The Zacks Automotive Replacement Parts industry is benefiting from an aging vehicle fleet as consumers prioritize repairs to keep older cars on the road. The growing complexity of modern, technology-driven vehicles is also driving demand for advanced replacement parts. Additionally, President Trump’s tariffs are expected to elevate the prices of new cars, making repairs a more cost-effective choice. The industry’s valuation remains attractive compared to the broader sector and the S&P 500. Leading players like LKQ Corp LKQ, Dorman Products DORM and Standard Motor Products SMP are well-positioned, supported by strategic acquisitions and shareholder-friendly initiatives.

Industry Overview

The Zacks Automotive - Replacement Parts industry comprises companies that engage in the production, marketing and distribution of replacement components for the automotive aftermarket. The industry players offer replacement systems, components, equipment and parts to repair as well as accessorize vehicles. Some important auto replacement components are engine, steering, drive axle, suspension, brakes and gearbox parts. The auto replacement market is somewhat less exposed to business downturns as consumers are more inclined to spend on replacement parts to maintain their vehicles rather than splurge on new ones. Consumers can either opt for repairing vehicles on their own or can avail professional services for the same. The industry is undergoing a radical change, with evolving customer expectations and technological innovation acting as game changers.

Key Themes Shaping the Industry

Older Fleets to Drive Repairs: In 2024, the average age of vehicles in the United States reached a record high of 12.6 years, continuing a seven-year trend of steady growth. As cars get older, they require more repairs and maintenance, increasing the demand for automotive replacement parts and services. This aging fleet has become a key driver of industry growth, as owners must spend on upkeep to keep their vehicles running safely and efficiently. As a result, companies in the replacement parts sector are well-positioned to benefit from this trend.

Advanced Vehicles Creating New Opportunities: The auto industry’s move toward electrification, self-driving technology and digital features is reshaping the replacement parts market. Modern vehicles rely more on sensors, electronic systems and software-based components. As a result, the demand for skilled technicians and advanced diagnostic tools is rising. These changes are transforming the aftermarket industry, opening up new opportunities for growth.

Rising Car Prices to Boost Repairs: The upcoming 25% tariff on imported vehicles from Canada and Mexico, set to take effect next month, is expected to drive up new car prices. Some reports estimate that prices could rise by as much as $12,000. With already high vehicle costs, this could make it even harder for consumers to afford new cars. As a result, more car owners may choose to repair their existing vehicles instead of buying new ones, increasing demand for replacement parts.

Tariffs Threaten Auto Supply Chain: Many vehicles made in the United States depend on parts from Canada and Mexico. Research shows that Mexico supplies up to 40% of these components, while Canada contributes over 20%. New tariffs on these parts could disrupt the supply chain, raising costs for both automakers and consumers. Suppliers, already facing high expenses, may struggle to absorb the additional costs, which could lead to job losses and production slowdowns. As a result, industry players may face higher costs and pressure on profit margins.

Zacks Industry Rank Shows Promise

The Zacks Automotive – Replacements Parts industry is part of the broader Zacks Auto-Tires-Trucks sector. The industry currently carries a Zacks Industry Rank #51, which places it in the top 21% of around 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate.

Before we present a few of stocks from the industry worth considering for your portfolio, let's take a look at the industry’s stock market performance and current valuation.

Industry Lags Sector and S&P 500

The Zacks Automotive – Replacement Parts industry has underperformed the Auto, Tires and Truck sector and the S&P 500 composite over the past year. The industry has lost 14%, compared with the sector’s 4% decline. Meanwhile, the S&P 500 has risen 14% in the same timeframe.

One-Year Price Performance

Industry's Current Valuation

Since automotive companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. On the basis of trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 8.87X compared with the S&P 500’s 17.08X and the sector’s trailing 12-month EV/EBITDA of 18.27X. Over the past five years, the industry has traded as high as 12.47X, as low as 6.89X and at a median of 10.37X, as the chart below shows.

EV/EBITDA Ratio (Past Five Years)

3 Stocks in Focus

Standard Motors: It is one of the leading manufacturers and distributors of premium automotive replacement parts for engine management and temperature control systems. The acquisition of Nissens will help SMP expand its geographic presence, establish a significant global growth platform and improve cost savings efforts. Expansionary initiatives will offer the firm increased capacity to support future growth, reduce risk through a multi-point distribution strategy and enhance product delivery times in specific geographical areas. Standard Motor’s long-term debt-to-capital ratio of 0.18 is lower than the industry’s 0.42. The company repurchased $10.4 million of shares in 2024. Last month, SMP hiked its dividend by 6.9%.

SMP surpassed earnings estimates in each of the trailing four quarters, the average surprise being 20.65%. The Zacks Consensus Estimate for Standard Motors’ 2025 sales and earnings implies year-over-year growth of 16.6% and 11%, respectively. The stock currently carries a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price & Consensus: SMP

LKQ: It is one of the leading providers of replacement parts, components and systems that are required to repair and maintain vehicles. The acquisition of Uni-Select has bolstered its global automotive vehicle parts distribution business. The company’s restructuring plan focuses on exiting non-strategic businesses, streamlining operations and optimizing logistics, which bodes well. In Europe, it resulted in increased efficiency of the logistics footprint, leading to a reduction in facilities and overhead costs. In North America, the company is aligning its cost structure with demand by rationalizing overhead costs. The company is committed to maximizing shareholders’ value. It returned $678 million to shareholders through dividends and share repurchases in 2024. 

LKQ surpassed earnings estimates in two of the trailing four quarters for as many misses. The Zacks Consensus Estimate for LKQ’s 2025 and 2026 earnings implies year-over-year growth of 4.6% and 7%, respectively. The stock currently carries a Zacks Rank #3 (Hold).

Price & Consensus: LKQ

Dorman Products: A leading player in the automotive aftermarket, Dorman specializes in replacement and upgrade parts. The company continues to expand its product lineup, introducing hundreds of new direct replacement parts and assemblies that match or surpass original equipment standards. Its acquisition of Super ATV has strengthened its growth prospects. The company’s solid balance sheet, a low debt-to-capitalization ratio of 25% (well below the industry average of 41%) and strong liquidity bode well. Additionally, DORM’s share buybacks demonstrate management’s confidence and commitment to shareholder value.

Dorman Products surpassed earnings estimates in each of the trailing four quarters. The Zacks Consensus Estimate for DORM’s 2025 sales and earnings implies year-over-year growth of 4.4% and 8%, respectively. The stock currently carries a Zacks Rank #3.

Price & Consensus: DORM

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This article originally published on Zacks Investment Research (zacks.com).

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