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Letter to the Editor
This article originally appeared in the December, 1999 Issue of INSIGHT
December 1999 Investment Update
There were certainly winners as well as losers in the aftermarket crash parts battle. The winners include first and foremost the plaintiffs’ lawyers. Other big winners are collision repairers who have felt for years that these parts were not equal in overall quality to OE, and the vehicle OEs (who remained very quiet during the whole trial and afterwards). No gloating advertisements, no press releases, etc. - only quiet joy, one can imagine. Were the OEs active behind the scenes? Probably, but no OE really wants to take on State Farm and the rest of the insurance industry. After all, you can’t sell cars and trucks if the owners can’t get insurance at a reasonable cost. And then, of course, there are the plaintiffs themselves, who will get a pittance.
If the OEs are smart, they will now work to further bring down the cost of OE crash parts, as Ford has effectively done over the past year. Such action would tell insurers that the OEs have no intention to be anything other than good winners.
As noted, most of the larger insurers will bite the bullet and lay off specifying aftermarket parts, CAPA or not, for some time. If the quality improves, they will go back to specifying them. In the meantime they will certainly pressure the OEs to not raise prices and will watch shops carefully with re-inspections to make sure OE is being used when it is being paid for.
The aftermarket distributors, Keystone, Eagle, Centi Fit, etc., will have to concentrate on wreck rebuilds, fleets, customer-pays, and the expansion of non-crash parts product lines such as paint, wheels, re-chrome, radiators, glass, etc., to not get killed as the insurance-driven aftermarket parts demand drops - by our estimate perhaps as much as 20 to 30 percent.
Many of these distributors are small family-owned businesses, just as are the majority of collision repair facilities, and I hope that they are able to move quickly to adapt to the changing marketplace.
On another subject, the Boyd Group started trading on the Toronto Stock Exchange this morning. This should be a strong plus for Boyd, whose stock is up 28 percent for the year. Is it a good investment, now that U.S. citizens can more easily buy it? I am not sure. I have asked for the SEC-type documents filed with the Toronto Exchange, and will have more comment next month after having a chance to review them.
In terms of my own investments, I have purchased more Keystone stock, as I feel that they will successfully adapt to the marketplace changes, and at six times earnings it is, in my view, a good buy. Earnings for this fiscal year will probably be down somewhat, and it is likely to be trading at a PE ratio higher than at present.
All in all, the stock market had a great month, but our industry and industry-related stocks showed only a minor gain from -12.82 percent last month to a decline of 11.23 percent this month, not exactly keeping up with the Dow, up over 17 percent.
-Charles Baker-
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