Good morning, everyone. I'm Joe Boutros, Vice President of Investor Relations for LKQ Corporation. Thank you for joining us for our September 2020 Virtual Investor Day. Today's Investor Day marks our 3rd since 20 16 when we established a policy of conducting Investor Days every 2 years. These events allow us to provide a comprehensive update of our business, our strategy, our team, our markets and many other details.
And importantly, you get to hear it directly from the leadership team. Now for the obligatory forward looking statements. Some of the statements that we make today may be considered forward looking. These include statements regarding our expectations, beliefs, hopes, intentions or strategies. Actual events or results may differ materially from those expressed or implied in the forward looking statement.
Additionally, during this presentation, we will present both GAAP and non GAAP financial measures. A reconciliation of GAAP to non GAAP measures are included in today's slide presentation, which will be available on the website atlkqcorp.com following this event. For more information, please refer to the risk factors discussed in our 10 ks and subsequent reports filed with the SEC. Given this is our 1st Investor Day employing a virtual format, I want to walk you through some basic housekeeping items including instructions for Q and A. First, here in Nashville and in Zug, Switzerland where Arnd and Janek are joining us from, the team is observing social distancing guidelines and we are all keeping our distance appropriately.
2nd for today's Q and A session, questions can be submitted through the chat function at the bottom of your screen. We'll read the questions aloud and direct them to the appropriate person. Turning to our agenda. As you can see, we have a very exciting of speakers and topics for you today. Specific to the segment leader presentations, Justin, Arnd and Bill, they will each speak for 20 minutes with the balance of their time allotted for Q and A.
We will end closing remarks that you'll hear from Nick. We'll move to open Q and A and we'll wrap up at 11:45 Central Time. After the I just want to remind folks, after the virtual event concludes, we encourage investors to contact Investor Relations with any follow-up questions you may have. And again, also today, our presentation and the replay of the webcast will be posted at the conclusion of this event. Please allow approximately 2 hours to access that.
And before I turn the podium over to Nick, I want to say a big thank you internally and externally on all the people that worked tirelessly to make today what I believe will be a highly informative and productive use of all of your time. With that, I'd like to introduce our President and CEO, Nick Zarcone. Nick?
Thank you, Joe, and good morning to everybody. On behalf of the entire LKQ organization, it is my honor to welcome you to our 3rd Investor Day event. We would much prefer to be meeting in person and we greatly appreciate your patience as we work through this virtual format. Our goal for today is to provide a comprehensive review of our business and afford an opportunity to complete deeper dives into a few topics that we normally don't have time to address. Between the quarterly calls, various investor conferences and our normal shareholder outreach, you get to hear from Varun, Joe and myself fairly often.
With that in mind, today our presentations will be brief and most of the time will be devoted to having other members of our senior management team address our businesses and the related opportunities. I start every presentation with our mission statement, as it's at the core of almost everything we do at LKQ. We want to be the leading global wholesale distributor of vehicle parts and accessories. And in doing so, we recognize the need to serve 3 core constituencies, our customers, our employees and the communities in which we operate. We are making great strides in terms of achieving our objective, but there is plenty of room to continue to grow and improve.
From our humble beginnings 22 years ago as an operator of a few auto salvage facilities, we have become a unique company in terms of the breadth of both our parts offerings and our geographic coverage. Today, LKQ operates in 32 different countries through over 1700 locations with over 40,000 employees. Our $12,000,000,000 of annual revenue is split roughly 46%, 42% and 12% between our European, North American and Specialty segments respectively. Importantly, each of our segments holds the market leading position in terms of the wholesale distribution of automotive parts and accessories. And the wholesale nomenclature is important.
It means our customers are the repair and installation shops that represent the very attractive do it for me portion of the automotive service marketplace. In August of 2017, I shared 4 key strategic pillars with my Board of Directors as the road map for the future of LKQ. We shared them with you at our Investor Day in 2018. So you say, why share it again? We share it because it's important to recognize that these are not just idle words on the page.
Instead, they represent key guideposts for the day to day decision making that occurs at LKQ across the globe. Growing the customer offering addresses our goal to do more than just distribute parts. Given our footprint and our knowledge of the repair universe, we can also provide key value added services to our customers. Bob and Justin will talk about a couple of acquisitions completed last year that provide a base of diagnostic and calibration services that can be rapidly extended across the North American collision marketplace. Expanding our geographic presence was behind our decision to acquire Stahlgruber in 2018, which brought us the number one competitive position in Germany, which as you know, is the largest automotive market in Europe.
