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Letter to the Editor
This article originally appeared in the December 2005 Issue of INSIGHT
The Rally, the Rally
Just as in the old TV show, Fantasy Island, with “The plane, the plane,” our fantasy Stock Market appears to now be seeing “the rally, the rally.”
Even the YTD laggards like CarMax, DuPont, PPG, and Valspar show some signs of life and perhaps may end up the year equal to the start of 2005, if not showing an overall gain for the year.
Moving past laggards to “dogs,” the Boyd Group out of Canada saw its stock drop from $4.00 Cdn last month to $2.50 Cdn this month, for an overall YTD drop of 68 percent.
Collision repair this year is a really tough-to-make-a-profit business, with repair volume down and the cost of materials, parts, and labor rising significantly faster than posted door rates. Competition is fierce, and shops do not want to be dropped from DRP relationships based on their pricing.
The number of shops that key insurers such as State Farm have on their DRP lists is dropping as these insurers realize that administrative costs can be reduced by dealing with less shops, and, at the same time, quality of repair can be more easily monitored.
The closest we come to real growth on Wall Street in our industry-related stocks are aftermarket parts suppliers Keystone Automotive and LKQ Corporation. Keystone’s per share price is up almost 25 percent YTD, at just under $30, and LKQ’s per share price is a bit over $32, up a robust 60 percent from its January price of $20.10.
Our insurer stocks are holding their own. Progressive’s per share stock price is up almost 39 percent from its January mark of $85.95 to $119.15. Allstate’s per share price is up over ten percent YTD, despite a reported Third Quarter loss of $1.55 billion as a result of the deadly and costly hurricane season this year.
Allstate is pushing for a new system to deal with catastrophic natural disasters, one that would partner government agencies and property insurers and more than likely build a disaster fund cushion before hurricane season in 2006.
On the automaker side, there is not much good news. Both GM and Ford common stocks are worth slightly more than half of what they were worth in January, while Toyota is up more than 20 percent from January 1st. While vehicle sales are off significantly, parts and accessories sales for all vehicle manufacturers have been a bright spot in an otherwise dark scene.
For domestic car manufacturers, as UIO has dropped with new vehicle sales, the parts usage per vehicle has remained strong. OEs have introduced aggressive parts wholesaling programs to their dealers to fight off insurers’ increasing specification of salvage, and with some insurers, aftermarket parts as well.
-Charles Baker-
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