Cutting Edge Companies

by Heidi Vanni, Securities Analyst

You’re driving your car through a busy intersection and – BANG! – you’re unexpectedly hit by a careless driver who ran a red light. The police arrive and your car is towed from the accident scene. You receive a call from your insurance company the following day during which you hear the following words, “Your car is totaled.” It’s a scene many of us know all too well. But do you know what happens to your car?

In most cases, if the body damage is not all-encompassing, your car will find its way to a junkyard. There is a good chance that junkyard will be operated by Chicago-based LKQ Corporation. LKQ is the nation’s leading provider of recycled replacement auto parts and collision repair aftermarket products. The company has nearly 300 facilities in the United States.

LKQ obtains aftermarket products primarily through auctions and also directly from insurance companies and automakers. In 2006, the company acquired over 100,000 vehicles for disassembly. LKQ dismantles the aftermarket products and salvage vehicles to obtain a comprehensive range of car and truck products. When feasible, LKQ reuses nearly every part of the car, including engines, transmissions, radiators, front ends, doors, trunk lids, bumpers, hoods, fenders, grilles, valances, wheels, head lamps, and tail lamps. LKQ then sells these parts to mechanical and collision repair shops, dealerships, and retail customers. Its parts are generally warrantied for six months, and LKQ checks the title to prevent fraud or receipt of stolen cars. Once all recyclable parts have been removed, LKQ sends vehicle hulks and components to vehicle shredders, crushers, and processors. That metal is melted and recycled as well.

Most auto parts are manufactured with metals, including aluminum and steel. The production of these materials requires significant use of energy and raw materials. By providing a market for recycled auto parts, LKQ reduces this energy and resource burden. In addition to an environmental benefit, recycled auto parts are generally the lowest-cost alternative to new parts; recycled parts can be purchased at prices that are 25 to 50 percent lower than the corresponding part prices when new.

As LKQ noted in its 2006 annual report: “We believe that our business is environmentally responsible. Our recycled automotive products provide an alternative to the manufacture of new products, which would require the expenditure of significantly more resources and energy and would generate a substantial amount of additional pollution. Also, we recycle materials, such as fuel, motor oil, and freon, from the salvage vehicles that we procure.” Walden supports this focus on environmental services.