2 Auto Replacement Industry Stocks That Can Navigate Cost Headwinds

Industry Overview - The Zacks Automotive Replacement Parts industry is facing challenges due to persistent cost inflation, intensifying competition, and increasing vehicle complexity, which dampen margins and pricing power [1][3][4] - The aging vehicle fleet serves as a stabilizing demand factor, as consumers maintain older cars amid high vehicle prices [1][7] - The industry is undergoing a transition influenced by evolving consumer expectations, rising vehicle complexity, and technological innovation [2] Key Challenges - Margin pressure is driven by elevated labor, freight, and sourcing costs, with incomplete cost pass-through limiting margin recovery, especially for smaller distributors [3] - Rising vehicle complexity, including advanced electronics and EV-specific systems, increases repair costs and execution risks for aftermarket players [4] - Tariff exposure from reliance on imported parts adds cost volatility, impacting margins and increasing earnings volatility for manufacturers and distributors [5] - Intensifying competition from private-label expansion and aggressive promotions limits pricing power, while elevated investments in technology raise operating costs [6] Demand Drivers - The aging vehicle fleet, with an average age of nearly 12.8 years in the U.S., supports demand for replacement parts as older vehicles require more frequent repairs [7] Industry Performance - The Zacks Automotive Replacement Parts industry ranks 208, placing it in the bottom 14% of around 240 Zacks industries, indicating weak near-term prospects [8][9] - The industry has underperformed compared to the Auto, Tires, and Truck sector and the S&P 500, declining approximately 5% over the past year [11] Valuation Metrics - The industry is currently trading at an EV/EBITDA ratio of 9.64X, significantly lower than the S&P 500's 17.29X and the sector's 28.92X [14] Company Highlights - Genuine Parts Company (GPC) is expanding through acquisitions and restructuring initiatives, enhancing operational efficiency and maintaining a shareholder-friendly approach with a 3% dividend increase for 2025 [18][19] - GPC has a Zacks Rank 2 (Buy), with a consensus estimate implying 4% sales growth and 10% EPS growth for 2026 [20] - Dorman Products focuses on product innovation and market expansion, with a recent acquisition strengthening its growth profile [23] - Dorman has a Zacks Rank 3 (Hold), with a consensus estimate indicating 6% sales growth and 9% EPS growth for 2026 [25]