Investment bank provides automotive ecosystem industry update

Investment bank Stephens Inc. expects data to show a 1% year-over-year decrease in vehicle crashes in June, once all data is gathered, according to an automotive ecosystem industry update. 

The report notes that an initial reading shows a 3.9% decrease, but crash data typically adjusts by 3% to 4% as accident reports filter in over time. 

Stephens also expects July 2026 crashes to be decreased by 0.9% to 0.1% after adjustment. It notes this is a deceleration from June, which saw an increase in vehicle miles traveled compared to April and May. 

LKQ, disclosed as a current or past client of Stephens in the report, said repairable claims decreased by 1% to 3% during its Q2 earnings call. Stephens also disclosed that it maintains LKQ common stock. 

The report from Stephens adds that it’s the fifth consecutive quarter of improving repairable claim trends, with the first quarter seeing a decrease of 2% to 4% year over year. 

RB Global, in which Stephens owns common stock, reported flat total loss rates of 23.3% in Q2, according to the report. 

“This development is a plus for either repairable claims, total losses, or both,” Stephens says. 

Consumer Price Index (CPI) measurements indicate motor vehicle insurance is down year over year, which has not been seen in a meaningful way since 2019. 

More insured drivers equate to more repairable claims and total losses, the report states. 

“The repair/replace decision for insurance companies currently favors vehicle replacement as inflation is much more pronounced for vehicle repair,” the report states. “One way for insurance companies to mitigate repair costs is through the use of salvage and alternative parts, which is a direct benefit to LKQ.”

Stephens lists several risks to achieving a target price for LKQ. This includes that demand for vehicle replacement parts depends on accident frequency and OEM part failures. 

“Improvements in OEM quality, electric vehicle adoption, or fewer miles driven could reduce demand for LKQ’s products,” the report states. 

OEMs and other suppliers could lower prices, restrict part access, or expand into new categories, the report states. 

LKQ also relies on a group of suppliers located in Taiwan and other parts of Asia. Disruptions, including tariffs, transportation, or geopolitical instability, could impact inventory and margins, according to the report. 

Risks to RB Global’s target price include that a significant portion of automotive auction volumes originate from insurance companies, the report states. A reduction in supply from major insurers or a change in insurer remarketing strategies could impact the volume and revenue. 

Auction volumes also depend on the availability of damaged vehicles and used equipment, the report adds. Accident frequency, insurance total-loss rates, used vehicle prices, and equipment utilization affect supply and transaction volumes. 

“The company’s operations are subject to federal, state, and international regulations related to auctions, vehicle exports, environmental compliance, and trade restrictions, and changes in these regulations could affect transaction volumes or increase compliance costs,” the report finds. 

Stephens also reviews risks to Boyd Group stock, disclosing that the finance group has co-managed a public offering of securities for the company in the past 12 months. Boyd has also been a client during that timeframe, and Stephens maintains common stock and has received compensation for investment banking services from Boyd. 

Boyd Group is heavily dependent on the number of insurance claims, the report states. It adds that lower vehicle crashes, higher total loss rates, and decreased willingness to file a claim impact insurance claims. 

The company’s parts margins also depend on discounts off of lists, the report states. Pressured parts suppliers may negotiate lower discount rates. 

“The company is dependent on negotiated selling rates with insurance clients to maintain margins,” the report notes. “The company may have to adjust its labor rates/expense base at a faster pace than negotiations.”

Copart is the fourth company Stephens evaluates the stock risk of in the report. It notes that 80% of Copart’s units are salvage auto auction units. 

Ten auto insurers direct about 75% of units to Copart, according to the report. It also has 100% market share with multiple top 10 insurers, it adds. 

“A slight loss in market share seems highly probable over time,” the report states.  

The auto insurance salvage auction business depends on numerous variables, including used car values, labor rates, auto part inflation and availability, miles driven, and new car shortages and surpluses, the report states. It adds that there is no guarantee the industry will not experience significant suboptimal operating conditions. 

Stephens also says that salvage auto auctions have been commonly used to monetize stolen vehicles and launder money from a variety of illicit activities. 

“CPRT (Copart) is responsible for monitoring and preventing these activities on its platform,” the report states. “Failure to do so can result in large fines and other civil and criminal penalties.”

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