Earnings from auto parts distributors such as Advance Auto Parts just might be the canary in the coal mine. There is a limit to what people can pay to buy and maintain their vehicles.
The guidance cuts reflect “additional headwinds anticipated in the back half of the year driven by our ongoing commitment to maintain competitive price targets, impacts from a shift in channel mix, and investments in our team to help retain top talent,” said the company in a news release. One reason shares are rising on a miss might be the starting point. Coming into Wednesday trading, Advance stock was down about 42% over the past three months and down more than 54% year to date.
Investors should expect pressure on car prices. While good for consumers, it’s a headwind for businesses such as auto parts distribution and for the automakers including Ford Motor , General Motors , and Stellantis . The offset to lower prices can be higher volumes. U.S. consumers are buying new cars at roughly a 15 million annual rate. That number was about 17 million before Covid-19.
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