Many of you have heard me say that the automobile is quickly becoming a smartphone on wheels, and we need to adapt to the evolving automotive technologies. My colleagues will address some of
the key
trends, including connectivity, advanced driver assistance systems, better known as ADAS and the slow electrification of the car park around the globe. Importantly, there are a number of terrific growth opportunities for LKQ embedded in this evolving landscape of technology. And finally, rationalizing the asset base is all about our productivity initiatives, whether it be enhancing our record levels of EBITDA margins in North America, the initiation and execution of the 1 LKQ Europe program or the focus on cash flow, including the critical changes to our compensation programs in 2019, this pillar is becoming is coming to life each and every day at LKQ. Grow, expand, adapt and rationalize. We call it our gear forward strategy.
Sometimes rationalizing the asset base means just that, getting rid of businesses that don't fit. Over the past couple of years, we have divested 7 operations with aggregate revenue of more than $860,000,000 These divested businesses generally represented non core and or low margin operations that were pulling down the overall performance of our company. This process of evaluating our portfolio of businesses to ensure all the operating units are helping to build shareholder value is a continuous process. While there are no imminent divestitures on the horizon, we are closely monitoring how the pandemic will impact the long term prospects of some of our smaller lower margin operations. And if we determine they are better owned by somebody else, we won't hesitate to sell them and redeploy the capital.
At our 2018 Investor Day, I highlighted 4 key operational priorities. These four items are as relevant today as they were 2 years ago. You've seen the progress we've made over the last 2 years in terms of some of the financial metrics, profitable organic revenue growth and a doubling of our operating cash flow. Last September, we discussed the integration of our European business and Aard will provide an update on the great progress we are making in just a few minutes. What may not be as evident is the progress being made building the talent within the organization.
Whenever I address our employees, I remind them that while LKQ has more than $12,000,000,000 of assets on the balance sheet, our most important asset is our people. At the end of the day, having the right people in the right seats is critical to our long term success as an organization. This slide reflects some of the more notable changes made to our global leadership team since we were together 2 years ago. Several of these changes reflect thoughtful succession planning to effectively transition the leadership of key roles as some of our officers were headed into retirement. That was certainly the case with Arren Franz becoming the Head of LKQ Europe, Mike Dufresne taking over our self-service operation, Alex Gebke, assuming the role as CEO of Force, our operations in the Benelux region Rick Galloway, serving as CFO of our North American business and Michael Brooks, leading our global IT organization.
Other cases reflect career development initiatives, such as Don Witkop, recently moving from his role as the Controller of our Specialty segment to become the Controller of LKQ Europe, so we could provide Don some critical international experience. Other cases reflect new positions that were needed to run our larger enterprise, such as Ian Musselman joining to run our federal government affairs operation in North America Dave Brookfield assuming the position of Chief Human Resource Officer across Europe and Dirk Maxwell starting a dedicated cybersecurity effort. And some of these changes were simply upgrading the talent needed to operate the enterprise. As you will note, there was a good balance between sourcing talent for the various roles, both internally and externally. While you're never done when it comes to While you're never done when it comes to attracting and developing great talent, we feel we've made significant progress in the past 2 years and we are currently in a great position.
Just as it's critical to ensure that we have the right people on the leadership bench, it's also important that we have the requisite support and guidance from an experienced and energized Board of Directors. Half of our current 12 directors have been added in the past 2 years. The goal of this refreshment process was simple. First, to create a seamless transition process for a group of directors who very faithfully and expertly served LKQ for over 18 years. And second, to acquire specific skill sets that will be helpful on the journey forward.
Our newer directors bring expertise related to the automotive OEMs, automotive technology, global distribution and logistics. We were also able to replace the governance and finance acumen lost through the retirements. These newer additions, when combined with the significant talents of our more tenured directors, provide me and the broader leadership team with a world class group of directors to lean on as we drive the company forward. I am particularly proud of the diversity of our Board, including 3 women, and believe that our 3 European based directors will be quite helpful as we continue to enhance the productivity of our largest operating segment. While ESG initiatives have received a fair amount of attention from the investment community over the past few years, LKQ has been working on related elements for the past 2 decades.
As the largest recycler of automobiles on the planet, we quietly go about our way to put those total loss and end of life vehicles to productive use. We highlight some of the key 2019 statistics on this page and they are pretty incredible. If there is a market or a second use for something in the car, we find the right home. One amazing statistic on this page is that last year, LKQ recycled over 1,200,000 tonnes of scrap steel, which in turn eliminated the need to mine and process over 3,000,000 tonnes of iron ore for the steel making process. That's over £6,000,000,000 of iron ore saved.
At LKQ, we take our environmental stewardship very seriously. As mentioned earlier, we believe our people are our most important asset and have a variety of programs designed to enhance the careers and livelihoods of our employees. We also understand to make an impact outside of LKQ and invest in the communities in which we operate. We are making steady progress, and we are committed to continued improvement. We have robust governance and oversight programs, helping to ensure the strong management and integrity of our company.
