|Investors targeting auto-parts retailers, such as Carl Icahn, are taking hits to their investments, and that’s mostly thanks to Amazon, a new Bloomberg report suggests.
When hedge fund Starboard Value LP disclosed a stake in Advance Auto Parts Inc. in 2015, it said the stock, then at $171, could more than double. The retailer’s shares have instead nearly halved since then, after warning that weak sales will continue for an industry also drawing interest from people like Icahn, who purchased 250 Precision Tune Auto Care locations in June. Advance Auto’s peers O’Reilly Automotive Inc. and AutoZone Inc. have plunged this year amid disappointing demand.
E-commerce represents a sliver of the $277 billion aftermarket parts business, according to estimates from the Auto Care Association. Online sales were about $11 billion last year, with EBay Inc.’s roughly 40 percent share being the largest. Amazon had about a 25 percent share, though it’s growing at a rapid clip, Basham said.
Amazon launched the Amazon Automotive store in 2006 and has been expanding its inventory since then. It’s added a parts-finder filter that lets shoppers enter the make and model of their cars to find the correct parts.
Amazon has been making inroads with autos, launching a car-research site and a parts marketplace last year. Further encroachment by online rivals could pose a threat to industry profit margins that exceed 20 percent—part of what initially drew investors like Starboard and Icahn to the aftermarket parts business.
With the average age of vehicles on U.S. roads approaching 12 years, investors also are betting an older vehicle fleet will mean more repairs and parts replacement. To capture that expected growth, Icahn has strung together several companies that deal in automotive parts, including service and retail chain Pep Boys, Auto Plus and parts supplier Federal-Mogul.