Quick Hits …
(A few short items to get us started this week)

• Nationally, miles driven may have turned a corner as the national average has increased from down 57% to down 50% over the last few weeks, according to a Jefferies LLC and Arity.

• Various industry groups, including the Automotive Service Association (ASA) and the Independent Garage Owners of North Carolina (IGONC), are asking their members to write members of Congress in opposition to any new “Cash for Clunkers” programs.

• The Auto Care Association has joined the America’s Recovery Fund Coalition, which is seeking grant-based federal assistance to help businesses stay afloat during coronavirus pandemic. The coalition is composed of more than 100 trade associations and businesses spanning 30 business sectors and employing more than 58 million workers. For more information about the coalition, visit americasrecoveryfund.org.

• A bipartisan group of Congressional lawmakers on May 5 sent a letter to the U.S. House of Representatives seeking support to aid automakers and auto suppliers as operations are poised to restart in the coming weeks, noting that some suppliers are looking at bankruptcy without additional assistance. Click here to read a story from The Detroit News about their efforts.

• The Ford Motor Company is targeting a phased restart for its North America operations beginning this month, including restarting vehicle production in North America and bringing back the first wave of employees who are not able to do their jobs remotely. Notably, Ford’s North American parts depots are to resume full operations Monday, May 11. Click here for additional information on Ford’s plans.

• General Motors is working to restart the majority of its U.S. and Canadian manufacturing operations on May 18, according to the automaker’s first-quarter 2020 earnings report. Click here to read more about GM’s plans.

• FCA expects all of its plants in North America to restart the week of May 18 with the exception of Belvidere, IL, which should be back up and running by June 1.

• On May 5, Mexican President Andres Manuel Lopez Obrador stated that auto parts manufacturing in the country could reopen gradually and by regions starting Mary 17 if health authorities approve.

• Wyotech is reopening for students May 11. The school in Laramie, WY offers six-month programs in automotive technology, diesel technology, and collision and refinishing technology.

2020 Automechanika Frankfurt Rescheduled For 2021

Messe Frankfurt has announced that Automechanika Frankfurt is moving to fall 2021 because of the coronavirus pandemic. The show was scheduled to take place Sept. 8-12, 2020.

“It simply would not have been possible for many of the exhibitors and visitors from over 180 countries to take part in the event under the conditions currently prevailing or those expected at that time,” a May 6 announcement from Messe Frankfurt stated.

The next Automechanika Frankfurt will take place Sept. 14-18, 2021. The show will then resume its biennial rotation, moving to odd-numbered years.

“With waves of the pandemic moving around the globe and many countries not expecting it to peak until the summer, I am certain that the decision to postpone Automechanika until September 2021 is the right one,” said Detlef Braun, a member of the executive board at Messe Frankfurt. “Over the past two weeks in particular, we have been engaged in intensive discussions with our customers, partners and supporting associations, and they sent us a clear signal. By holding the event in 2021, we are responding to our customers’ wishes.”

Association Leaders Say AAPEX On As Scheduled

In a video uploaded to YouTube last week, Paul McCarthy, president and COO of AASA; and Bill Hanvey, president and CEO of the Auto Care Association, provided an update on AAPEX 2020 in light of the coronavirus pandemic. The event is scheduled for Nov. 3-5 in Las Vegas.

Hanvey acknowledged that the situation is “very fluid,” adding that show planners are monitoring both federal and state mandates. “Unless the state of Nevada or the federal government tells us otherwise, we are on with AAPEX and the AWDA Conference as scheduled,” Hanvey said. “If we do have to cancel — and, again, it would only be because of a government mandate — then our plan would be to provide a 50% refund, and 50% of the monies paid would go towards AAPEX 2021.”

Regarding potentially delaying the show, McCarthy said that Las Vegas does not have any openings that can support AAPEX. He added: “Our partners in Industry Week, SEMA, are very positive about their show, and they’re committed to moving forward with their show.”

“We certainly understand some of the attendee concerns at this time. We’re in the heart of the stay-at-home orders, and we’re in the trough of the sales,” McCarthy said. “But when you come down to it, we really don’t know what things will look like in the fall and what we do know is that we are a relationship industry.”

McCarthy stated that AAPEX will follow guidelines established by professional trade show organizations, state and federal government officials, The Venetian, and Sands Expo. “There are a number of shows that are coming before us in Vegas and even specifically at the Sands and Venetian,” he said. “So, we will be watching those other shows, and we will be learning from them. We will make sure that AAPEX is building on the lessons learned and best practices.”

Hanvey noted that exhibitor tracking is slightly ahead of last year.

“We know that some people are indecisive right now, but we expect those numbers to hold as our registration numbers come in, especially on the buyers’ side,” Hanvey added. “And we are seeing the same type of optimism from the buyers’ side.”

“We are cautiously optimistic in what we’ve seen so far. But, of course, it’s too soon to tell,” McCarthy noted. “One positive sign is that people are registering, and we haven’t even really announced registration.”

For more information about AAPEX 2020, visit aapexshow.com.

Platform Launched To Aid Industry Professionals Who Have Lost Their Jobs Amid Coronavirus Pandemic

AASA is partnering with APA Search — a retained executive search firm specializing in the global automotive and transportation-related industries — on a free platform to match employers with industry professionals who have lost their jobs as a result of the coronavirus pandemic.

The platform, which is based on APA Search’s website, will provide industry employers with a free, searchable and indexed database of automotive professionals with industry skills and experience. The database accommodates all positions related to the transportation industry.

Automotive professionals who have lost their positions and would like to be found can register here. Automotive employers that would like to search the database can register here.

Editor’s Note: As has been our policy for decades, free six-month subscriptions to The Greensheet are available to aftermarket professionals who find themselves out of work and looking for new opportunities. If you or a colleague become separated from your job, email gary@autocareweek.com to inquire about a free six-month subscription to The Greensheet.

