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By JASON BOOTH

Staff Reporter

Keystone Automotive Industries Inc. loves a good car crash.

The Pomona-based firm supplies cut-price body parts, such as bumpers, windshields and door panels, to automobile repair shops.

Auto manufacturers don’t much like Keystone, but auto insurers do and pressure by insurers to use the cheaper parts is helping drive up the company’s business.

In recent years, insurers have been creating “groups” of repair shops that act much the same way HMOs operate in the medical community.

Rather than send an adjuster to look at a vehicle, the insurers now refer accident victims directly to repair shops that are pre-authorized to make repairs at fixed costs. Those shops are encouraged to use cheaper parts supplied by Keystone and other after-market suppliers.

That prescription has kept Pomona-based Keystone in good health.

For the third quarter ended Dec. 26, the company reported net income of $3.2 million (25 cents per fully diluted share), compared with $1.7 million (17 cents) for the like period a year ago.

Analysts estimate that fiscal 1998 will show earnings per share of between 95 cents and $1, up from 78 cents a year earlier, while 1999 could see earnings of around $1.20.

Both the company and analysts estimate that revenues will be over $325 million in 1998, compared to around $115 million when the company went public in June 1996.

Such growth has fueled a steady rise in Keystone’s share price.

From its IPO price of $9, the stock has risen more than 150 percent to close at $23.94 on April 7. Some analysts believe Keystone will break through the $30-level within the next 12 months.

Keystone’s fortunes also have been raised by acquisitions.

Since the start of 1997, the company has purchased its two largest competitors, Republic Automotive Parts Inc. of Brentwood, Tenn., and North Star Plating Co. of Brainerd, Minn., along with a slew of smaller firms around the nation.

It was a case of buy or be bought.

“We saw it as a classic consolidation situation,” said John Palumbo, Keystone’s chief financial officer. “We felt that by acquiring Republic it would make it hard for someone else to come in and consolidate the industry ahead of us.”

Having acquired most of its competitors, Keystone is now the biggest player in its industry, with a network of 110 distribution facilities supplying around 24,000 car repair shops nationwide.

The challenge is for Keystone to successfully integrate its new acquisitions. Analysts noted that only around one third of Republic’s operations are directly applicable to Keystone’s core business of crash-part replacement. Republic’s other businesses include the distribution of engine parts.

“They have made significant acquisitions in a short time,” said John Olinski, an analyst at Wedbush Morgan Securities. “The biggest uncertainty is whether they will be able to successfully integrate those additions.”

The need to create profits through efficiency is made more urgent by the fact that the business of fixing cars is not a growth industry.

According to the National Highway Safety Administration, the number of automobile crashes in the United States has remained static since the early 1990s.

Even the wrath of El Ni & #324;o has failed to boost business. An increase in accidents caused by winter storms on the West Coast has been cancelled out by a lack of snow and ice on East Coast highways, said Charles Hogarty, Keystone’s chairman and chief executive.

That being the case, Keystone is emphasizing its ability to save insurance companies money.

“We provide an alternative to the monopoly of major auto makers,” Hogarty said.

“After-market” suppliers such as Keystone now account for 12 percent to 14 percent of the $10 billion automobile parts replacements business, with the rest taken up by original-equipment manufacturers such as auto makers and their designated suppliers.

Before the early 1980s, replacement parts were manufactured almost exclusively by original-equipment manufacturers, analysts said. After-market parts like those sold by Keystone typically sell for 20 percent to 40 percent less.

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