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Letter to the Editor

This article originally appeared in the January 2006 Issue of INSIGHT

See If I Am A Seer

As I pen this article, just before New Year’s Day 2006, I am sneaking a quick look at what I wrote at this time one year ago, to see if I came anywhere near the reality of life on Wall Street in 2005 with any of my predictions. I did pretty well.

I certainly was correct in surmising that 2005 would continue to be a flat market for our Collision Repair Industry as a whole, as well as for the industry-related stocks we track here in the stock chart. My no-brainer prediction for 2006, especially taking the increasing cost of oil into account, is that the entire U.S. economy will feel the “oil effect” and remain in the doldrums for the next twelve months.

I think it is a relatively safe bet (if there is such a thing as a safe bet in the Stock Market) to wager that the Collision Repair Industry stocks will struggle to stay at their per share stock prices today for the entire upcoming year.

American auto manufacturers are not exactly sharing Holiday good cheer. This past year, marked by manufacturer pricing incentives aimed at improving sales numbers, was not great for the big guys in Detroit, or for their big parts suppliers. More plant closings and difficult negotiations with the United Auto Workers loom large for 2006.

Two of our car dealership stocks are closing out 2005 with a bit of a jump in per share price. AutoNation’s stock price is up almost 17 percent YTD, and United Auto Group, at just over $38 per share, is up almost 30 percent since January of 2005. Sonic Automotive and CarMax did not fare as well.

CarMax, despite reporting a hefty 46 percent increase in profit for its third quarter, is down almost 12 percent per share price YTD. The increased sales for the national used car giant came from consumers’ replacement buys for hurricane-wrecked vehicles.

I am glad to see that Keystone Automotive has had a good year on Wall Street. Keystone’s per share price dropped over 16 percent in 2004, but as I expected, it began to climb a bit by Q2 2005, and this month, Keystone’s per share price is up a very nice just under 25 percent since the beginning of 2005, to almost $30.

Our other aftermarket parts company, LKQ Corporation, has had an impressive year, with its December per share price of a hair over $33 up almost 65 percent YTD. The LKQ board has just announced a 2-for-1 stock split, too.

Our refinish paint manufacturers are treading water. The combination of what seems to be a virtually permanent flat market for refinish paint and the impact of the increases in oil prices and transportation costs will definitely cause more stringent cost control measures to be implemented.

Insurer stocks continue to steadily improve, despite a long and severe hurricane season. I predict more of the same for them.

-Charles Baker-

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