Tech stocks have tanked and blue chips have hit the skids, but shares in Pomona-based Keystone Automotive Industries Inc. have nearly tripled over the last year.
It's a notable rise for Keystone, the nation's largest distributor of so-called aftermarket vehicle collision parts, considering its industry has taken a wallop.
Following years of strong growth, the U.S. market for cheaper, knockoff versions of auto makers' name-brand replacement parts got hammered in late 1999. That's when an Illinois state Circuit Court judge ordered giant auto insurer State Farm Insurance to pay $1.2 billion in damages for directing repair shops to use allegedly inferior generics to fix policyholders' vehicles.
Bloomington, Ill.-based State Farm immediately stopped specifying the use of aftermarket crash parts.
Other insurers retreated as well, fearful of attracting similar class-action suits. Keystone and other players in the generic parts business saw sales drop almost overnight.
"There was all this negative publicity" about the quality of aftermarket parts, said Charles Hogarty, president and chief executive of Keystone. "Talk about a nightmare."
But Keystone has proved more resilient than some of the rusty fenders it replaces.
The company expanded its profitable niche repairing so-called original equipment manufacturer or "OEM" bumpers and wheels, helping to offset the initial drop in its aftermarket parts business. It also set out to repair the reputation of aftermarket crash parts by introducing its own line of branded products with a lifetime warranty to differentiate itself from competitors. The efforts are paying off as some insurers have returned to the fold, bolstering Keystone's sales, not to mention its stock price, which closed up 18 cents to $13.30 on Tuesday on Nasdaq.
Some industry watchers warn the generic crash parts market still faces an uncertain future, after an Illinois appellate court earlier this year upheld the State Farm decision. Keystone recently experienced another setback, announcing the derailment of a long-awaited upgrade of its computer systems that will mean a fat write-off and a net loss of $2.4 million for the second quarter ended Sept. 30. The company will report its results Thursday.
But others say generic parts will continue to chip away at the auto makers' 80% share of the $12-billion annual collision replacement parts market. With $352 million in sales last year and 26 acquisitions since it went public in 1996, Keystone now controls an estimated 25% of the market for aftermarket collision parts and has emerged as the dominant player in a fragmented industry.
"They've got some competitive advantages," said stock analyst John Lawrence of Morgan Keegan & Co. "After a couple of tough years, they've finally got the wind blowing at their backs."
Company Started as a Bumper Repair Shop
Founded in 1947 as Keystone Plating Service, the company credits the wind for transforming a small Ontario job shop into a pioneer in the automotive parts industry. Inland Empire windstorms were sandblasting the shiny chrome bumpers on post-war Fords and Chevys. Consumers and insurance companies sought to repair them rather than replace them. An industry was born.
Bumper recycling remained Keystone's core business until the 1970s, when auto makers began phasing out chrome for plastic bumpers.
"We thought the end was near," said the 59-year-old Hogarty, a 41-year employee who began his career at Keystone as a route salesman driving a truck.
But the company adapted, learning to repair plastic as well as chrome, and in the process changed the way it viewed its business. Hogarty said Keystone saw the need to diversify beyond bumpers. The chance came in the early 1980s, when Taiwanese manufacturers began challenging the auto makers' dominance in collision replacement parts by producing lower-priced copies of OEM products.
After a visit to one of the overseas factories, Hogarty decided to test the U.S. appetite for knock-off collision parts by stocking a single product: a front fender for a Chevy C-10 pickup. Priced at $125, the part sold for less than half of the OEM version.
"As fast as we brought them in they flew out the door," Hogarty said. "It hit me like a ton of bricks that this was a business."
Today, Keystone supplies collision replacement parts, auto body paints, recycled bumpers and remanufactured wheels to about half of the nation's 52,000 collision repair shops.
The company employs 2,700 workers, about 170 of them in California at the Pomona headquarters and facilities in Ontario, San Diego, Fresno and Stockton. The company boasts a distribution network of 113 service centers that spans 35 states as well as portions of Canada and Mexico.