Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Auto Parts Industry
Transcript
- Lucas: Luna, the average age of a car on American roads just hit twelve and a half years. That's a record. Luna: Wow. That feels like a stat that says more about the economy than a lot of the data we look at. Lucas: Exactly. People are holding onto their vehicles longer because new cars are expensive — average transaction price is still above forty-eight thousand — and financing rates are high. That's a textbook stagflation dynamic: high prices suppress demand for big-ticket items, and slower growth makes people cautious. Luna: So what does that mean for the companies that make the parts and do the repairs? I'd guess business is good. Lucas: Business is very good. The average repair shop I've seen data on is reporting revenue up fifteen to twenty percent year-over-year. But here's the twist — their margins are actually shrinking. Parts costs have risen sharply. A lot of components come from overseas, and tariffs plus shipping delays have pushed up input prices. Luna: So they're getting more customers but keeping less of each dollar. That sounds familiar — it's the same squeeze we've seen in restaurants and grocery stores. Lucas: Right. And labor is another big factor. The unemployment rate is at four point two percent, and job openings in the auto repair sector are near record highs. Mechanics are in short supply, so shops have to raise wages to attract them. That's great for workers, but it eats into profits. Luna: I saw a headline about a shop in Ohio offering a five-thousand-dollar signing bonus for a certified technician. That's a lot for a small business. Lucas: Exactly. And that's a direct consequence of the labor market being tight even as economic growth slows. Real GDP growth annualized is just two point one percent — not terrible, but well below the post-pandemic bounce. Combine that with CPI still at three hundred thirty-two point six, and you've got the recipe for a long, grinding period where consumers are cost-conscious but still spending on necessities. Luna: And a car is a necessity for most people. If you can't afford a new one, you keep fixing the old one. Lucas: Right. The parts manufacturers are benefiting from this, but they're also dealing with their own cost pressures. Let's take a specific example: catalytic converters. The precious metals inside — platinum, palladium, rhodium — have seen wild price swings. Rhodium is down from its peak but still elevated. That pushes up the price of a replacement converter by hundreds of dollars. Luna: And that's one component. Imagine a full brake job or transmission rebuild. The total bill can easily hit several thousand dollars. Lucas: That's driving another behavior: people are doing only essential repairs and deferring cosmetic work. Shops report that customers are more likely to approve a fix if the car won't run, but they'll skip the new tires if the old ones still have some tread. Luna: That's a smart short-term move, but it can lead to bigger problems down the road. Deferred maintenance tends to snowball. Lucas: Exactly, and that's a pattern we saw in the 1970s too. When inflation was high and growth was low, the repair industry actually boomed. Shops were busy, parts makers ran near capacity. But the underlying economics were painful for everyone — consumers traded up for reliability, and businesses operated on thinner margins. Luna: If today was actually useful to you, the way these stay ad-free is listener support at buy me a coffee dot com slash fexingo. Just a thought for anyone who wants to keep this kind of analysis going. Lucas: Yeah, that really helps us stay independent and keep digging into these specific industry angles. So where does that leave the typical repair shop owner? I think the smart ones are investing in efficiency — diagnostic software, better inventory management — to offset the margin squeeze. Luna: And some are starting to offer subscription-style maintenance plans to lock in recurring revenue. I've seen shops charging a flat monthly fee for oil changes and inspections. Lucas: That's a creative response. But for the parts manufacturers, the challenge is more structural. They're dealing with supply chains that are still fragile — remember the semiconductor shortage? That's eased, but other components like wiring harnesses are still tight. Luna: And the tariff headlines aren't helping. The new global tariff that Trump announced last week specifically mentions auto-related goods, which is going to add more cost. Lucas: That's a huge factor. Parts that cross the us mexico border multiple times during assembly are going to be hit. The industry is going to have to rethink its production footprint, but that takes years. Luna: So in the short term, we're stuck in this equilibrium: high demand, high costs, tight labor, and consumers who have no choice but to pay up. Lucas: Exactly. And one more data point — job openings in the auto repair sector, according to the latest JOLTS report, hit seven point five nine million overall, but the repair and maintenance category specifically is up almost twenty percent from last year. Mechanics have leverage right now. Luna: That's good for them, but it also means shops are passing labor costs to consumers. The average hourly earnings for private workers is thirty-seven sixty, but in auto repair it's higher — around forty-two dollars an hour. Lucas: Right. And that wage growth is a double-edged sword in a stagflation environment. It helps workers keep up with inflation, but it feeds back into higher prices for services. It's a microcosm of the whole economy. Luna: So is there any way out of this for the auto parts industry? Or is it just riding out the cycle? Lucas: I think there are a few bright spots. Companies that make parts for electric vehicles are seeing strong demand, because EVs still need tires, brakes, suspension components — just fewer powertrain parts. And the shift to EVs is slowly happening, even if it's bumpy. Luna: But that's a long-term play. In the meantime, the average car is getting older, and that means the repair industry has a solid tailwind for the next few years at least. Lucas: Absolutely. The key takeaway is that stagflation creates winners and losers, and auto parts and repair is a clear winner in terms of revenue volume, but the profitability is under constant pressure. It's a reminder that 'good' in this environment is relative. Luna: And it's a window into how consumers are adapting — they're not giving up their cars, they're just spending more to keep them running. That's a powerful economic signal. Lucas: It really is. Thanks for exploring that with me today. Luna: Always a pleasure.