GPC’s Q1 U.S. Auto Group Sales Declined 3.8% With Comps Down 5.7%

For the first quarter of 2020, the Genuine Parts Company (GPC) reported $4.56 billion in net sales — a decrease of 3.7%. However, excluding the impact of divestitures, sales were up 1.1% when compared to the first three months of 2019.

Gross profit decreased 0.5% to $1.50 billion, while its gross margin increased from 31.8% to 32.9% on a year-over-year basis. The company’s net income declined 14.8% to $136.54 million.

In terms of the coronavirus pandemic, the company reported that most of its facilities were operational as of May 6 except for France, which has remained in temporary lockdown.

Chairman and CEO Paul Donahue said on the company’s May 6 earnings call that GPC’s global supply chain has been operating well. “Our supply chain, including foreign and domestic manufacturing capacity and logistics, is largely performing at levels seen prior to COVID-19,” Donahue stated. “We believe the power of our global operating scale, product and geographic diversification of supplier partners, and intense teamwork across our business units create an advantage as we work to minimize any potential service disruption for our customers.”

GLOBAL AUTOMOTIVE … During the first quarter of 2020, GPC’s global automotive operations generated $2.58 billion in net sales — a decrease of 1.6%. Excluding divestitures (AutoTodo), sales were down 1.0%. This includes a 5.7% contribution from acquisitions and other adjustments, offset by a 5.0% comparable-sales decrease and unfavorable foreign currency translation of 1.7%.

Segment operating profit declined 20.6% to $142.31 million, with operating margin slipping from 6.8% a year ago to 5.5% for the three months ended March 31, 2020. According to Executive Vice President and CFO Carol Yancey, the decline in margin primarily reflects coronavirus headwinds in the automotive group’s U.S. and European businesses, which were partially offset by improved operating margins in Australasia, which had a solid quarter.

NORTH AMERICA … U.S. automotive sales declined 3.8% in the first quarter, with comp-store sales down 5.7%. Primarily, the sales decline reflects the combination of a slow start to 2020 because of mild winter weather that pressured sales in January and February, as well as the impact of the coronavirus in the second half of March.

“While sales started strong in March — up 7% through mid-month — sales fell by 24% over the final two weeks of the quarter,” Donahue said on the call. “These headwinds drove sales declines in both the commercial and retail segments of our business. While the DIFM segment — which represents 80% of our total U.S. automotive sales — outperformed our DIY sales for the quarter overall, this flipped in late March with DIY showing more resilience throughout this crisis.”

Donahue noted that online orders have increased significantly in the current business environment and have been an important factor in driving DIY sales. “Our omnichannel initiatives — such as ‘buy online, pick up in-store;’ curbside pickup; and expanded ship-to-home capabilities, including next-day delivery to every U.S. market — allow our customers a variety of convenient options when making a purchase,” Donahue said.

“In addition, this environment has prompted us to provide additional services, such as same-day store deliveries on the DIY side and touchless delivery for our commercial customers,” he added. “We believe that these services will prove to enhance our customer value proposition in both the near and long term.”

Regionally, the Northeast and Mid-Atlantic were the most impacted during the quarter, with the Midwest and Mountain states the least pressured, according to management. The performance of company-owned stores and independent stores were similar.

During the call, Donahue provided analysts with an update on the financial state of its independent store owners and AutoCare Center customers in the United States. He said that NAPA and its financial partners are working with these independently owned businesses to help them benefit from the financial assistance available to them.

“This has involved continued education regarding several programs, including the CARES Act. To date, the vast majority of our independent NAPA owners have applied for PPP assistance, with 60% receiving funding,” Donahue stated. “The majority of our owners have also applied for other financial support, such as loan payment deferrals and standard SBA loans for disaster relief. Importantly, we would emphasize that none of our NAPA owners had to close their businesses due to COVID-19.

“In addition, among our NAPA AutoCare Center customers, most of which remain open for business, more than 60% have filed for assistance with over 40% currently funded. We are confident in the financial stability of these key partners, and we will continue to work with them to ensure they pull through these difficult times.”

It’s worth noting that management’s remodeling program for independent stores has been put on hold in light of the financial constraints these owners are facing. However, the pause is temporary, according to Donahue. “My hope will be that we see that ramp back up in the second half of the year,” he told analysts on the call.

In Canada, GPC’s automotive operations experienced mid-single-digit comp declines, which were partially offset by acquisitions.

“Through February, our Canadian business was trending slightly positive, although sales began to gradually slow in early March before falling 25% over the last half of the month in accordance with provincial shelter-in-place orders,” Donahue said.

EUROPE … In Europe, GPC’s automotive sales rose 14%, driven by the incremental benefit from the PartsPoint and Todd acquisitions in 2019. Sales were offset by a high single-digit decline in core sales mainly related to the pandemic, as well as the impact of foreign currency.

“After posting relatively flat comps through February, sales in Europe slowed significantly in early March and were especially pressured following the March 17 preemptive government lockdown in France,” Donahue said. “France is our largest market in Europe, representing approximately 39% of total European revenue, and we look forward to the easing of these restrictions later this month.”

He added: “In light of our earlier expectations for much-improved results for Europe in 2020, the current conditions represent a temporary setback which our team is addressing via several measures, including aggressive cost reductions. In addition — with a vast network of operations across several key regions, including France, the U.K., Germany, Poland, the Netherlands and Belgium — we continue to view our expanded footprint in a large and fragmented European marketplace as an important competitive advantage. We are committed to our growth strategy for these operations and expect this business to emerge from the pandemic well-positioned to actively build on its market-leading position in the recovery.”

AUSTRALASIA … The automotive group’s strongest results came from Australia and New Zealand, where the company reported low single-digit comp growth and operating margin expansion despite a significant negative impact from foreign currency translation.

“This region was the least affected by COVID-19 in March, although New Zealand, which represents less than 20% of our Australasian automotive revenue, was also under a mandatory lockdown,” Donahue said. “As in the U.S., online sales have been strong through this crisis and a solid driver of retail sales for this region. We continue to support our customers through ‘buy online, pick up in-store’ and deliver from our store capabilities, utilizing the Repco store fleet of delivery vehicles in all markets.”

