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Letter to the Editor

This article originally appeared in the May 2005 Issue of INSIGHT

What Happened?

I knew I was getting too comfortable, almost complacent this year. Wall Street has been, well, almost boring, until the Ides of April, that already hated April 15, the IRS tax filing deadline date, when the Dow had its biggest one-day drop since May 2003, falling 191 points. It marked the third consecutive day of triple-digit declines for the Dow, which fell more than 400 points in three sessions.

As I place pen to paper today, the Dow is climbing a bit, but it looks as though earnings reports from IBM and other blue-chip listings will put a damper on Wall Street activity, as will climbing oil prices and the anticipated release of U.S. gross domestic product data for the first quarter, expected to show that the U.S. economy has slowed down slightly. The Dow has fallen about seven percent since early March on worries about a slowdown in the global economy.

Our Collision Repair Industry stocks are looking a bit down in the dumps this month, with only three of our suppliers and two of our insurers showing improvement in per share prices YTD. Even our own INSIGHT Fund Index is down five percent since January.

What should we do about this? Probably nothing - just wait it out. The U.S. economy needs to heat up in this quarter, and I believe it will, to a simmer - not a full boil.

Earl Scheib, the auto painting chain, has voluntarily withdrawn from the AMEX. The company was almost sold last year, and has been improving operations pretty well so far this year.

TrendLine and Market Watch data from subscriber shops are indicating that collision repair facilities in some metroplitan markets are seeing a few more cars at their doors.

In Cleveland, INSIGHT’s hometown, we had a record snowfall for the winter this year AND a record snowstorm in April, too. Shops are hoping to see more repair activity here as a result.

California had some pretty severe weather this winter, but, alas, not enough to keep the doors open at consolidator M2 Collision Care Centers.

Hunt Ramsbottom, who headed up the regional consolidator, long ago took me to task for using the word “demise” in reference to a previous business venture of his. Demise certainly fits this situation now. After an announcement that fellow regional multi-location operator Caliber Collision Centers had signed a letter of intent to acquire the 27 M2 shops, the deal collapsed. Investors were unwilling to wait, notably capital company GE. Doors were locked, leaving employees, insurers, and vehicle owners out in the cold.

Refinish manufacturer DuPont stands to lose its considerable investment in M2, and insurers may decide to do a hefty amount of homework, studying the financial health of any consolidators, before signing any direct repair agreements.

Consolidators be warned! Big is NOT better if the bottom line is sickly. Serious sickness can lead to a company’s demise.

-Charles Baker-

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