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Published: January 1, 2010
A handy fellow can still pick his own car
parts at the local salvage yard.
Meanwhile, the rest of us pay a markup for parts and service
because we have neither the inclination nor the time to hunt
down that gently used bumper, paint it and rig it to the family
van. Ironically, many of the parts installed by professionals
come from the same junkyards.
But today’s salvage business is not your grandfather’s
pick-your-own-parts shop for shade tree mechanics. The market
for recycled automobile parts has consolidated as bigger firms
service a multibillion-dollar industry with tens of thousands of
customers in auto insurance, collision repair, mechanical repair
and scrap recycling.
Recycled parts can sell for -20% to -50% less than the original
equipment manufacturer (OEM) parts, which is a big reason many
automobile insurers are bullish on recycled parts. Each year,
about 11 million cars are recycled by salvage yards. It’s a
truly sustainable industry that doesn’t get a lot of recognition
for being green.
LKQ Corp. Corporation (Nasdaq: LKQX) is the leader in the
market for recycled and aftermarket parts – also known as
alternative parts – used in the $30 billion collision-repair
industry. While the service departments at most major
dealerships use new OEM parts for replacement, there are many
more independent collision-repair shops – at least 32,000 – that
are open to using recycled OEM and aftermarket parts.
Chicago-based LKQ Corp. became the largest provider of
alternative parts by consolidating many of the country’s
mom-and-pop salvage yards during the past decade. After
dismantling salvage vehicles, LKQ salvage yards will inventory
fenders, doors, quarter panels, bumpers, hoods and light
housings for sale to repair shops.
The alternative parts industry is usually unaffected by economic
downturns. However, LKQ’s growth slowed during the recent
recession in response to fewer insurance claims and the tendency
of motorists to use settlement checks for bills instead of
repairing dented vehicles.
LKQ is projecting 2009 organic revenue growth at a rate of +6%
to +8%, compared with +8.8% for 2008. Net income in 2009 is
projected to be about $120 million, compared with $99.9 million
in 2008. Joseph M. Holsten, CEO and president of LKQ Corp., has
attributed earnings to growth in its same store aftermarket
sales, and an improved inventory management system.
Before consolidation, regional repair shops had limited
options for finding quality recycled and aftermarket parts. If
the salvage yard in town didn’t have it, the repair shop often
had no choice but to purchase the new, more expensive part from
manufacturers.
Now, if a local LKQ yard doesn’t have the part, its employees
can try to track it down through the company’s vast network. The
company has an even better chance of finding replacement parts
since it began selling aftermarket parts in 2004.
New OEM account for 68% of parts used in the collision-repair
industry, while alternative parts make up 32%. Alternatives can
be controversial, though. Repair shops at major dealerships
prefer new OEM parts, but the aftermarket industry is making
strides in quality control with limited warranties and certified
parts.
LKQ hopes healthier economic conditions in 2010 will provide
motorists – who might still be too cautious to purchase new
vehicles – with extra cash to replace those dented bumpers and
quarter panels on currently owned cars.
And LKQ Corp. is moving ahead with its ambitious consolidation
plans. The company recently acquired Greenleaf Auto Recyclers, a
wholesale recycling business with about $114 million in annual
revenue. It also acquired Green Superior Collision Parts, an
aftermarket supplier with $11 million in revenue.
If you're looking to add a different shade of green to your
portfolio, you'll want to consider LKQ.
-- Robert M. Crowe Jr.
Contributor
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