With the growth in online demand, the timeliness of GPC’s Sparesbox acquisition in 2019 has been beneficial. Sparesbox is billed as Australia’s leading online auto parts and accessories business.

“We have utilized its specialized expertise to enhance our understanding of the digital marketplace and improve our omnichannel capabilities in Australasia and across our global automotive operations,” Donahue told analysts on the call.

LOOKING AHEAD … “The headwinds we experienced relative to COVID-19 had a significant impact on demand late in the [first quarter],” Donahue said. “And despite our confidence in the long-term fundamentals of the aftermarket, we expect a decline in miles driven, consumer spending and overall economic activity to continue to pressure this segment over the near term.”

In April, GPC’s global automotive group sales were down 30% yet improved sequentially through the month, which Donahue said has carried over into May. Regionally, April sales were down roughly 25% in the United States and down 30% in Canada. European sales were down 40%, while Australasia sales were down 20%.

More recently, in locations where governments have allowed virus-related restrictions to ease — such as Germany, the Netherlands and Belgium — Donahue said there has been a resurgence in top-line sales.

“While we expect these levels of declines — and the second quarter in general — to represent a low point for demand across our businesses, we cannot reasonably forecast the full impact of COVID-19 in the coming months,” Yancey said on the call. “As a result, we’re planning accordingly.”

In consideration of the severe impact of the pandemic and continued uncertainty regarding the coming months, GPC has focused on such measures as …
• Realigning capital allocation priorities with the goal of preserving cash.
• Evaluating alternative forms of liquidity, including the use of asset-based lending.
• Delaying merit increases.
• Reducing headcount, including voluntary and involuntary leave of absences.
• Hiring freezes.
• Reducing executive and officer pay.
• Reducing bonuses and commissions.
• Collecting government subsidies.
• Reducing hours of operations.
• Rent relief.
• Reducing professional fees and marketing expenses.

BALANCE SHEET, ETC. … The company generated $74 million in cash flow from operations in the first quarter of 2020 — an increase of 20%, mainly attributable to working capital management. Capital expenditures were $45 million, which was relatively flat compared to a year ago. It’s worth noting that GPC’s efforts to reduce non-essential capital expenditures as a result of the coronavirus pandemic have yet to take hold.

GPC returned $207 million to shareholders during the first quarter of 2020, including $111 million in the form of dividends and $96 million in share repurchases. As previously reported, the company has decided to pause its share repurchase program and curtail acquisition activities until there is greater visibility into the macro environment.

Net debt at the end of the quarter was roughly $3.30 billion, and GPC had more than $1.10 billion in available liquidity inclusive of $354 million in cash on hand. And the company was in compliance with all its debt covenants at quarter’s end, according to GPC.         — Marc Vincent

Tenneco’s Aftermarket Revenue Fell 11.4% In Q1

Tenneco Inc. (Lake Forest, IL) reported $3.84 billion in total net sales and operating revenue for the first quarter of 2020. This was down 14.5% compared to one year ago. Excluding unfavorable foreign currency, total revenue would have decreased 12%.

The company also reported a wider net loss, going from a loss of $105 million a year ago to a loss of $826 million for the three months March 31, 2020. First-quarter 2020 adjusted net loss was $26 million — down from $42 million in adjusted net income a year ago.

Tenneco’s Motorparts (aftermarket) segment saw its net sales and operating revenue decline by $91 million (or 11.4%) to $706 million in the quarter. Adjusted for currency translation, segment revenue decreased by $72 million (or 9.0%) to $725 million. Management estimates that coronavirus-related demand pressures decreased Motorparts’ sales by $55 million in the quarter. Additionally, the exit of certain product lines, including the wipers business, impacted the year-over-year revenue comparison by $26 million.

“The North American and [Europe, Middle East and Africa (EMEA)] aftermarket industry demand decline appears to have bottomed out, but it’s down significantly on a year-over-year basis,” CEO Brian Kesseler told analysts on the company’s May 8 earnings call. “We have seen improving trends since mid-April and anticipate gradual demand improvement as the quarter evolves.”

AFTERMARKET SPINOFF … Regarding the planned separation of Tenneco into DRiV Inc. and New Tenneco, Kesseler said the company benefits from having two diversified divisions that are both well positioned to generate long-term value. “In these current times, we believe the diversification and scale of the business will benefit us as a consolidated entity,” Kesseler stated.

“Longer term, we continue to view a separation of the divisions as the best potential value proposition for all shareholders,” he added. “We’re cognizant of the market conditions and highly focused on reducing our leverage metrics as demand recovers and before we move forward with any separation. In the meantime, we will continue to opportunistically review strategic alternatives that could be executed once industry and finance market trends stabilize.”

OPERATIONS, LIQUIDITY & GUIDANCE … On May 8, Tenneco reported that all of its production facilities, distribution centers and offices in China were open and operating at near pre-pandemic levels. And as of the first week of May, approximately 75% of the company’s plants and distribution centers worldwide were operating at various levels of production — up from a low of 47% during the first week of April.

As of March 31, 2020, Tenneco had $1.57 billion in liquidity, composed of $770 million in cash and $800 million undrawn on the company’s revolving credit facility. According to Tenneco, the company has acted to further bolster its liquidity position by drawing the remaining amount available under this revolving facility.

Based on available industry forecasts and company estimates, management believes Tenneco has adequate liquidity to weather the current downturn.

Due to uncertainty related to the coronavirus crisis, management is not providing financial guidance for the balance of 2020 at this time.

MORE CUTS … In response to lower demand related to the pandemic, Tenneco plans to implement additional structural cost reductions that management expects will achieve an incremental $65 million in annual run-rate cost savings by the end of 2020.