In addition to our strong independent board oversight, we have implemented policies and training designed to achieve high standards in terms of business ethics, including a code of ethics applicable to all employees. Our oversight includes commitments to health and safety, data privacy, cybersecurity, workplace harassment and discrimination, anti corruption and supplier quality and ethics, just to name a few. Ultimately, our environmental, social and governance policies and practices, while important on their own, are critical components of our approach to a sustainable growth and value creation at LKQ. To say the pandemic has had a profound impact on how we operate our business is a gross understatement. We have always placed a premium on safety and the need to protect our employees and customers from the COVID-nineteen virus has only put an exclamation point on these efforts.
As an essential service, we remained open and adjusted our daily protocols to ensure we maintained a safe environment for all. While the pandemic has directly impacted a relatively small number of our global employee base, most all those impacted contracted the virus outside of the workplace. We will continue to be vigilant in this regard as we believe the pandemic will persist for the foreseeable future. My first decision when becoming CEO 3 years ago was to create a strategy and innovation team. LKQ always had a keen ability to focus on the day to day operations of the business, but there were very few folks who spent all their time thinking about the longer term.
Bob Rapa came on board in late 2017 and has built a small team that has been working hand in hand with each of our business segments to understand the key trends in their respective sectors and identify related opportunities for LKQ to grow, enhance our competitive position and create profitable adjacencies. I'm delighted to turn the podium over to Bob Ruppa, Senior Vice President of Strategy and Innovation, who's going to provide some real life examples of how he and his team have been putting strategic planning into use at the business unit level. Bob?
Thank you, Nick, and good morning, everyone. I'm Bob Reppa, Senior Vice President, Strategy and Innovation. I'm very excited to be here today to talk to you about some of the work we've been doing to drive the profitable growth agenda at LKQ. As way of background, I joined LKQ late in 2017, fresh off an expat assignment in Shanghai as VPGM, the China Automotive and Battery Business for Johnson Controls, now Clarios. Prior to that, I was a partner at global management consulting firm Boos and Company, working with automotive and industrial clients on a range of issues for over 10 years.
But today, I'm proud to be a part of this great LKQ team. And to start, I'm going to talk to you about the strategy and innovation function in LKQ. We're a central team driving insight through analysis and enhancing decision making across the corporation. There's 6 main areas where we play and each of these areas corresponds to one of the key strategic pillars that Nick spoke about earlier that will ultimately propel LKQ to gear forward into the future. The first three, executing the strategic planning process, generating market intelligence and driving innovation, all support the growth agenda.
Developing robust corporate strategy will help ensure that we make the right decisions about when and where and how to expand. Conducting long term planning will allow us to identify, assess and adapt to megatrends as well as industry dynamics, turning threats into opportunities. And finally, executing business transformation activities where we design and implement productivity initiatives as well as full operating model changes will help ensure we appropriately rationalize the business and drive structural margin improvement. In the following pages, I'm going to take you through examples of some of the work we've done working closely with our operating segments in these areas. As Bill Rogers will tell you, we have the leading specialty and RV parts and accessories distribution business in North America.
And Bill goes to market as NTP Stag in the RV world. When we kicked off strategic planning for the specialty business, we had a lot of discussion about what drove demand for RV parts and accessories. We knew on one hand, some parts were more likely to be installed on a new RV, such as towing, but that others could equally go on a new RV or one that had been out on the park for 5 years. If you've ever been in an RV, you know why they call them houses on wheels. They're chock full of great appliances, accessories to make them true homes away from home.
But sometimes after 100, thousands of miles out on the road, these things have a tendency to break. So we dug into our proprietary data and analyzed multi years of sales data, tying back individual transactions to unique VINs. And what we found was the majority of the parts and accessories we were selling were going into RVs that had been out on the road for more than 1 year. In other words, they were replacement parts. And we felt they would correlate pretty well with RV usage.
So we found government data showing RV park and campground revenue and ran a regression against our organic RV parts and accessories revenue, and we found a great fit. This gave us a lot of confidence in the predictability of business as well as an understanding of what was really driving demand. It's RV usage. We even look back at the Great Recession in 2,009 and when RV unit sales were tanking, RV park and campground revenue was increasing. And we're seeing this play out today as more and more people are taking to the great outdoors in their RVs and adopting that RV lifestyle.
And we think this secular trend towards increased RV usage and a higher park bodes well for Bill's specialty business. Now innovation. Innovation comes in many forms. And one is business model innovation. In a little while, we're going to talk to you about ADAS technology and the associated sensors and how it could impact our business in the long term.
