inc. (NYSE: ORLY) – $44.5 billion market capitalization
  • AutoZone, Inc. (NYE: AZO) – $40.9 billion market capitalization
  • Genuine Parts Company (NYSE: GPC) – $19.9 billion market capitalization
  • LKQ Corporation (NYSE: LKQ) – $15.0 billion market capitalization
  • Advance Auto Parts (NYSE: AAP) – $11.4 billion market capitalization

 The Price-to-Earnings (P/E) ratios of these five companies range between 14.3 times to 22.1 times.

Appraisal Rules of Thumb

Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.

Auto parts stores are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.