The company also has implemented a number of temporary cost reductions and actions intended to further mitigate virus-related profit pressure and to optimize cash performance. This includes temporarily suspending or reducing operations, salary reductions and furloughs, reducing capital spending, and lowering board of directors retainer fees.        — Marc Vincent

BorgWarner, Delphi Resolve Transaction Dispute

BorgWarner Inc. and Delphi Technologies on May 6 announced an amendment to certain terms of the transaction agreement originally entered into Jan. 28. The deal pertains to BorgWarner’s efforts to acquire Delphi Technologies in an all-stock transaction.

According to the companies, the amendment resolves BorgWarner’s assertion that Delphi materially breached the deal by drawing down on its full $500-million revolving credit facility. Delphi disputed this on the basis that BorgWarner unreasonably withheld and conditioned its consent.

Under the terms of an amendment that has been approved by the boards of directors of both companies, BorgWarner now consents to Delphi’s draw down of its revolver.

The amended deal also provides for new closing conditions requiring that, at the time of the transaction closing, the total amount of Delphi’s outstanding revolver borrowings do not exceed $225 million and, net of its cash balances, do not exceed $115 million. Additionally, the amendment calls for Delphi’s net debt-to-adjusted EBITDA ratio not to exceed a specified threshold.

The parties also have agreed to a revised exchange ratio pursuant to which Delphi’s shareholders will receive 0.4307 shares of BorgWarner common stock for each Delphi share. This represents a 5% reduction in the exchange ratio relative to the original deal.

In accordance with these amended terms, current BorgWarner shareholders would own approximately 85% of the outstanding shares of the combined company following completion of the transaction. Current Delphi shareholders would own roughly 15% of the outstanding shares of the combined company. This is down from the original deal’s ratio of 84%/16%.

All other terms and conditions of the original definitive transaction agreement remain substantially the same, according to the companies.

Closing of the transaction is expected to occur in the second half of 2020, subject to approval by Delphi shareholders, receipt of regulatory approval, and satisfaction or waiver of other closing conditions.

BorgWarner’s Q1 Sales Decreased 8.1% Excluding Currency, Transactions

For the first quarter of 2020, BorgWarner Inc. reported $2.28 billion in net sales — a year-over-year decrease of 11.2%. Excluding the impact of foreign currency and the net impact of acquisitions and divestitures, the company’s net sales were down 8.1%. A closer look shows that engine segment net sales were down 6.4% excluding foreign currency and a divestiture, while drivetrain segment net sales were down 10.6% excluding the impact of currency.

BorgWarner’s first-quarter 2020 gross profit declined 13.9% to $447 million, and its net income fell 19.9% to $137 million.

For the full-year 2020, management is calling for net sales to come in between $7.25 billion and $8.00 billion, which implies a year-over-year decrease in organic sales of 20% to 27%. This guidance is for BorgWarner as currently consolidated and excludes the potential impact from the acquisition of Delphi Technologies.

The Group Training Academy Adds New Streaming Training

The Automotive Parts Services Group is providing free streaming training, also known as START, for automotive repair teams on its web training portal, The Group Training Academy. With START, automotive professionals can tune in at any time and watch one of academy’s courses. Each week, there will be a different schedule with a variety of topics, such as ASE test prep, diagnostics, diesel and electrical.

In addition to START, The Group Training Academy will feature free AVI live webinar sessions on Mondays, Wednesdays and Fridays where automotive professionals can learn from and interact with various industry professionals. For more information about START and the live AVI webinars, visit thegrouptrainingacademy.com/start.

LKQ Reports Higher Earnings, Margin Improvement Despite Decline In Sales

For the first quarter of 2020, LKQ Corp. reported just over $3.00 billion in consolidated revenue — a $99.37-million (or 3.2%) decrease compared to the same period a year ago.

Global parts and services organic revenue declined 3.5% for the quarter and 4.7% on a per-day basis. According to management, the primary driver for this decrease was a 13.9% per-day organic revenue decline in March when stay-at-home mandates begin to take effect.

Nonetheless, LKQ’s consolidated gross margin increased 0.5% to $1.21 billon and as a percentage of revenue, gross margin grew from 39.0% to 40.4% on a year-over-year basis.

The company’s net income rose 47.4% to $145.98 million; however, adjusted net income was essentially unchanged at $176.10 million.

President and CEO Nick Zarcone told analysts on the company’s April 30 earnings call that, taken as a whole, LKQ got off to a great start in 2020 and that management is pleased with the company’s first-quarter results. “Through February, each of our segments was in line or ahead of our revenue and profit expectations,” Zarcone stated.

“The speed at which the economic fallout from virus-prevention measures has impacted all industries reflects a rate never seen before. It was like operating within two completely separate economies during a single quarter,” he explained. “We clearly lost operating leverage in March with the speed of the revenue decline outpacing our ability to reduce cost.”

NORTH AMERICA … LKQ’s North American segment revenue decreased 0.9% to $1.29 billion. Parts and services organic revenue for the North American segment declined 4.2% (or 5.6% on a per-day basis).

“Looking solely at January and February, North America organic revenue was down 1.1%, but the majority of that negative movement reflects our decision to terminate the FCA battery contract in the fourth quarter of last year and, to a lesser amount, due to a very warm winter season,” Zarcone said on the call. “CCC estimates that collision- and liability-related repairable claims in the first two months of 2020 were down about 4%, so we continued to outperform the market as a whole.

“During March, we experienced organic revenue declines of 13.9% on a per-day basis, with most of that coming in the back half of the month, compared to a CCC estimate for repairable claims in the month of March being down by approximately 20%.”

He also pointed out that the segment’s 4.2% full-quarter organic decline was less than the 9.9% decrease in collision- and liability-related auto claims reported by CCC for the first quarter as a whole.

North American segment EBITDA rose 19.7% to $211.44 million, while EBITDA margin increased from 13.6% to 16.4% on a year-over-year basis.

EUROPE … The company’s European segment revenue declined 5.7% to $1.36 billion. Parts and services organic revenue for the European segment was 3.4% (or 4.5% on a per-day basis).

