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Letter to the Editor
This article originally appeared in the March, 2000 Issue of INSIGHT
©2000 Collision Repair Industry INSIGHT All Rights Reserved
Mitchell International Sold To Hellman & Friedman
ADP, CCC and Reynolds and Reynolds Form Auto Parts Joint Venture
Proposed Massachusetts Regulation Would Create Non-OE Parts Policy
IIHS Says Cosmetic Crash Parts Are Irrelevant To Auto Safety
Keystone Reports Earnings For Q3
Allstate Reports 1999 Q4 Operating Income Down vs. 1998
National Leadership Conference And Northeast Leader’s Meeting Coming in March and April
iSalvage.com Secures $7.5 Million in Funding
NAII Fights Non-OE Parts Bills it Believes are All Over the Board
INDUSTRY UPDATE
In a move anticipated since the January 1997 announcement that they sold a 50 percent interest in Mitchell’s mechanical repair information division to Snap-On, the Thomson Corporation announced January 22 that it has reached an agreement to sell its Mitchell International division to Hellman & Friedman Capital Partners IV, L.P.
Mitchell International, the collision repair estimating and management software supplier, has more than 700 employees and is headquartered in San Diego, California.
Richard J. Harrington, President and Chief Executive Officer of The Thomson Corporation, said, "The sale of Mitchell International is consistent with Thomson’s continuing focus on our core, global information businesses in the legal & regulatory, financial services, learning, scientific, reference and healthcare markets. While Mitchell is a terrific franchise with a superb brand name, it has limited synergies with Thomson’s other businesses."
"This investment in Mitchell is an excellent fit with our growing portfolio of investments in technology-based services companies," said Mick Hellman, a managing director at Hellman & Friedman. "In the technology services arena, we focus on growing, profitable companies that use their superior domain expertise to help their customers adapt to the new economy. Mitchell certainly meets those criteria."
"Mitchell International has enjoyed a substantial increase over the past 3 years in all of its business areas, and now occupies either the number one or number two position in every market it serves. This change in ownership is a logical progression to Mitchell’s next phase of growth. Our passion for customer service and providing dynamic solutions to our customers has earned us the success we enjoy today and will continue to be our singular focus in the future," said Jim Lindner, Mitchell’s president and chief executive officer.
Thomson expects the divestiture to be completed around the end of March. Terms of the transaction were not disclosed.
Hellman & Friedman LLC is a private equity firm founded in 1984. The firm has raised and managed more than US$4.8 billion of committed capital which it has invested in 38 companies. Limited partners in Hellman & Friedman funds include many of the nation’s leading government, corporate, and nonprofit institutions. o
The Dealer Services and Claims Solutions Groups of Automatic Data Processing, Inc., CCC Information Services Inc., and The Reynolds and Reynolds Company announced plans February 8 to form an independent company that will develop an electronic parts network to link buyers and sellers in the multi-billion dollar automotive parts market. The result, according to the parties forming the new company, can eliminate significant costs by creating greater efficiencies across the automotive parts supply chain.
Subject to regulatory approval and the execution of definitive agreements, the formation of this new company will create a more efficient marketplace for franchised automotive retailers, collision repair facilities and other participants in the automotive parts market. The transaction is expected to close by the end of March.
The new company will create an online parts marketplace to enable the location, purchase and sale of parts. This new network, based on open Internet standards, hopes to significantly streamline the parts procurement process, helping automotive manufacturers, their approximately 24,000 North American franchised retailers, other parts suppliers, and the more than 50,000 collision repair facilities in the United States, to optimize the parts supply chain.
"By enabling all the buyers and sellers in the parts supply chain to instantly locate and order parts, this new electronic parts network will create efficiencies in the market that will reduce overall costs and allow the retailers to deliver unprecedented convenience to consumers," said Mike Martone, president, ADP Dealer Services Group. "This powerful e-marketplace will combine the key ingredients for a successful parts enterprise — ease of use, volume, widespread access and speed."
The new company’s business to business model will provide intelligent parts location, ordering, confirmation and tracking of parts as well as processing payments and billing.
"We’ve recognized the tremendous desire by collision repair professionals, insurance companies and their customers, to eliminate the inefficiencies in procuring parts. This new company is poised to significantly reduce delays and errors that plague the process today," said Githesh Ramamurthy, president and chief executive officer of CCC. "This e-business solution will meet the needs of all collision industry participants and provide a broader set of parts solutions across the entire automotive parts supply chain."
