Discount auto tire

Advance Auto Parts, a privately held parts retailer, and Discount Auto Parts, Inc. said that they have signed a definitive agreement for Advance to acquire Discount in a merger transaction, creating the second-biggest U.S. auto parts retailer. The new company will become a public company and will be renamed Advance Auto Parts, Inc. Larry Castellani will remain as Chief Executive Officer of Advance. Peter Fontaine, Chairman and Chief Executive Officer of Discount, will become a member of the Board of Directors of Advance.

Advance and Discount combined today operate 2,420 stores in 38 states. The combined companies generated more than $3.0 billion in revenues. Management believes that significant benefits will be obtained through purchasing and distribution efficiencies and other expense savings. Such efficiencies could total $30 million on an annual basis, the companies said.

Rapid consolidation in the industry over the last decade has already left fewer players controlling a larger market share, forcing out independent retailers. Only No. 1 retailer AutoZone Inc. has a larger presence, with 3,000 stores. The Top 5 retail chains now control about 35 percent of the DIY market, which has gone up from just over 20 percent in the past 10 years.

"Discount Auto Parts provides Advance with a solid position in the Southeast, a leading presence in the important state of Florida, and an emerging, sound commercial delivery operation," said Larry Castellani, CEO of Advance. "With Discount's strong team and a customer service orientation similar to our own, we believe the combined company will be an even stronger competitor in our industry."

"We liked the fit with Advance from the start," said Peter Fontaine, Discount Auto Parts Chairman. "Advance offered us an opportunity to merge with a company that was very similar to ours, from its roots in family ownership and its culture, to its store format and customer demographic. We believe the merger is a great fit and a solid win for us all: our shareholders, our team and our customers."

Analysts said other major deals are likely to follow, given that mom-and-pop retailers still make up a major share of the $175 billion industry, which includes the service repair, do-it-yourself (DIY) and tire markets. The deals are being driven by the U.S. economic downturn, which is prompting consumers to delay replacing worn out or damaged parts. The improving quality of vehicles also means parts don't need replacing as often.

Aftermarket retailers are also blaming car manufacturers and the changing consumer demographic for the slowdown in sales of parts. In 2000, sales in the retail automotive aftermarket totaled $168 billion, up by just 5.8 percent from the previous year. This year, sales are expected to grow by less than 4 percent, to $175 billion, according to the Automotive Aftermarket Industry Association (AAIA).