“This was mostly related to a 10.3% (or 13.7% per day) decline in the month of March,” Zarcone told analysts on the call. “Importantly, not all regions were impacted by the COVID-19 pandemic at the same time, creating a different growth profile for each of our European businesses in the quarter.

“Italy was the first country to report a significant number of COVID-19 cases and the first to lock down the mobility of its citizens, particularly in their heavily industrialized areas in the northern part of the country. We saw an immediate impact on our Italian-sourced revenue in the last week of February and the first week of March. The U.K., on the other hand, did not issue stay-at-home orders until later in the month and revenue was in line with budget until the week of March 23, when it began a steep decline.”

Segment EBITDA decreased 25.7% to $78.26 million, while EBITDA margin slipped from 7.3% to 5.7% on a year-over-year basis.

Analysts with Jefferies LLC wrote in an April 30 report that they expect demand across Europe to improve with vehicle utilization trends, which are still expected to vary significantly by country, “although we expect April trends likely represent ‘trough’ Q2 levels.”

They added: “We also note that solvency and operational issues at various competitors across Europe could provide market share gains for LKQ.”

SPECIALTY … LKQ’s Specialty segment revenue decreased 1.5% to $348.58 million. Specialty organic revenue for parts and services declined 1.4% (or 2.9% on a per-day basis).

“When looking at January and February combined, Specialty witnessed a 4.3% organic revenue growth rate, with March declining 11%,” Zarcone said. “It’s important to look at the January and February performance in isolation, given many were concerned that the weakness Specialty witnessed in the fourth quarter would persist. And clearly, that was not the case, as we started 2020 very strong.”

Segment EBITDA declined 15.1% to $32.23 million, while EBITDA margin decreased from 10.7% to 9.2% on a year-over-year basis.

In the aforementioned report, Bret Jordan, Mark Jordan and Ethan Huntley of Jefferies wrote that they expect sequential improvements from the segment. However, they did note that the highly discretionary nature of Specialty relative to the company’s North American or European operations “should be an ongoing headwind in a likely post-pandemic recessionary environment.”

PANDEMIC IMPACT … Zarcone told analysts that, while LKQ’s first-quarter results were reasonably strong, the industry left the quarter on a very soft note and that the first few weeks of April were even weaker.

“According to a report published by McKinsey & Company, during the week of March 17, the headwinds from social distancing reduced miles driven in the United States by 40% to 50%, and accident frequency was down by up to 60% in certain key markets,” he said. “Also, consumer surveys conducted by McKinsey showed that U.S. households are trying to reduce their trips by roughly 50%, with 45% of the respondents expecting to delay any auto repair servicing.”

Zarcone also pointed out that, in the last month, the Top 5 U.S. auto insurance carriers have given more than $6 billion in rebates to their policyholders because of the dramatic drop in the accident frequency from lower miles driven, which are pushing insurance loss costs lower.

“In North America, salvage revenue has been closer to the 35% down mark, with recycled engines and transmissions performing better than collision parts,” he added. “Aftermarket collision parts are down more than 40%, while glass and paints are down about 42% and 36%, respectively.

“In Europe, the revenue declines in April vary by region, with our operations in Germany and Central and Eastern Europe reflecting declines of approximately 25%. The Benelux region being down about 40%. The U.K. being down 50%, and Italy being down over 60%. When taken together, for the month of April, we are trending about 40% below last year.”

And, according to Zarcone’s comments, LKQ’s Specialty unit started April down 40%. But, in the last week, it saw an uptick in activity, leading management to believe that the Specialty segment would be down 30% for the month.

“The main question all businesses are facing is how long these conditions will persist and frankly, the answer is impossible to predict,” Zarcone told analysts on the call. “What we can focus on in the here and now is to address the dynamics that we can effectively control.

“Governments around the globe are trying to figure out both when and how to reopen their economies. When the lockdown measures are lifted, we do believe vehicles will start getting back on the road, but we don’t anticipate miles driven will snap back to pre-COVID-19 levels immediately.”

He also said: “There is significant uncertainty in the market, but we are working under the assumption that these depressed levels will persist through a good part of Q2, with demand beginning to see a modest rebound in Q3 and heading toward more normalized levels in Q4, but likely not back to 100% until sometime in 2021.”

MAKING CUTS … Zarcone laid out a number of cost-cutting measures that LKQ has undertaken, including the elimination of all overtime and temporary workers, “extensive” employee furloughs, permanent reductions in the company’s workforce, decreased hours for many still on the payroll and participating in some of the social programs offered to employers in various European countries.

“Through these various efforts [as of April 24], we had effectively neutralized the cost of over 16,750 employees,” he told analysts on the call. “Said another way, in a matter of a few short weeks, we have largely removed the cost of approximately one-third of our global workforce.” The majority of these adjustments are in Europe, followed by North America and then Specialty.

Zarcone pointed out that payroll-related items in aggregate represent the company’s single-largest SG&A expense category.

In addition to the workforce adjustments, LKQ also has cut discretionary spending, instituted a ban on business travel, accelerated the pace of branch closures — both temporary and permanent —  and worked on improving the overall efficiency of the distribution networks and route structures across its segments.

“When viewed on a company-wide basis over the past few weeks — between our concerted actions and normal variable elements — the cost footprint of our company has been temporarily reduced by $80 million to $90 million per month, reflecting an annualized run rate of approximately $1 billion,” Zarcone stated. “While we don’t anticipate actually saving $1 billion — as we will need to bring our people back onto the payroll and add costs back into the business as volumes begin to return to pre-COVID-19 levels — it highlights the magnitude of the cost adjustments we’ve made.”

He also told analysts that LKQ’s supply chain is intact and that the company has not experienced any major disruptions in terms of inventory shortages or stock outs. “While some aftermarket parts suppliers furnishing our various businesses have experienced some reductions in capacity, we have reduced replenishment orders as our revenue has declined,” Zarcone said. “On balance, we believe we will not have material issues with our aftermarket supply chain going forward.”