"The current transaction for locating and delivering automotive parts is inefficient, creating unnecessary costs across consumers, insurers, collision repairers, and parts providers," said John Barfitt, president, ADP Claims Solutions Group. "This powerful e-marketplace will address these inefficiencies by merging the Internet with existing technology already in the automotive retailing and collision repair markets. This will significantly reduce costs in the entire supply chain, and increase consumer satisfaction."
The new company will operate as an independent entity subject to regulatory approval from the Federal Trade Commission. Initially, a management team from the founding companies will direct the development of the new company. A search is being conducted to hire a permanent chief executive officer. Eventually, the company’s shares may be offered to the public.
The Massachusetts Insurance Department’s proposal to allow insurers to offer consumers a policy rider that specifies the use of original equipment manufacturer (OEM) repair parts is a creative alternative to a controversial issue.
At a public hearing on February 7, representatives from the Massachusetts Auto Body Association vilified the plan and declared that they would prove that competitive auto repair parts were inferior and unsafe. The next public hearing on the issue is scheduled for March 21.
According to the Insurance Institute for Highway Safety (IIHS) collision repair crash parts, including fenders, door skins, bumper covers, and the like, are irrelevant to vehicle safety.
According to the IIHS parts from non-OE suppliers are as good as cosmetic parts from original-equipment manufacturers in terms of their safety
Results from recent crash tests conducted by the IIHS show their performance as similar to the OE equivalent.
Keystone Automotive Industries, Inc. on February 11 reported consolidated sales and earnings for the fiscal third quarter ended December 31, 1999, which were negatively impacted by the adverse trial decision against State Farm Insurance company, which is on appeal, and the subsequent temporary suspension of the use of aftermarket parts by State Farm, Farmers and Nationwide, along with several smaller auto insurers.
The company reported net income for the fiscal third quarter of $1.3 million, or $0.09 per diluted share, on net sales of $86.2 million, compared with net income of $5.0 million, or $0.28 per diluted share on net sales of $84.0 million for the same period last year.
Net income for the nine months ended December 31, 1999 was $10.0 million, or $0.62 per diluted share, on net sales of $280.1 million, compared with net income of $12.9 million, or $0.77 per diluted share, on net sales of $235.3 million for the comparable year ago period.
Charles J. Hogarty, President and Chief Executive Officer, said, "The aftermarket collision replacement parts business continues to present multiple challenges for the company, particularly in light of the adverse court decision in October 1999 against State Farm Insurance Company for sometimes specifying the use of aftermarket collision replacement parts. Subsequently, State Farm, Nationwide and Farmers insurance companies temporarily suspended the use of certain aftermarket parts.
"Overall, revenues were down approximately 7% compared to the three month period immediately preceding the court decision. This reduction in revenue had a negative impact on earnings as some operations were unable to maintain profitability due to lack of product line diversification. We have made a concerted effort in all locations to address this shortfall by emphasizing non-affected products such as paint, wheels, radiators, condensers and recycled bumpers, and we have implemented cost reduction policies at locations most seriously affected."
Hogarty continued, "It is difficult to predict what will happen in the near term as much will depend on the timing and result of the State Farm appeal and the actions of major automobile insurance companies with respect to the use of aftermarket collision replacement parts."
The Allstate Corporation (NYSE: ALL) reported February 9 that revenues for the fourth quarter of 1999 increased 8.6 percent to $7.01 billion from $6.45 billion for the same period in 1998. Operating income before the impact of restructuring and acquisition charges was $524 million compared to $641 million for the same period in 1998. Operating income was affected by several factors, including the impact of competitive pricing pressure on margins and increased loss costs resulting from auto claims. After the impact of restructuring and acquisition charges, operating income was $408 million.
Net income for 1999 was $2.72 billion, compared to $3.29 billion for the previous year. Net income on a diluted per share basis was $3.38 for 1999, compared to $3.94 for 1998.
Mitsui Marine and Fire Insurance Co. and Sumitomo Marine and Fire Insurance Co. said February 18 they plan to combine their operations and expand into other areas of insurance such as health and medical.
Mitsui Marine had stated February 14 that it had abandoned plans to combine with two smaller casualty insurers. The company said such a merger would hinder its traditional ties to a group of companies centered around Sakura Bank Ltd. o
Two collision repair forums are scheduled for March and April including the Northeast Leader’s Meeting on March 24, in Suffern, NY, and the SCRS-hosted National Leadership Conference (NLC) on April 5, in Kansas City, MO.
