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Letter to the Editor

This article originally appeared in the October 2005 Issue of INSIGHT

Winds of Change

Let’s start with a quick review of last month’s Investment Page. First off, the concept that Keystone stock would soar with the advent of the Avery vs State Farm Illinois Supreme Court reversal has not quite proven out, e.g. the per share price of Keystone stock dropped $1.60 today as I pen this column, and may go even lower based on losses associated with Katrina and the subsequent Hurricane Rita in Texas.

Secondly, while LKQ Corp. stock continues to outperform Keystone’s, it also has taken a hit from last month’s high of $32.00.

Perhaps the big news this month is the buyout of CCC Information Services by Investcorp, a Bahrain-headquartered investment firm (See page 12 for more.). Investcorp manages assets of over $4.5 billion, and is perhaps best known for reviving Saks, Tiffany, and Gucci. Investcorp ownerships in the automotive arena include CSK Auto and American Tire Distributors, the largest tire distributor in the U.S.

Historically, Investcorp has not taken an active role in the day-to-day management of its acquisitions, but has acted more in the role of consultant.

While the automobile OEs stocks remain rather stagnant, with the exception of Toyota, major dealer organizations such as AutoNation and United Auto Group continue to show modest growth in their stock prices.

On the insurance side, both Progressive and St. Paul Travelers have been doing well. It is my belief that Progressive will outshine all of the other publicly held insurers over the next few years, with one of the best combined ratios in the business and a marketing approach that appears to be quite effective.

From a collision repairer’s perspective, Progressive is either tolerated or cursed by most managers/owners. Pro-gressive is probably the strongest specifier of both aftermarket and salvage parts at this point, perhaps even stronger than Nationwide, where the concept of using new OE parts is discouraged, both in its direct repair program and with non-DRP shops.

Looking at refinish material suppliers, there is a dearth of good news. PPG is down ten percent YTD. Akzo Nobel is down 2.2 percent, and DuPont is down 19 percent. BASF and Sherwin-Williams are up slightly on a YTD basis.

The outlook for refinish suppliers for the remainder of the year is bleak, with raw material costs going up every day. Oil price increases are behind it, and the raw material costs for some blended thinners have gone up more than 30 percent on a YTD basis.

Resin costs have also escalated, and pigment costs will also be impacted more in the near future with DuPont’s titanium oxide operations in Louisiana impacted by Hurricane Katrina.

Will we have a stock rally in the Fourth Quarter? I hope so, but my confidence in seeing one is waning.

-Charles Baker-

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