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Letter to the Editor

This article originally appeared in the November 2006 Issue of INSIGHT

Just Sailing Along

Well, well - the Dow finally broke through the 12,000 level this month and we saw "a rising tide lifting almost all the ships."

While the new car market for the domestics, including DaimlerChrysler, slipped, used car sales, as exemplified by CarMax, Inc., were stronger, as were vehicle sales by Toyota and Honda, helping United Auto Group achieve a 24 percent increase in share value YTD.

Boyd, the largest North American operator of collision repair facilities, continues its downward slide, dropping an additional ten percent this past month.

One issue that Boyd and other major operators face is how to deal with the new State Farm direct repair program. In markets such as Chicago, where Boyd, i.e Gerber, is a major player with Allstate, passing on discounts to State Farm based on the insurer’s new Select Service Program requirement will further im-pact the Gross Sales and profitability of this major player.

The news this morning that Ford in the Third Quarter of the year posted a quarterly loss of $5.8 billion is devastating news in a troubled domestic industry. Much of the "loss" ($4.6 billion) was anticipated costs of a reduction in employees of 45,000, the reduced value of North American assets, as well as assets of Jaguar and Land Rover.

At the dealership level, dealers are emphasizing fixed operations. Ford, for example, has developed and implemented a new Collision Repair Certifi-cation Program aimed at documenting vehicle repair quality and marketing. Currently, approximately 150 of Ford Lincoln Mercury dealers out of 1,500 with collision repair facilities are enrolled, with sales of enrolled shops that have completed the program's training showing a reported 4+ percent YTD growth over shops not in the program.

Insurers, on the other hand, are posting record earnings for the year, in part based on the non-occurrence of hurricanes this year. While earnings have been up, per share prices of insurance stocks have not moved upward to the same extent, except for Allstate, where a 16 percent increase YTD has been posted.

Other winners in our Industry Stock Chart this past month include Sherwin-Williams, with a 34 percent YTD increase, PPG, up 18 percent, and, on the collision repair aftermarket side, both LKQ and Keystone, both with over 30 percent gains.

What will the Fourth Quarter bring? We suspect that the November elections will have an impact on stock prices: up if the Republicans hang onto at least the Senate, and down if the Democrats sweep both the House and the Senate. Stocks that we follow from an automotive perspective may not be impacted to a great extent, having already established a pattern for the year, coupled with a low chance of changes in Federal programs that would impact sales and profits.

-Charles Baker-

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