LKQ Euro Car Parts round-table
While the familiar face of LKQ Euro Car Parts will be your local branch, or perhaps more accurately the delivery van, there is a lot more going on behind the scenes, on a global scale. With this in mind, Nick Zarcone, Global president and CEO of LKQ Corporation, and LKQ Europe CEO Arnd Franz recently sat down with journalists from leading sector titles from a wide range of European countries, including Aftermarket representing the UK. Topics under discussion including LKQ’s business strategy and sustainability ambitions, of course how the business has been managing during the coronavirus pandemic.
Starting with the impact of COVID-19 on the business, Nick Zarcone said: “We are not quite back to pre-COVID-19 levels of revenue, but the last three quarters were the best in the company’s 23-year history in terms of profits and cash flow, and that accomplishment is due to the courageous work of our employees across the globe.”
He continued: Going forward, we have four key strategic pillars. First, grow the customer offering, which includes more than just selling and distributing parts. We want to provide value-added services to garages to help our customers be more productive more efficient and more competitive. Second, we are going to continue to expand the geographic markets in which we participate. Our focus has been and will continue to be on Europe. Third is we need to adapt to the evolving vehicle trends and technology, whether it’s connectivity, ADAS, electric vehicles, autonomous, fleet ownership or rideshare utilization. There’s no shortage of changes in the automotive marketplace and all of those changes represent unique opportunities for LKQ, which we are going to take advantage of. The fourth strategic pillar is to rationalize the asset base, to gain more productivity from our operations.”
Expanding on this fourth pillar Arnd Franz observed: “What has been going on for LKQ in the past two years is a big integration, bringing together all the great things that have been acquired by LKQ over the past 10 years. We started with Euro Car Parts in 2011, the last big acquisition was the acquisition of Stahlgruber, together with PV Automotive in Germany.
“We started the 1LKQ Europe programme in 2019, and just recently we were able to complete a big part of that. We can now present to our customers an organization that spans Europe that is looking in each one of our functions for best-in-class practices and new scale to do new things to please our customers. What will remain is the proximity to all the local people, all the local workshops, the local entrepreneurs, the people and businesses that are acting in each one of the markets and what will also stay the same is the entrepreneurial spirit of the people at LKQ that work in the 20 markets that were active with.”
On the thinking behind 1LKQ Europe, Nick commented: “We had bought what we believe were the best assets in the industry in Europe, but they were all independent companies when we bought them, and there was no reason that they should have been doing things exactly the same way in the same manner and they all had their complete build out of their teams in order to run independent businesses.
“We were operating in 20 countries, we had 20 different purchasing managers buying the same spark plugs from Bosch which was made no sense. At the end of the day this is a local business, the garages that we sell to what they care about is we can service their needs in a local marketplace. The garage in Birmingham, England could care less that we’re the market leader in Brussels or Berlin or Budapest or Bucharest, what they care about is we can service their needs and bring them in. All the customer facing activities are staying local, but the things that the customers don’t see, we have an ability to centralize that and gain real efficiencies and gain purchasing power and we identified an ability to create 300 to 350 basis points of margin improvement just by getting rid of a lot of the duplication that we had going on across the platform. The customers are never going to see the difference, they’re still going to get best in class service, they’re still going to get the broadest array of parts available in the marketplace with great delivery times.”
Internal efficiencies will only get you so far though, and in a rapidly changing world, it’s hard to keep your prices down if you have to pay more for the products yourself. Commenting on changing prices, Arnd said: “We see the highest cost pressure at the moment is on oil-based products, so any lubricants or any chemicals that are oil-based, there is certainly a higher pressure coming from the availability of base oils. Also, on the aluminum and steel based components, we have a lot of pressure and also on the plastic components. If you asked me, I could say that on oil-based products things could go up by a double digit percentage, whether whereas in the more mechanical parts we could see a lower single digit impact. of course, things vary depending by market and depending how the competitive environment is reacting to the inflationary pressures.”
The growth of LKQ in Europe has been one of the striking success stories of the last decade, and why 1LKQ was so necessary. Asked if the strategy is set to continue as we travel through the 2020s, Nick said: “Will we continue to make acquisitions in Europe? Absolutely yes. Since starting in October of 2011 we’ve made about 70 different acquisitions across the European landscape. It can be a very effective way of gaining entry into a new market or to fortify your position in an existing market. We look for companies that can help us create value that help us better serve our customers and so we will continue to do that.”
Arnd joined in at this point: “Just a few weeks ago, we have announced the establishment of our European innovation and service center in Katowice, Poland. We expect to have around two to three hundred people there. What we had discussed with the city administration is that our intention is to put there a lot of talent that will be very instrumental and key to our digital strategy.”
Staying with digital, Arnd covered LKQ’s stake in multi-brand vehicle data resource CARUSO: “LKQ is a key shareholder in CARUSO. We are strongly supporting CARUSO, even in the past development phases, to make sure that independent operators across Europe will have access to connectivity data from the vehicles, preferably to through a neutral server or trusted server concept and preferably also directly from the vehicle without monitoring through the OEMs, for example. That’s really a key element of our strategy. As the largest player in the independent aftermarket in Europe. LKQ has to be also a frontline player on those industry initiatives.”
Lastly, when asked about the impact of Brexit specifically on the UK and any particular challenges for supplies into Britain going forward, Arnd added “We’ve created a massive amount of inventory to protect our customers from availability. Going forward, it all depends on how strongly British regulation will get aligned with the European regulation. The signals that we’re seeing at the moment is that it will stay pretty close to things that we have in the European legal landscape including the Block Exemption regulation including access to data and emission regulations. Of course, if that changes the data question has to be answered specifically for Britain at the moment, I believe our view is what we will be able to accomplish on data in Europe can evenly be accomplished for Britain.”
He concluded: “In many areas, Britain is ahead of other countries with connection between the vehicle registration plate and vehicle data and in parts catalogues, which is not the case in many other of the European markets. Things will not be exactly the same, but I think overall we should be in reasonable shap e.”