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Letter to the Editor
This article originally appeared in the April, 2000 Issue of INSIGHT
©2000 Collision Repair Industry INSIGHT All Rights Reserved
DuPont Reviews Progress Toward Double-Digit Earnings Growth
Wisconsin Senate Committee Approves Non-OE Parts Disclosure Bill
CIECA Completes Communication Channel Study
BASF and CARSTAR Sign 10-year Supply Agreement
ADP Forms Client Advisory Council
Boyd Reports 1999 Earnings of $1.5mill Cdn
Keystone and LKQ Sign Exclusive Supplier Agreement
Earl Scheib Reports Q3 Fiscal 2000 Loss
A.R.T. Jobber Chain Announces bodyshopmall.com
ABC News 20/20 Investigation Exposes Windshield Replacement Safety Concerns
State Farm Direct Appeal to Illinois Supreme Court Denied
INDUSTRY UPDATE
At a meeting in Wilmington, DE on February 22 for securities analysts and investors, DuPont’s (NYSE: DD) Chairman and Chief Executive Officer, Charles O. Holliday, Jr., outlined the significant efforts underway to create short-term double-digit earnings growth and longer-term success in higher valued businesses. Holliday, joined by members of his leadership team, briefed a large group of securities analysts and institutional investors on the progress and prospects for growth.
"DuPont is energized for earnings growth," Holliday said. "The global economy, combined with our three-track program for sustainable growth of knowledge intensity, integrated science and productivity, puts us in the best position in four years."
Holliday reviewed the growth potential across the company, stressing the specific drivers for each group of businesses. He indicated that to achieve the targeted double-digit earnings growth the company would look for 6 percent revenue growth, while working over time to boost return on invested capital back to the high teens. Data was provided for earnings before interest, taxes, depreciation and amortization (EBITDA) and free cash flow.
Approximately 75 percent of DuPont’s earnings come from four traditional high value business segments:
- Specialty Polymers,
- Specialty Fibers,
- Performance Coatings, and
- Polymers and Pigments and Chemicals.
Lou Savelli, group vice president of DuPont Performance Coatings, reviewed DuPont Performance Coatings’ integration of the Herberts acquisition in March, 1999. According to the slide presentation, available on the web, the company has closed eight manufacturing plants and eliminated 1400 positions in the combined operations.
The presentation also hinted at a refinish e-commerce initiative, though the company declined to provide further details at this time. INSIGHT expects announcements from DuPont, and other refinish suppliers, in the very near future regarding their B2B e-commerce initiatives.
As a corporation, DuPont is pursuing a two-track strategy for development of e-commerce businesses and alliances. First the company is improving the e-business platforms of existing businesses to extend its reach to customers and markets. The second track is the creation of new "market maker" Internet businesses serving the rapidly expanding business-to-business (B2B) markets.
DuPont has recently announced a joint venture with Internet Capital Group, called CapSpan, an Internet B2B development company. This is indicative of the company’s e-commerce commitment. CapSpan will be capitalized at about $100 million with DuPont having two- thirds ownership. The Internet Capital Group is a B2B incubator. o
The Wisconsin Senate Bill 63 was approved March 16 in the Senate Judicial and Consumer Affairs Committee and will be scheduled for a vote by the full Senate. The National Association of Independent Insurers (NAII) is battling against the bill. “Restricting the use of competitive auto replacement parts is not in the consumers’ best interest. It increases the cost of car repairs and the cost of insurance, while doing nothing to promote quality, safety or consumer choice,” said Donald Cleasby assistant general counsel for the NAII. The Wisconsin law is similar to laws in 27 other states that currently require insurers to disclose that competitive replacement parts will be used when an auto is repaired. “This bill does not give the consumers any additional choices, it only adds more time consuming steps to the process of getting their cars repaired. This bill is aimed at discouraging the use of competitive replacement parts and promoting the carmakers’ monopoly status in the marketplace,” said Cleasby.
Roger Cadaret, Executive Director of CIECA, announced February 29 that the CIECA Implementation Action Team has published recommendations for standards based communication channels that are crucial to electronic commerce in the collision industry. In the document, CIECA recommends three telecommunication techniques which when coupled with the use of CIECA standards will ensure openness and the ability for all parties to share information electronically.
