New Auto Parts Manufacturer-to-Workshop Vertical
Auto parts manufacturer direct to workshop? Looks like one leading investment group thinks this sort of strategy has legs as they look to accumulate 1000’s of service workshops.
Last week’s Icahn Automotive Group acquisition of 250 locations of Precision Auto Care service and repair business capped billionaire investor Carl Icahn’s recent buying spree that is set to position the Icahn Group as a serious contender in the U.S. auto-parts market. Icahn Automotive bought Precision Auto Care for a reputed US$35 to US$37 million.
Just last year, Icahn acquired Michigan-based auto-parts supplier Federal-Mogul (maker of Anco wiper brakes, Champion spark plugs, and Wagner brake parts), for an estimated US$282 million. Federal Mogul and most of these brands are supported and catalogued through TecDoc and PARts DB.
Icahn’s sweetening of the bid for Federal-Mogul – initially at US$7 per share in February last year, to US$8 in June, ending up at US$9.25 in September, indicates the importance of an auto-parts manufacturer in Icahn’s plans for the near future.
Before Icahn’s overtures, Federal-Mogul’s shares last closed at US$4.98. This deal turned Federal-Mogul private, like prior Icahn acquisitions such as Pep Boy and Auto Plus which is now followed by Precision Auto Care.
So Icahn now has auto-parts manufacturing, auto-parts distribution, and auto-parts service and repair locations with more than 1,000 auto repair shops all over the U.S. This integration of production, retail, and after-market service by Icahn, is expected to boost profits of participating auto-repair shops that would buy their parts directly from Icahn’s Auto Plus and Pep Boys.
Icahn’s integrating move comes at a time when the largest American generation – the millennials – is poised to come into its prime spending years. It’s a generation that surpasses the Baby Boomers in size. Last year, millennials turned 21 at a rate of 10,000 per day. That’s a huge market. It’s a market that’s expected to rely more and more on DIFM (do it for me) professional auto service and repair instead of DIY
Even if they don’t own cars, their increased demand for ride-hailing and ride-sharing services like Uber (worldwide) and Grab (in Southeast Asia) is expected to maintain car fleet sizes and of course, the aftermarket service and repair demand that comes with an increase in shared rides.
Can Icahn do it?
While Icahn is already in a position to grab a slice of the U.S. millennial market, it’s move is far from complete. Icahn still needs more auto repair, service and installation shops. Carl Icahn has been heard to say he’s going to get thousands more (small to medium sized auto-repair and service shops), in order to have a sizeable effect against the suppliers of those outlets.
Affected national-size retailers like Auto Zone, O’Reilly, and Advance Auto Parts will be waiting for Icahn to trip or might consider making their own disruptive changes.
However, the 50% profit margins they’re currently enjoying is one of the main reasons Icahn and Amazon have targeted aftermarket auto parts as a market ripe for disruption as they prepare to offer the same parts and service at a lower prices.
Clearly auto-parts wholesalers, service and repair shops that are not currently owned by Icahn but are supplied by Federal-Mogul or Auto Plus are likely to feel these changes directly and will need to consider their own options.
Change is the only certainty as more and more disruptive business models target the auto parts and service industry.
According to some business leaders, staying ahead of this process sometimes means being your own disruptor before others do it for you.
More on this thanks to a New York Post article and other sources.