The Business Of Reselling Used-Car Parts
Print this Article | Send to Colleague
Read the fine print in your auto insurance policy and you’ll probably find a puzzling acronym, LKQ, which stands for "like kind and quality," the standard insurers insist upon for parts used in auto repairs. It is also the name of a little-known distributor of automotive-replacement parts, and the similarity isn’t coincidental. As insurers seek lower-cost repairs, that should increase the use of LKQ ’s recycled and refurbished bumpers, fenders, hoods, and axles, as opposed to pricier new parts from original equipment manufacturers.
Such alternative car parts are a booming business. LKQ’s estimated $9.2 billion in revenue this year is some 28 times what it generated in 2003 after going public. Profits and earnings per share have grown even faster: an estimated $563 million, or $1.83 per share, excluding acquisitions and related items.
Founded in 1998, Chicago-based LKQ buys wrecked cars at auction, disassembles and mines them for usable parts, and sells the rest for scrap. In 18 years, it has completed 230 acquisitions, creating a vast distribution network that includes a fleet of 7,500 trucks globally to move auto parts to garages and independent body shops.
Now the No. 1 U.S. alternative collision and mechanical automotive-parts supplier, LKQ has expanded into Europe, where in five years it built the largest supplier of aftermarket mechanical parts.
There are some drags on the business. Scrap-metal prices have fallen 60 percent from their peak in December 2014, reducing the money that LKQ makes for a car’s carcass when it’s done stripping it for parts. Also, this year’s mild winter meant fewer accidents and repair jobs. Those issues should abate in coming quarters.
The sweet spot for LKQ’s replacement parts is autos three to seven years old. These cars typically have gone off warranty but are still worth repairing. The number of vehicles in this age range fell to an artificially low level after the 2008-09 credit crisis—until recently. It is set to rise again in 2017, which should fuel parts demand.
Another source of growth: Insurers increasingly require the use of recycled and refurbished parts. A recycled bumper typically costs half as much as a new one. Recycled parts make up only 36 percent of the total amount spent on parts for collision repair in the U.S. and far less in Europe. That leaves plenty of room for further growth.
Such alternative car parts are a booming business. LKQ’s estimated $9.2 billion in revenue this year is some 28 times what it generated in 2003 after going public. Profits and earnings per share have grown even faster: an estimated $563 million, or $1.83 per share, excluding acquisitions and related items.
Founded in 1998, Chicago-based LKQ buys wrecked cars at auction, disassembles and mines them for usable parts, and sells the rest for scrap. In 18 years, it has completed 230 acquisitions, creating a vast distribution network that includes a fleet of 7,500 trucks globally to move auto parts to garages and independent body shops.
Now the No. 1 U.S. alternative collision and mechanical automotive-parts supplier, LKQ has expanded into Europe, where in five years it built the largest supplier of aftermarket mechanical parts.
There are some drags on the business. Scrap-metal prices have fallen 60 percent from their peak in December 2014, reducing the money that LKQ makes for a car’s carcass when it’s done stripping it for parts. Also, this year’s mild winter meant fewer accidents and repair jobs. Those issues should abate in coming quarters.
The sweet spot for LKQ’s replacement parts is autos three to seven years old. These cars typically have gone off warranty but are still worth repairing. The number of vehicles in this age range fell to an artificially low level after the 2008-09 credit crisis—until recently. It is set to rise again in 2017, which should fuel parts demand.
Another source of growth: Insurers increasingly require the use of recycled and refurbished parts. A recycled bumper typically costs half as much as a new one. Recycled parts make up only 36 percent of the total amount spent on parts for collision repair in the U.S. and far less in Europe. That leaves plenty of room for further growth.