Members of the New York State Auto Collision Technician Association (NYSACT) who wanted a forum where association leaders could discuss legislative issues in their states started the Northeast Leader’s Meeting in 1988. The meeting takes place annually just prior to the opening of the Northeast Regional Autobody/Automotive Trade Show held by the Alliance of Automotive Service Professionals of New Jersey (AASP-NJ). Often the issues and positions identified during this program are carried forward to the NLC taking place less than two weeks later.
The Society of Collision Repair Specialists (SCRS) has hosted the National Leadership Conference from its inception. SCRS Past Chairman Chuck Sulkala and Scott Biggs, the president of BodyShop video and the Business Development Group, first conceived the National Leadership Conference as a method to bring together association leadership and collision repair professionals to network and learn from each other. The NLC is also a forum where these same association representatives and collision repair professionals combine their voices and develop position papers and resolutions on the issues affecting the industry. It is now one of the premier events preceding the SCRS Collision Concepts Trade Show.
Over the years both events have established themselves as collision repair industry traditions. "The NLC has become an indispensable forum for our industry," says Ed Dollar, executive director of the Washington Autobody Craftsmen Association. "It’s a place where we can focus on the things that affect our businesses the most."
The National Institute for Automotive Service Excellence (ASE) announced that Tony Molla has joined the organization as Vice President of Industry Affairs. He will be based in the corporate headquarters in Herndon, VA.
Prior to joining ASE, Molla was the Editorial Director of the industry trade journals Motor Age Magazine and Automotive Body Repair News.
"Tony brings a unique perspective to the organization," said Ronald H. Weiner, President of ASE. "Aside from his solid management credentials, his background as both a certified technician and automotive journalist covering both mechanical and collision repair markets provides a comprehensive insight into the automotive industry which will serve him well in his new role with ASE."
As VP of Industry Affairs, Molla will be responsible for several critical functions, including industry relations, marketing and promotion, and will participate as part of the management team directing ASE’s growth outside the U.S.
iSalvage.com, a business-to-business Internet company connecting buyers and sellers of recycled and rebuilt auto parts, announced February 14 that it has raised $7.5 million in its first round of institutional funding. Investors include Chicago-based divine interVentures, inc., an Internet operating company actively engaged in business-to-business e-commerce through a network of partner companies, New York-based Sentinel Capital Partners, and private individuals.
"The recycled and rebuilt auto parts markets are large but very fragmented," explains Jeff Stotland, CEO of iSalvage. "That makes them great candidates for strong branding and electronic consolidation using the Internet. That’s what iSalvage is all about: We want to help parts suppliers reach more potential buyers - and make it easier for parts buyers to find the parts they need."
iSalvage has begun a targeted pilot phase of its Web site using parts suppliers located in the Southeast and mid-Atlantic States. The Company plans to expand nationally in the coming months.
Fifteen states are currently considering legislation to ban, restrict or otherwise define the use of auto body replacement parts, and each bill is dramatically different from the next, according to the National Association of Independent Insurers (NAII).
"These proposals are all over the board," said Bob Hurns, associate counsel for NAII. "We are lobbying bills that contain outright bans on the use of competitive replacement parts and bills that require that only original equipment manufacturers (OEM) parts be used a specified period of time. We are also seeing proposals that require disclosure of the use of competitive replacement parts at the time of repair, and bills that allow insurers to charge an additional premium for policies that specify that only OEM parts will be used on repairs."
West Virginia H. 2647 would ban the use of salvage parts and would extend the current three-year prohibition on the use of competitive replacement parts to five years. Pennsylvania S. 1157 would require the use of OEM parts for repairs to vehicles under manufacturers’ warranties or within five years from the date of purchase of a new vehicle. Bills on this issue have also been introduced in Arizona, Delaware, Georgia, Iowa, Massachusetts, Mississippi, New Hampshire, New Jersey, New York, Rhode Island, South Carolina, Washington and Wisconsin.
The NAII believes that the verdict in the class action lawsuit against State Farm will spur additional legislative activity in 2000.
"There are 15 legislative proposals already in the hopper and it is still very early in the sessions," said Hurns. "The big difference we have seen this year from previous years is that the auto manufacturers are testifying at the hearings. Clearly, the State Farm decision has renewed their support for legislative efforts to re-establish their monopoly on replacement parts."
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©2000 Collision Repair Industry INSIGHT
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