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Letter to the Editor

This article originally appeared in the March 2004 Issue of INSIGHT

Doing My Part to Drive the Economy

Not a great month for Collision Industry related stocks, but not a bad month either. Fourteen stocks up; ten stocks down. The up stocks frankly were not up much while the down stocks were only down a small percentage.

The INSIGHT Fund Index continues to rise, and is now up 17+ percent for the year. This compares to 1.6 percent for the Dow and 4.9 percent for INSIGHT's overall supplier index. With a little more faith I would have put more of my own assets in these stocks.

As it is, I have invested in the OEs, and they all got hit big time in February. I can only hope that auto sales pick up a bit. I have tried to do my share by buying my first new vehicle in forty-two years - a Mercury Mountaineer - with which so far I am quite pleased.

Keystone stock continues to move up, perhaps on the continuing expectation of an Illinois Supreme Court ruling favorable to State Farm relating to the class action suit regarding aftermarket parts.

As I have mentioned in the past, I believe that there is a strong chance that the case will go back to the state court, which, while not a total victory for State Farm, would be a step in that direction.

Conversations with a number of shops indicate that State Farm is evaluating both Service First and Select Service. My guess is that later this year there will be a reduction in the number of shops doing State Farm work on a referral basis, and that increased pressure will be placed on shops to reduce severity in an effort to bring State Farm's claims costs down closer to industry norms, e.g. less than a 100 combined ratio.

In our industry update section this month we report on Sherwin-Williams and LKQ, as well as on Keystone.

Sherwin-Williams Automotive Refinish was up in sales 0.6 percent for the year, which was less overall than price increases during 2003. Thus we expect that gallonage of refinish materials was actually down for the year - not surprising as we estimate that overall repair order count was down by six to eight percent while dollars may not have dropped quite that based on increased severity.

LKQ continues to expand its operations through acquisition. In 2004 we expect salvage as a percentage of parts used will expand based on two important factors. First is insurers' expanding specification of salvage into suspensions as well as crash parts and secondly the salvage industry's improving ability to provide quality salvage components quickly using better computerized systems and logistics.

-Charles Baker-

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