Keystone revs up engine as high court clears way.With the recent reversal of an award that was dampening the aftermarket Aftermarket See: Secondary market. aftermarket See secondary market. collision repair parts market, Keystone key·stone n. 1. Architecture The central wedge-shaped stone of an arch that locks its parts together. Also called headstone. 2. The central supporting element of a whole. Automotive Industries Automotive Industries, Ltd. (Hebrew: תעשיות רכב נצרת עלית, תע"ר Inc. has been on the rebound rebound (rē´bownd), n/v 1. a recovery from illness. n 2. an outbreak of fresh reflex activity after withdrawal of a stimulus rebound adjective . The Pomona-based supplier of generic automobile repair parts has seen its stock double since June to around $41 a share late last week amid rising Wall Street expectations for the company. And the company has not disappointed, reporting $7.1 million in net income in its last quarter, up nearly 80 percent over the year-ago period. "Keystone is a company that is poised to make the jump from good to great," said analyst Craig Kennison of Robert W. Baird Robert Wilson Baird (born April 1, 1883) helped found the financial services firm that bears his name and led it for more than 40 years. Baird’s father was a professor of Greek literature at Northwestern University in Evanston, Illinois, where Baird grew up. & Co. That's a far cry from 1999, when the automotive repair aftermarket was thrown into disarray dis·ar·ray n. 1. A state of disorder; confusion. 2. Disorderly dress. tr.v. dis·ar·rayed, dis·ar·ray·ing, dis·ar·rays 1. To throw into confusion; upset. 2. To undress. after an Illinois court awarded more than $1 billion in a class action lawsuit class action lawsuit A lawsuit in which one party or a limited number of parties sue on behalf of a larger group to which the parties belong. For example, investors may bring a class action lawsuit against a brokerage firm that has actively promoted a tax to some State Farm Insurance policy holders. The court cited breach of contract for not notifying no·ti·fy tr.v. no·ti·fied, no·ti·fy·ing, no·ti·fies 1. To give notice to; inform: notified the citizens of the curfew by posting signs. 2. customers about the use of generic parts, citing that generic parts did not restore the vehicle to full pre-accident value. Because insurance companies pay for 85 percent of collision repairs in the U.S. and generic parts are up to 30 percent cheaper than name-brand parts, insurers had been using the parts extensively. The verdict was a deep threat to Keystone and other generic parts suppliers. The decision prompted State Farm, the nation's number one auto insurer, to suspend use of aftermarket parts in repairs. And within two years Keystone's stock, which traded as high as $26 a share in 1998, was under $5 a share, with Keystone posting a $22 million loss in 2002. However, the company has managed to turn itself around, posting profits for each of its last three fiscal years, assisted by Keystone's commanding market share and the fact that other insurers did not follow State Farm's lead in discontinuing generics. Then last August the Illinois Supreme Court reversed the class action award, lifting Wall Street's reservations about the company and sending the stock on its tear. "We see huge growth potential in the market for alternative parts," Kennison said. Shifting market Despite the fact that Keystone is the biggest manufacturer of generic collision-replacement parts, it hasn't come close to fully mining the market. Automotive collision repairs is a $16 billion industry in the U.S. and generics still only have a 28 percent market share. That is widely expected to grow as insurers continue to look for a way to cut costs. "Because the insurance companies pay for almost all of the work done in the repair industry, it behooves them to save money wherever possible." said Richard Keister, who's been Keystone's chief executive since 2004. "Aftermarket parts allow them to do so." Following the August high court decision, State Farm has yet to reverse its own decision not to use generic parts. However, a company spokesman said there have been no studies showing the parts are inferior to original equipment parts, and analysts believe it will likely begin using them again. On top of market dynamics, Keister implemented a state-of-the art computer inventory management system, which allowed the $600 million company to have what Keister calls a "flowing inventory." The system's software allows distributors to loosely predict the flow of goods and inventory in a seemingly seem·ing adj. Apparent; ostensible. n. Outward appearance; semblance. seem ing·ly adv. unpredictable market.
"Accidents are unpredictable, but if you look at what parts are historically requested in certain areas, we can be relatively accurate in updating our inventory and get the right parts to our customers quickly," Keister said. Keystone's parts are manufactured overseas and are dispersed dis·perse v. dis·persed, dis·pers·ing, dis·pers·es v.tr. 1. a. To drive off or scatter in different directions: The police dispersed the crowd. b. by a network of 137 distributors via the software system. "If parts are collecting dust in a warehouse, our system isn't doing its job," Keister said. However, Keystone still faces challenges, including an investigation by the International Trade Commission prompted by a Ford Motor Co. complaint that certain collision replacement parts that it and other companies manufacture infringe in·fringe v. in·fringed, in·fring·ing, in·fring·es v.tr. 1. To transgress or exceed the limits of; violate: infringe a contract; infringe a patent. 2. on Ford design patents Keister has said if the complaint is upheld it could threaten the aftermarket industry. ALLEN P. ROBERTS Jr. Staff Reporter |
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