CASH FLOW AND BALANCE SHEET … Cash flow from operations totaled $195 million during the first quarter of 2020, up 10% from a year ago. Free cash flow totaled $150 million, up 21% year-over-year.

LKQ made $230 million in net repayments on its borrowings during the quarter. As of March 31, 2020, the company’s balance sheet reflected net debt of $3.50 billion.

Net leverage decreased to 2.5x EBITDA. And as of March 31, 2020, the company had roughly $1.90 billion in available liquidity composed of approximately $1.53 billion available under its credit facilities and $333 million in cash and cash equivalents.

During the first quarter of 2020, LKQ repurchased 3.30 million shares of its common stock for a total consideration of $88 million. Management suspended the company’s share repurchases on March 16, 2020.

“We are confident that our current liquidity and continued positive cash flow from operations in future periods will be sufficient to meet our ongoing operating and capital requirements,” said CFO Varun Laroyia.       — Marc Vincent

RevolutionParts Debuts Local Delivery

RevolutionParts has announced the nationwide launch of RevolutionParts Local Delivery, a service that allows people to request the on-demand, hotshot pickup and delivery of local parts orders. With the program, dealerships can schedule trackable deliveries to any local customer, as well as source parts for their own service departments.

According to RevolutionParts, deliveries are completed within 55 minutes using multiple delivery providers.

The program is now available at no additional charge to all dealerships using the RevolutionParts platform. And to help dealerships build on this service, RevolutionParts is offering $250 in deliveries through the end of April.

ITT Reports Q1 Friction Sales Decrease

The Motion Technologies segment of ITT Inc. reported $297.90 million in revenue for the first quarter of 2020 — an increase of $17.30 million (or 5.5%), which included $7.80 million in unfavorable foreign currency.

Organic revenue decreased 3.0%, mainly because of a 5% decline in friction sales related to a significant reduction in demand, mainly in China and Europe, resulting from the coronavirus pandemic. Additionally, Wolverine sales declined 3%, attributable to weakness in the global auto market.

These declines were partially offset by 5% sales growth at KONI and Axtone, primarily in the European and North American rail market.

Continental Names Sales Technical Training Supervisor

Continental has promoted Sean Lannoo to sales technical training supervisor for the company’s VDO, REDI-Sensor, ATE, Autodiagnos and ClearContact aftermarket product lines. Lannoo leads a team of 11 training specialists who provide technical support and education to customer sales personnel and professional technicians throughout the United States and Canada. He is a TIA-Certified Automotive Tire Service Instructor and has earned three ASE certifications.

Transamerican Auto Parts’ Sales Decreased 10%

Polaris Industries’ first-quarter 2020 aftermarket segment sales — which includes Transamerican Auto Parts (TAP), as well as the brands Klim, Kolpin, ProArmor, Trail Tech and 509 — decreased 8.3% to $202.10 million.

TAP sales declined 10% to approximately $177 million, attributable to the coronavirus-related economic slowdown, especially in California where about a third of the business’ retail stores are located. Sales from Polaris’ other aftermarket brands were up 6%, mainly because of cold-weather products sales early in the quarter.

Aftermarket gross profit decreased 18.1% to $46.30 million. Segment gross margin declined from 25.6% a year ago to 22.9% for the three months ended March 31, 2020, tied to lower sales volumes, higher tariff and freight costs, and lower vendor rebates.

ISN Debuts Revamped Toolweb.com

Lakeland, FL-based Integrated Supply Network (ISN) has launched a new version of its tool and equipment ordering website, Toolweb.com. The site includes a revamped search feature, allowing users to search by brand, product name and part number. And, for ISN customers, Toolweb.com offers a bulk upload feature via Quick Order so all part numbers can be entered on one page or uploaded in an Excel format.

MAPA Suspends 2020 Membership Dues

The Michigan Automotive Parts Association (MAPA) board of directors has suspended all member dues for the 2020 fiscal year to assist members during the coronavirus pandemic.

Members in good standing who have already paid their dues for the 2020 year will receive a check from MAPA in the coming weeks. Members who are scheduled to be invoiced April 2020 through December 2020 will receive a dues invoice; however, it will be marked “paid.”

Icahn Auto Awarding $30,000 In Technician Scholarships

Icahn Automotive will award a dozen $2,500 scholarships for the 2020-21 school year to qualified students studying to become professional automotive technicians. This is part of the company’s “Race to 2026” initiative, which aims to increase the number of trained technicians to help fill an industry-wide talent gap projected to grow to 46,000 over the next six years. For more information, visit icahnautomotive.com/scholarship.html.

Clean Harbor’s Safety-Kleen Unit Reports 7.6% Revenue Increase

Direct revenue attributable to the Safety-Kleen division of Clean Harbors Inc. increased by $20.74 million (or 7.6%) to $293.21 million the first quarter of 2020, primarily because of growth in the SK Oil business.

The company reported that revenue generated through Safety-Kleen’s core service offerings, such as handling containerized waste and vacuum services, increased by $3.60 million, while revenue from contract blending and packaging increased by $2.50 million. Parts washer services revenue was relatively consistent with the same quarter in the previous year.

Safety-Kleen’s adjusted EBITDA rose 11.6% to $61.15 million.

“Although the impact of COVID-19 on our Q1 results was limited, it progressively worsened toward quarter-end as shelter-in-place orders took hold in the United States and Canada,” said Clean Harbors Chairman, President and CEO Alan McKim. “In anticipation of the economic downturn and softer demand, particularly for Safety-Kleen, we took decisive actions to align our cost structure with the current environment and protect our balance sheet.”

This has included …
• Downsizing the company’s work force through furloughs and other actions.
• Implementing a non-billable hiring freeze, travel restrictions and wage freeze.
• Negotiating with vendors and suppliers for savings or improved payment terms.
• Shuttering nearly half of its re-refinery production because of supply constraints and market demand.
• Drawing down $150 million on its revolving credit facility.
• Lowering its expected 2020 net capital expenditures spending by more than $50 million.
• Withdrawing its annual guidance until market conditions stabilize.

