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Letter to the Editor

This article originally appeared in the October 2008 Issue of INSIGHT

Wild Times

It’s a wild Market, down 775 points on the Dow one day, up 350 points the next, and today, Wednesday October 1st, with a vote on the “rescue plan” due in the Senate this afternoon, who knows what the Market will do over the next few days?

As we look at the industry stocks that INSIGHT follows, only one, Travelers Insurance, is rated as a “Buy” by Vector Vest, a stock rating organization that I personally respect. The others are rated either “Hold” or, in the case of Penske and Sonic, they were as of last week rated as a “Sell.”

Frankly, I don’t think it’s time to buy any of the stocks on our industry list. Wait until Congress makes up its mind on just what form a “bailout” of the financial industry is going to take. When the air clears companies such as Snap On and Sherwin Williams may well be “Buys.”

“Keeping your powder dry,” while an old axiom, really does make sense at this time.

While the auto stocks Ford, GM, Chrysler, Honda, and Toyota, are not on our watch list, it is interesting to note that Congress did, this week, pass a $25 billion loan bailout package to add to the $25 billion authorized last year. This most recent $25 billion is in the form of low-interest loans to be used to improve vehicles and operations for the three domestic producers – Ford, GM, and Chrysler – all three of which are in trouble as truck, SUV, van, and large passenger car sales have plummeted in reaction to high fuel prices.

Each of the domestic producers have reduced head count and curtailed support as it relates to collision parts sales and support focused on the Collision Repair Industry both at the dealer and independent shop level.

The big vehicle dealership groups we track are having a very wild time right now, especially after the news that Bill Heard Enterprises, of Columbus, Georgia, one of the largest privately held U.S. dealership groups, closed its doors at all thirteen of its locations on September 24. Considering that the Heard operations reported 2007 group revenue of $2.13 billion, the company’s Chapter 11 filing for bankruptcy protection on September 28 certainly gave other dealership groups the shivers.

CarMax has announced that it is reducing its service operations workforce by more than 600 associates. The reductions are being made in a majority of the company’s production superstores, where vehicles are reconditioned. CarMax estimates that it will incur approximately $7 million of severance costs, and blames poor sales and increased expenses for reconditioning used cars for the cuts.

If we, and I hope we do not, move into a full-blown recession, one can only assume that other key industry suppliers and equipment manufacturers will also be forced to cut back, impacting the industry directly and indirectly, such as I-CAR and association support.

-Charles Baker-

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