Mr. Cadaret stressed the importance of these recommendations saying; “With the vast majority of today’s electronic communications being proprietary in our industry, even applying CIECA standards would not open things up. The vendors do not currently interconnect, so an estimate must be delivered by the vendor whose system generated it. So even with standards, you need the same system your partner is using just for delivery purposes. Our recommendations change this.”
The Implementation Action Team formed a Work Group in late 1998 to study the communication needs of the industry, and its alternatives. The work group, which was carefully made up of a cross section of the industry including insurers, information providers, and repair facility owners, met several times at a cost (to participants) well in excess of $100,000. After more then a year of study, the team concluded that the recommended channels are currently the best choices for the future of the industry, and that present methods must be left behind in order to achieve openness and choice of products.
The full report on the recommendations can be reviewed or downloaded from the CIECA web site at www.cieca.com. The three recommended communication channels or techniques may be used individually or in combination because all three are based on standards and allow interconnection between communication users. Briefly, they are:
John Rix, Chairman of the Implementation Action Team, and Vice President for Electronic Commerce for Mitchell International, offered the following caution. “We are extremely proud of all the work that went into these very important recommendations and anticipate they will be of extreme value to the industry, but much more needs to be done. If insurers fail to accept estimates in CIECA standard format, open communications will not solve our problem. We know that several key insurers are ready to use CIECA standards, but we need all major insurers to use them before we can eliminate proprietary systems.”
CARSTAR announced March 13 it has renewed its long-standing relationship agreement with BASF for 10 years. BASF has been a primary paint supplier to CARSTAR since 1990, making it the longest existing vendor partnership in the company’s history.
Details of the agreement include opportunities for CARSTAR to benefit from unique collaborative e-commerce solutions with BASF, improved incentive programs to use BASF paint, enhanced service and increased development support. Additionally, BASF will continue its significant involvement in CARSTAR “U’’ — CARSTAR’s training facility that is housed at a company-owned collision repair center in Kansas City, MO.
“We have characterized BASF’s relationship with CARSTAR as a ‘decade of achievement, a vision of success’," adds Guy Bargnes, manager of strategic accounts and marketing services for BASF Automotive Refinish. “We are proud of our association with CARSTAR, which is one of the most respected names in the collision repair industry. We look forward to continuing the relationship and to working together for even greater success in the future."
Al Winterman, group vice president of BASF Automotive Refinish, notes, “We are very pleased with this agreement between CARSTAR and BASF. It builds on a successful decade-long relationship and is part of a mutually supportive, long-term strategy to grow market share for both parties.’’
ADP Collision Repair Services (CRS) announced March 15 the formation of a Client Advisory Council to review and validate new products and product ideas. Comprised of repair facility owners, the CRS Council will also provide input on the overall direction and philosophy for the Claims Solutions Group.
“CRS has been fortunate over the years to have customers who have responded very positively to our products,” said James Boswell, vice president and general manager of ADP CRS. “With the creation of the Council, we intend to create a business environment where the client’s voice is heard at an even greater level.”
The advisory council will consist of 20 members who are currently being invited to participate. The first meeting is scheduled for the ADP Industry Conference in April.
The Boyd Group Inc. announced March 21 that its annual report to shareholders for the year ended December 31, 1999 will reflect another year of growth and profitability. Sales for the year were $54.6 million Cdn. (US$37.1 million), representing an increase of 90.2 percent over 1998 sales. Earnings before interest, taxes, depreciation and amortization, or EBITDA, increased to $5.9 million Cdn. (US$4.01 million), or 10.8 percent of sales in 1999 from $2.8 million Cdn., or 9.7 percent of sales in the prior year. Net earnings increased 168 percent over 1998 to $1,546,355 Cdn. (US$1.02 million) or $0.095 Cdn. (US$0.06) per share.
The 1999 results reflect the impact of seven acquisition transactions during the year and one start-up location, which together comprised 11 operating locations. Including Boyd’s recent acquisitions in the states of Oklahoma, Nevada and Washington, its current operations now represent annualized revenues of approximately $88 million Cdn. (US$59.9 million), 115 percent higher than 1998 year end annualized revenues of $41 million Cdn. (US$27.9 million).
