LKQ Corporation is a global distributor of vehicle products, including replacement
parts, components and systems used in the repair and maintenance of vehicles,
as well as specialty vehicle products and accessories.
Buyers of vehicle replacement products have the option to purchase from primarily
five sources: new products produced by original equipment manufacturers ("OEMs");
new products produced by companies other than the OEMs, which are sometimes
referred to as aftermarket products; recycled products obtained from salvage
vehicles; used products that have been refurbished; and used products that have
been remanufactured. We distribute a variety of products to collision and mechanical
repair shops, including aftermarket collision and mechanical products, recycled
collision and mechanical products, refurbished collision products such as wheels,
bumper covers and lights, and remanufactured engines. Collectively, we refer
to these products as alternative parts because they are not new OEM products.
We are the nation’s largest provider of alternative vehicle collision
replacement products and a leading provider of alternative vehicle mechanical
replacement products, with our sales, processing, and distribution facilities
reaching most major markets in the U.S. and Canada. We are also a leading provider
of alternative vehicle replacement and maintenance products in the United Kingdom
and the Benelux region (Belgium, Netherlands, & Luxembourg) of continental
Europe. In addition to our wholesale operations, we operate self service retail
facilities across the U.S. that sell recycled automotive products from end-of-life-vehicles.
With our 2014 acquisition of Keystone Automotive Holdings, Inc. (“Keystone
Specialty”), we are also a leading distributor of specialty vehicle products
and accessories reaching most major markets in the U.S. and Canada.
We are focused on creating economic value for our stockholders by enhancing
our position as a leading source for alternative collision and mechanical repair
products, and by expanding into other product lines and businesses that may
benefit from our operating strengths. We believe a supply network with a broad
inventory of quality alternative collision and mechanical repair products, specialty
vehicle aftermarket products, high fulfillment rates, and superior customer
service provides us with a competitive advantage.
Other than OEMs, the competition in the markets that we serve is extremely fragmented
and the supply of products tends to be localized, often leading to low fulfillment
rates, particularly with recycled products. In North America, the distribution
channels for aftermarket and refurbished products have historically been distinct
and separate from those for recycled and remanufactured products despite serving
the same customer segment. We provide value to our customers by bringing these
two channels together to provide a broader product offering and more efficient
distribution process.
To execute our strategy in North America, we have expanded our network of parts
warehouses and dismantling plants in major metropolitan areas and employ a distribution
system that allows for order fulfillment from regional warehouses located across
the U.S. and Canada. By increasing local inventory levels and expanding our
network to provide timely access to a greater range of parts, we have increased
fulfillment rates beyond the levels that we believe most of our competitors
realize, particularly for recycled products.
In our European operations, we will continue to develop our existing branch
networks in the U.K. and Benelux markets and add locations where needed. In
the U.K., we have undertaken a major project to expand our distribution capabilities
in Tamworth. This project is expected to be completed in 2018. Between now and
completion, we will incur some duplicate operating and other start-up costs,
which may be material, as a result of having multiple warehouses during the
build out phase. In the Benelux markets, we will continue the integration of
the distributor acquisitions we have completed in that market and look for further
expansion opportunities. We continue to look for opportunities to lever our
growing presence in Europe through reduced cost of goods purchased and a lower
total cost structure. Over time we anticipate further integration of our European
operations as we optimize purchasing, cataloging, logistics and back-office
functions. Assuming we are successful in our acquisition of Rhiag, we expect
to follow similar strategies in its respective markets.
Sources of high quality, reliable alternatives to OEM products are important
to insurance companies and to our direct customers as they seek to control repair
costs. Lower parts costs and quicker completion of orders save money and reduce
repair times. We believe that we provide customers (and indirectly, insurance
companies) with a value proposition that includes high quality products at a
lower cost than new OEM products, extensive product availability due to our
expansive distribution network, responsive service, and quick delivery. The
breadth of our alternative parts offerings allows us to serve as a "one-stop"
solution for our customers looking for the most cost effective way to provide
quality repairs. In order to execute this strategy and build on our progress
thus far, we will continue to seek to expand into new markets, and to improve
penetration both organically and through acquisitions.
Similarly in our Specialty operations, the supplier base for the specialty vehicle
aftermarket parts and accessories market is highly fragmented, typically consisting
of suppliers that are small to medium-sized, independent businesses that focus
on a narrow product or market niche. While our Specialty operations had an extensive
distribution network already in place, we integrated the distribution network
for our North American and Specialty operations to create synergies and efficiencies
with our existing infrastructure. We believe this provides added value to our
customers through a broader product offering and more efficient distribution
process.