Asbestos Concerns Hit Car Parts Retailers

CHICAGO November 26, 2002; Susan Kelly writing for Reuters reported that asbestos liability concerns pressured shares of auto parts retailers on Tuesday after the largest U.S. chain, AutoZone Inc., said it was named as a defendant in lawsuits involving the sale of brake parts.

Hundreds of U.S. companies, from the Big Three U.S. automakers to Halliburton Co. and Honeywell International Inc., are facing lawsuits from claimants exposed to asbestos, a fire-resistant material than can cause a form of lung cancer and other fatal diseases. Asbestos was once used as a component of brake products.

Memphis, Tennessee-based AutoZone said it has never manufactured or installed brake products and does not believe it has material liability in the cases. A spokesman for the company declined to comment further.

Shares of AutoZone, which sells vehicle parts, chemicals and accessories through more than 3,000 stores, were off almost 3 percent in late Tuesday trading on the New York Stock Exchange, but stocks of two chains that install auto parts in their repair bays suffered bigger hits. Shares of Pep Boys -- Manny, Moe & Jack were down 75 cents, or 6.5 percent, to $10.80 on the NYSE, while shares of Monro Muffler Brake Inc. were off $1.22, or 7 percent, at $16.23 on the Nasdaq.

Bret Jordan, an analyst with Advest Inc., said investors may be worried that chains that perform repairs could face greater liability than those that only sell brakes.

Jordan, whose firm does not have a banking relationship with the parts retailers, said the asbestos issue is not new to the sector and was unlikely to result in large damages against the retail chains.

"The real liability is with the manufacturers," he said.

Auto parts supplier Federal-Mogul Corp. was driven into bankruptcy in October 2001 after the number of asbestos-related claims against the company soared.

AutoZone said it was named as a defendant in an "insignificant" number of lawsuits and would vigorously defend each case.

Shares of AutoZone were off $2.22, or 2.7 percent, to $80.86. The shares are up 12 percent for the year so far.

"The stock had a huge run-up over the last 70 weeks and investors feel there is vulnerability in the stock," said Paul Foster, an options strategist at Mercury Trading Corp. who noted that trading in AutoZone options has been fairly active.

Pep Boys released a statement on Tuesday afternoon acknowledging its involvement in asbestos litigation but said it believes the lawsuits are not material to the company's financial results.

The statements from AutoZone and Pep Boys followed Advance Auto Parts Inc.'s disclosure last week that it was named as a defendant in several lawsuits alleging injury from exposure to asbestos in products such as brake and clutch parts and roofing materials.

Advance Auto in a regulatory filing said it had valid defenses against the claims and believed most would be at least partially covered by insurance. But it said damages sought in some of the lawsuits were substantial and cautioned an adverse verdict or a surge in claims could hurt operating results.