Commenting on the results, Terry Smith, Boyd’s President and CEO said, “By any measure, 1999 was an extremely strong year in terms of advancing our business plan, creating value for our shareholders and demonstrating our management team’s ability to set and consistently meet aggressive business objectives. We will continue to fine tune our strategy so that we can take the strength of our position today and springboard to an even stronger one for tomorrow.”
The Boyd Group Inc. now operates 50 company owned locations and is the largest operator of collision repair shops in Canada and is among the largest in North America. In addition to its company owned locations, Boyd also has eight third party owned licensed locations operating under its trade names.
Keystone’s president and chief executive officer, Charles J. Hogarty, said, “We are pleased to have been selected by LKQ as its supplier of remanufactured wheels and believe the combination of Keystone’s nine regionally located wheel plants with LKQ’s 50 parts distribution facilities will create excellent opportunities for both companies.”
Joseph M. Holsten, chief executive officer of Chicago-based LKQ Corporation, said, “Our agreement enhances the value of our growing OEM auto parts recovery business and our ability to meet our customers’ needs because Keystone’s facilities match up well with our national distribution network. Our relationship recognizes both LKQ’s leadership and reach in parts recycling and Keystone’s remanufacturing skill in strengthening our ability to provide high-quality OEM parts to our customers.”
LKQ Corporation operates a national network of 50 auto recycling and parts distribution facilities that serve customers across the entire United States and expects calendar year 2000 revenues to exceed $250 million.
Keystone Automotive Industries, Inc. operates 118 distribution facilities, of which 22 serve as regional hubs. Its product lines consist of automotive body parts, bumpers, auto glass and remanufactured alloy wheels, as well as paint and other materials used in repairing a damaged vehicle. o Earl Scheib Inc. (AMEX:ESH) reported March 13 its results for the third quarter ended Jan. 31, 2000.
Net sales for the third quarter of fiscal 2000 were $10,516,000, an increase of 6.3 percent from the third quarter of fiscal 1999 net sales of $9,895,000, and same shop sales increased 2.8 percent from the prior year.
For the nine months ended Jan. 31, 2000, net sales were $41,903,000, as compared with $40,563,000 for the comparable period in the prior fiscal year, an increase of 3.3 percent.
However, same shop sales decreased 2.4 percent from the same period in the prior year.
The operating loss for the third quarter and nine months of fiscal 2000 was $2,250,000 and $711,000, as compared with an operating loss of $1,768,000 and operating income of $825,000, respectively, for the same periods of fiscal 1999.
The deterioration in the third-quarter operating results was primarily due to increased production expenses and incurred costs totaling $656,000 related to both the closure of nine shops and an additional reserve requirement for workers’ compensation claims filed prior to August 1998.
The net loss for the third quarter and nine months of fiscal 2000 was $1,953,000 and $1,148,000, or 45 cents and 26 cents loss per diluted share, respectively, compared with a net loss of $1,193,000 and net income of $400,000, or 27 cents loss and 9 cents earnings per diluted share, for the third quarter and nine months of fiscal 1999, respectively.
The company was not able to recognize approximately $450,000 of income tax benefit for its operating loss in the third quarter of fiscal 2000 since the realization is not assured.
Chris Bement, chief executive officer and president, stated that “The adverse effect in the third quarter of nine shops being closed and the additional reserve for workers’ compensation claims masked what would have been improved operating results from the third quarter in the prior year.
Bement further stated, “Even more significantly, we believe that the key to increasing the value of the company for our shareholders is to focus on growing our fleet sales and commercial coatings business.’’
Earl Scheib, founded in 1937, is a nationwide operator of 170 auto paint and body shops located in approximately 140 cities throughout the United States.
Automotive Refinish Technologies, Inc. (A.R.T.), the North American PBE jobber chain, has announced the introduction of a major new e-commerce (Internet-based) customer service program through which customers can opt to do business with A.R.T. Based at the website bodyshopmall.com, the system will encompass PBE product ordering, news/information sharing, technical data retrieval, supplier agreement options, and other customer transactions.
A.R.T.’s new website will allow collision repairers to order auto paint and associated products over the Internet for direct delivery to the shop from an A.R.T. warehouse. The program features a streamlined Product Portfolio system of paints and associated products, designed for maximum shop productivity and inventory cost efficiency. Customer services and discount options will also be available through the site.
“Our e-commerce strategy is designed to improve the supply process for our customers,” said John Montes, A.R.T. President. “Our customers are progressive, growth-oriented collision repair organizations,” he explained, “and to serve their needs, we must continue our evolution as a leading-edge, forward thinking company that develops initiatives.