McKim said these actions position the company for an anticipated reopening of the U.S. and Canadian economies in the second half of 2020. However, he told participants on the company’s April 29 earnings call that he expects the Safety-Kleen branch business and SK Oil to be hit fairly hard, particularly in the second quarter, as stay-at-home orders greatly reduce vehicle travel and diminish the amount of used motor oil.

“With stay-at-home orders greatly reducing vehicle travel across North America, the pandemic is limiting near-term demand for our core Safety-Kleen offerings, including used motor oil (UMO) collection,” McKim said. “We expect our branch business to rebound when shelter-in-place mandates are lifted and low gasoline prices and a reduction in air travel will encourage a steady increase in driving.

“In our SK Oil business, our re-refining spread has contracted with the drop in crude prices. Despite our aggressive increase in charge-for-oil pricing, near-term demand for base oil has dropped precipitously, prompting us to shutter some re-refining capacity until the markets improve.”

Kia Extends Warranty Coverage

Kia Motors America (KMA) has launched the Kia Promise warranty coverage extension program, which is designed to ease some of the concerns experienced by Kia owners who may not be able to bring their vehicles to a Kia dealership for warranty repairs because of the coronavirus pandemic and have Kia vehicle warranties that are expiring.

The program applies to Kia customers who have experienced potentially warrantable concerns with their vehicles between March and May 2020 but were not able to obtain service from a Kia dealer because of issues related to the pandemic. Repairs must be completed by June 30, 2020.

AASP-MN Announces 2020-2021 Board of Directors

The Alliance of Automotive Service Providers – Minnesota (AASP-MN) has announced the following people will serve on its board of directors for 2020-21 …
• President: Matthew Feehan of Fix Auto in Brooklyn Park.
• Immediate Past President: Carl Thomas of Lancer Service in St. Paul.
• Secretary/Treasurer: Tom Archambault of Boulevard Autoworks in St. Anthony.
• Collision Division Director: Jesse Jacobson of Heppner’s Auto Body in Woodbury.
• Mechanical Division Director: Tony Newman of Dale Feste Automotive in Hopkins.
• Associate Division Director: Loren Feldkamp of Lube-Tech & Partners in St. Paul.
• Collision Seat: Randy Miller of Collision Specialists in Austin.

Heavy-Duty Industry Veteran Mark Iasiello Retires

Mark Iasiello has retired. Iasiello has been with Vipar Heavy Duty since 2012, serving as director of business development for national accounts, as well as general manager of its Power Heavy Duty subsidiary. He also spent more than 20 years with Dayco Products in a variety of sales management positions before becoming the company’s heavy-duty national sales manager. Iasiello also spent five years at the Heavy Duty Manufacturers Association as vice president of member development for commercial vehicle suppliers.

Meritor’s Aftermarket, Industrial & Trailer Sales Have Decreased 3%

The Aftermarket, Industrial & Trailer segment of Meritor Inc. reported $319 million in sales for the fiscal second quarter ended March 31, 2020 — a decrease of $5 million (or 3%). According to management, the lower sales came primarily from decreased volumes across the segment, including changes in customer demand and the impact of government mandates as a result of the coronavirus pandemic. This was partially offset by revenue generated from AxleTech.

Aftermarket, Industrial & Trailer adjusted EBITDA declined 5.8% to $49 million, while segment adjusted EBITDA margin decreased from 15.8% to 15.4% on a year-over-year basis. The decreases were the result of lower volumes, which were only partially offset by lower incentive compensation costs.

It’s worth noting that Meritor’s aftermarket business has remained fully operational, according to the company, in order to maintain the supply of replacement parts to the truck and trailer transportation network.

Stertil-Koni Touts New Shop Equipment Initiative

Stertil-Koni, a heavy-duty bus lift and truck lift manufacturer, has launched a shop equipment initiative designed to broaden its product offering in support of large-scale vehicle service and repair facilities across the United States and Canada. The aim is to expand efforts to engineer and deliver heavy-duty shop equipment that can be used in conjunction with Stertil-Koni’s lifting systems.

Items that are already part of the company’s portfolio include transmission jacks, wheel dollies, specialty platforms, pit jacks, waste oil containment products and heavy-duty air-over hydraulic jacks.

Shop Equipment Specialist Carl Boyer is spearheading the initiative. “Beyond our established equipment offerings, we are also focusing on broadening our product range to include engineered applications, uniquely designed for larger customers and OEMs,” Boyer stated.

MAM Software Parent KCS Expands In Europe

Kerridge Commercial Systems (KCS), parent company to MAM Software, has acquired Infomat, a move that expands its presence in the Benelux region. Stephan Van Bulck, CEO Infomat, said the companies share a focus on the same markets: trade, wholesale and distribution.

“We will continue to invest in our solutions, further deepen our solutions for the professional tools and DIY sector, electrical wholesalers, car parts, HVAC and other types of wholesalers, adding value for our customers,” Van Bulck said. “We now have the opportunity to benefit from the international scale to bring these solutions to other markets. The larger product portfolio of KCS will also allow us to expand our own products with extra features and add-ons that benefit our existing customer base.”

According to a May 6 announcement from KCS, Infomat will continue to maintain and support its existing software.

Eucon Opens Office in Canada

The automotive division of the Eucon Group, a marketplace data and business intelligence firm, is opening an office in Toronto. A fully owned subsidiary of Eucon of North America, which is based in Atlanta, Eucon Canada Ltd. will focus on providing support to existing customers in Canada, as well as pursuing new business in the country. Eucon Canada will specialize in providing market information and data-based products for automotive and parts manufacturers in the region.

“As a critical automotive market with an established client base, Canada was a natural fit in our global growth strategy,” said Bjoern Rietschel, president of Eucon of North America. “To meet our growth objectives, we have brought in Kumar Saha, an experienced automotive market research and consulting professional, to lead the Canadian operations.”

In addition to serving as managing director of Eucon Canada, Saha also acts as head of market intelligence for the Americas region. Saha comes to Eucon from Frost & Sullivan, where he was the Americas head for the automotive consulting and research practice.

