A C.R.A.S.H P.L.A.N Animal Chart Profiting From the Failing Auto Industry

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Profiting From the Failing Auto Industry

I have followed the economic gyrations of our auto industry with interest. Fifty years ago, the US auto industry was at the height of success. Now, the remnants of a once mighty industry are being torn apart… like vultures tearing apart a dead animal carcass.

So who wins in all this?

Of course lawyers do… (feel free to insert your canned lawyer joke here).

In addition to lawyers, there is a small group of companies that benefit from the turmoil of the auto industry. I’ll tell you who they are in a moment.

First, let’s take a look at our favorite Dow Jones Industrial Average component… General Motors (GM).

With typical automotive flair, GM is keeping the world in the news with a new figure. One moment they are threatening bankruptcy. Next they are reaching agreements with debt holders. Today, it looks like bankruptcy is a certainty. The stock chart looks like the scribbles of a two-year-old with an indelible marker.

One moment up, the next down.

One of GM’s biggest competitors – Chrysler – is already in bankruptcy. Ford, the sole survivor of the Big Three, seems to have overlooked the turmoil. You already know how much I think of Ford. You can find my latest article on them here, “Time to Buy a Ford… Are You Crazy?”

To understand what’s really going on, we need to look at the latest news on car dealerships.

Chrysler will cut about 800 dealerships. GM is in the process of downsizing almost 2,000 dealers. Ford has already done the dirty work. In the last few years, they have cut more than 600 traders. Rumor has it they have about 100 more in their sights.

Dealerships are closing across the country.

But retailers’ woes aren’t limited to big-name brands.

Other smaller car dealers are struggling and closing as well. Just take a quick drive through some of the oldest automobile areas in your city. The sight is terrifying. It’s like a ghost town. Vacant lots, boarded up buildings… weeds.

Why are smaller dealers closing down?

For smaller merchants, it’s all about credit. Due to the credit crunch, getting a car loan is almost impossible. If no one can get a loan, no one can buy a car. Add to that housing concerns, kidnappings and job losses, and you have a perfect storm hitting smaller retailers.

So who is the winner in all this?

It’s the car service companies.

Take a look Monro muffler brake (MNRO). The company runs 720 stores focused on providing automotive services. They do a number of things. Everything from outage repair to air conditioning services.

Many car owners had their vehicles serviced by their dealer…

In the coming months, as thousands of dealers close up shop, customers will be looking for new places to pick up their car. And Monroe is sure to get a number of them.

Trust me, it won’t happen right away. Closures will take time. But eventually the migration will happen. Consumers will slowly find their way to service companies. And these companies will see improved revenue growth and, of course, higher margins.

Monroe has been on the run a lot lately. The stock is nearing its 52-week high of $29.40. I take that as a great sign of the stock showing strength in a weak economic environment. All major moving averages point towards a continued move higher. Consider Monro for your portfolio. Get it in tow… but don’t wait too long. I think this stock trades above $30 in no time.

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