Reinhart Thorsen, Director of Market Development, said that the website will allow body shop customers to save time and money in the ordering and inventory management process, as well as to increase shop productivity and through-put. “The site will give our customers around-the-clock access to a wealth of technical, product, and industry information, as well as to information on the unique array of services A.R.T. provides.”
According to Montes, the A.R.T. e-commerce ordering system will initially be available only in selected A.R.T. markets. They intend to make the program available in all of its North American markets by January 2001.
Established in 1993, A.R.T. is a full-service PBE jobber organization with stores throughout the United States and Canada. It is a single-line distributor owned by BASF and distributes Glasurit, R-M, and Limco refinish system brands, as well as a full line of associated products.
A little-known fact that collision repairers have expressed for years, that mobile auto glass replacement in parking lots and driveways presents a safety risk, was dramatically detailed during the February 25 airing of ABC News’ 20/20 program.
During the show, ABC’s Arnold Diaz detailed cases where improperly installed windshields did not perform properly during accidents, how mobile installers do not follow recommended repair procedures, and how installers often do not inform vehicle owners that the newly installed windshield will not be cured and safe for several hours following the installation.
While mobile installation of glass is largely a safe method of glass replacement, if proper techniques are not followed, or if the vehicle is involved in an accident soon after the replacement, the results can be tragic. Also note that collision repair facilities that do not follow proper techniques will also risk creating a safety hazard. The time factor, where the vehicle is delivered to the customer prior to the urethane adhesive achieving a satisfactory cure, is not as big an issue.
Sensational journalism aside, the issues are real. Every day, mobile glass repairers replace windshields in employee parking lots and driveways. While the vast majority of repairs are performed properly, improper repairs occur much too frequently as the 20/20 report highlighted.
However, each of these mobile replacements presents a safety risk during the first few hours after the replacement is made- a fact insurers know all too well and consumers do not.
Copart, Inc. (NASDAQ: CPRT) reported February 28 results for the second quarter and first six months that ended January 31, 2000.
Copart earned net income of $6,618,500 in the second quarter of fiscal 2000, generating a 33 percent increase in earnings per share to $.12 per diluted share on revenues of $44,406,400. The company had net income of $4,821,600, or $.09 per diluted share, on revenues of $32,054,300 for the same period in fiscal 1999.
For the first six months, Copart earned net income of $12,930,900, or $.23 per diluted share, on revenues of $84,914,000. The company reported net income of $9,012,300, or $.16 per diluted share on revenues of $62,247,400 for the same period in fiscal 1999.
Copart also reported quarterly Internet sales information. Approximately 14 percent of the second quarter’s gross proceeds came from the sale of cars sold to or whose price was pushed by Internet bidders.
Total Internet sales for the quarter were $26.4 million, 32 percent higher than the $20.0 million reported for the first quarter that ended October 31, 1999. The $26.4 million consists of approximately $13.1 million of direct product sales and $13.3 million pushed by Internet bids. In the Company’s previous quarter, Internet sales were $20.0 million consisting of approximately $9.9 million of direct product sales and an additional $10.1 million pushed.
The Illinois Supreme Court recently refused to hear State Farm’s direct appeal on their loss in the Avery, et al v. State Farm Mutual case involving the use of non-OE parts.
This ruling means State Farm must proceed through the normal appeal’s process.
According to Robert Hurns, associate counsel for National Association of Independent Insurers (NAII), “While NAII is disappointed in the Illinois Supreme Court’s decision to deny a direct appeal of the State Farm case, the issue is far from being decided. This ruling means only that instead of the case going directly from the trial court to the Supreme Court, it will have to follow the regular appeals process. We fully expect State Farm to appeal the original decision to the intermediate Court of Appeals in the next few weeks. NAII is considering a variety of alternatives to determine how best to support State Farm in this process. Ultimately, consumers will suffer most from this ruling. State Farm and other insurers have suspended the use of generic replacement parts to repair damaged autos until a final verdict has been reached, reducing competition in the replacement parts business and driving up the cost of auto repairs and auto insurance for all consumers. We hope that the state Court of Appeals agrees to hear this case quickly so that competition can be restored to this multi-billion dollar market.”
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