People Watching 5/11/20

• Eric Lough, director of data management at PartsTech, is now the incoming chair of the Automotive Content Professionals Network (ACPN). Lough succeeds Luke Smith of Momentum USA, who has completed his term as chair.

• John Cerveny of Magnaflow, Will South of the WSJ Group and Alicia Uribe of Parker Hannifin have received their Automotive Content Professional (ACP) credentials.

• Denny McKnight is the new CEO of Tompkins International, succeeding founder Jim Tompkins, who now serves as the company’s chairman and brand ambassador. Tompkins had been the company’s CEO for 45 years. McKnight has been its president since 2013. Raleigh, NC-based Tompkins International is a global supply chain consulting firm.

• Yorien de Ruijter has now officially succeeded Niels Klarenbeek as director of Rematec at RAI Amsterdam. De Ruijter has been with Rematec for the last three years as its sales and exhibition manager.

• Haldex has announced Lottie Saks as its new CFO effective June 1. Saks was the finance chief of Cint and, prior to that, CFO of OneMed.

New Briefs 5/11/20

• Advance Auto Parts is restructuring its accounting organization, which will result in the elimination of approximately 100 total jobs from its offices in Raleigh, NC and Roanoke, VA, effective Aug. 14.

• Parts Authority, PartsTech and WHI Solutions have won the 2020 Automotive Content Professionals Network (ACPN) and Car Care Professionals Network (CCPN) Installer’s Choice Award.

• Cardone Industries and Delphi Technologies have won the 2020 Automotive Content Professionals Network (ACPN) ACES and PIES Content Excellence Award.

• The Aftermarket Auto Parts Alliance has presented the 2020 Auto Value and Bumper to Bumper Receiver’s Choice Award to DRiV Inc.

• Effective May 1, the Sea-Land Chemical Company (Westlake, OH) is a North American authorized distribution partner for SBZ Corp.’s line of engine oil components and packages. The products are used to formulate non-OEM passenger car motor oil, as well as heavy-duty diesel and industrial gear oil products.

• Lucas Oil Products of Corona, CA is now donating a portion of the proceeds from the sale of its hand sanitizer to high-risk facilities and organizations, including local and regional senior centers and homeless shelters.

• Service Champ is now making hand sanitizer. It will be available for shipping to customers on May 11.

• Kem Krest of Elkhart, IN is making hand sanitizer and ventilator parts to help with the coronavirus pandemic.

• Vintage Air — a manufacturer of performance air conditioning systems for muscle cars, hot rods and street rods — has produced a limited run of face shields.

• 4 Wheel Parts (4WP) is offering free inspections, alignment and tire rotations to all first responders, medical workers and essential workers at its installation locations through May 31.

• Epicor Software Corp. has launched a series of free webinars designed to help automotive service businesses connect with existing and new customers during the current period of social distancing. To next session is scheduled for May 14. For additional information, click here.

• Snap-on Inc. has added a tool matcher feature to its website at diagnostics.snapon.com.

• GMB has launched its first mobile catalog app for iOS and Android devices. Vertical Development Inc. built the app with the support of the ShowMeTheParts catalog database.

• Eagle Engine has incorporated technology from ShowMeTheParts.

• Dana’s aftermarket group has kicked is running a contest to highlight the ease of connecting with the company online. Winners will receive Coleman coolers featuring the Spicer logo.

• Design Engineering Inc. (DEI) in Avon Lake, OH is celebrating its 25th anniversary.

Financial Briefs 5/11/20

• Delphi Technologies’ aftermarket net sales declined 9.8% to $174 million in the first quarter of 2020. This breaks down as $121 million in first-quarter sales to independent aftermarket customers (down 14.2%) and $53 million in sales to OES customers (up 1.9%). Aftermarket gross margin improved from 19.7% to 21.3% on a year-over-year basis, and adjusted operating income came in at $15 million, which was unchanged year-over-year.

• Dana Inc. Chairman, President and CEO Jim Kamsickas said on the company’s April 30 earnings conference call that across all three of Dana’s end markets, its aftermarket operations have remained mostly operational as service parts have been deemed essential, especially in the commercial vehicle markets. “We continue to see good demand, especially in Europe and North America,” Kamsickas added.

• The Goodyear Tire & Rubber Company saw its total retail services and service-related sales increase 5.2% to $163 million in the first quarter of 2020. (U.S. sales increased 0.8% to $133 million). Retail services and service-related sales consist of automotive services performed for customers through company-owned retail channels and includes service-related products.

• Lawson Products reported on April 30 that Kent Automotive strategic accounts grew 5% in the first quarter of 2020. The company provides collision and mechanical repair products to the automotive aftermarket under the Kent Automotive brand.

• U.S. Auto Parts Network reports that, on April 10, it received nearly $4.11 million in Paycheck Protection Program (PPP) loan proceeds. However, on April 23, the U.S. Small Business Association (SBA) — in consultation with the Department of Treasury — issued new guidance that U.S. Auto Parts says creates uncertainty regarding the qualification requirements for a PPP loan. Therefore, “out of an abundance of caution” and in light of the new guidance, the company deemed it appropriate to repay the principal and interest on the PPP loan.

• AutoNation Inc. will return $77 million in Paycheck Protection Program (PPP) forgivable loans by May 7, according to an April 24 Reuters news report.

Event & Trade Show Briefs 5/11/20

• AASA will host a roundtable discussion May 12 on guidelines and best practices for the automotive aftermarket as the U.S. prepares to reopen for business in the midst of the coronavirus pandemic. Click here for more information on the webinar.

• Registration for the 2020 Big-R Show is now available. The event is scheduled for Oct. 10-13 in Nashville. For more information or to register, click here.

• In light of the coronavirus outbreak, organizers of Automechanika Shanghai say they are working with local authorities to ensure appropriate safety parameters are upheld for the show, which is scheduled for Dec. 2-5.

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