But our work highlighted that will also create opportunities today for our North America business to expand into services, not competing with our body shop customers, but serving them. And we'll take advantage of industry trends such as the growth in sensors in vehicles, increasing vehicle complexity and the challenges many of our body shop customers have, hiring, training and keeping busy specialized talent. We're taking advantage of all these trends to aggressively grow both in the diagnostics calibration as well as the sublet mechanical repair market. It's a $1,000,000,000 market growing at high single digit rates. And we have a strong right to win here with our tens of thousands of body shop customers, as well as great relationships with the insurance company partners.
They both want the same thing. They want to ensure that when vehicles show up to the shop, they're properly diagnosed with a pre and post scan, they're properly repaired and then they're properly calibrated so the safety technology works as advertised for the consumer. Our diagnostics offerings in VTech and Elite provide a strong platform for future growth in this area. Now corporate strategy. LKQ has a long and successful history of moving into adjacent markets, growing our geographic reach as well as our product portfolio.
For instance, after starting out in salvage, we moved to aftermarket collision parts, then added categories like paint and remanufactured components. Then we saw a great opportunity to begin building a pan European hard parts platform in Europe with our acquisition of Eurocar Parts in the U. K. Over time, we learned how to best identify and prioritize adjacent market growth opportunities. But sharing these best practices and ensuring all of our leaders across the globe would benefit from the collective LKQ knowledge became more of a challenge as we were a $10,000,000,000 global company.
So to support our continued growth and evolution, we've codified these best practices into a systematic and data driven framework to assess adjacent markets. There's 3 main criteria: market attractiveness, which include size, growth, profitability industry structure, because we think industry structure matters a lot. And we prize industries with a high degree of fragmentation at the supplier side and a high degree of fragmentation on the customer side, where a company like LKQ can create a lot of value in the middle. And finally, fit with LKQ. How well does it fit with our existing distribution assets, our existing capabilities as well as our existing customer relationships.
Utilizing this framework across all of our operating segments helps ensure we're making market entry decisions in a consistent and fact based manner. The strategy is about choices, and we need to ensure that we're making the best choices. Now in North America, from a long term planning perspective, the key dynamic really revolved around ADAS technology and how it would impact our collision business in the long term. Unfortunately, there wasn't any good syndicated models or forecasts out there. So we set out to build our own comprehensive multi factor proprietary collision market demand model.
And our analysis confirms that despite the growth in ADAS, the collision market tailwinds will continue to outweigh the collision market headwinds for years to come. Now on the tailwind side of the equation, we have a lot going for us. We have a moderately increasing car park, continued parts proliferation because of vehicle complexity, parts inflation as well as an increasing mix of high value higher tech parts moving through the park. Taken together, parts inflation and parts proliferation will ensure that the parts cost for repairable claim will continue to climb over the next decade. There's also a number of other factors, things such as increases in distracted driving and the propensity of consumers to disable their ADAS technology on their vehicles that are harder to quantify.
So we didn't incorporate them into our model, but we think there's the possibility for increased upside from them. The headwind side of the equation, it's really all about ADAS. We have a good sense at how ADAS technology is going to propagate through the park based on cycle plans. But understanding how it would affect the incident rate was more of a challenge. So again, we dug into our proprietary database with tens of millions of unique VINs and hundreds of thousands of vehicle incidents to analyze same year, make, model with and without ADAS.
And not surprisingly, we did find a modest reduction in the vehicle incident rate with those that had ADAS. And so we incorporated into our model. But this is going to take a long, long time to play out with 200,000,000 vehicles in a 0 to 15 year old park in North America. We also think there's a possibility that the ADAS technology could get better over time. And so we put that into our model as well, adding a bit of conservatism.
So taken together, the tailwinds outweigh the headwinds. And we see the collision parts market growing at 1.1% CAGR over the next decade. And in the next presentation, Justin Jude will talk to you about how he's going to take that 1.1% and build on it, increasing APU, increasing market share, entering new product categories and adjacent markets. Now from a long term planning perspective in Europe, the key dynamic was really all about electrification. This is a trend that's been coming for a while.
We're finally seeing it come to fruition in new vehicle sales. However, with a European park of over 300,000,000 vehicles, we think that it's going to take a long, long time for the mix of powertrains in the park to change in any meaningful way. Also, as an aftermarket distributor, our sweet spot really is for vehicles 5 years and out. So this is going to push the effect of electrification on the business even farther. Now when we do see electrification, the majority of the vehicles will be hybrids, and many of these vehicles will be mild hybrids.
As a humble distributor, we love hybrids and we love mild hybrids even more. All the components and parts of an internal combustion engine plus additional hybrid parts and technology. We're excited about electrification because we know that as the only true pan European aftermarket distributor, we have the best distribution logistics footprint, we have the best catalog and we have the best inventory position. And we believe we're going to grow faster than the market in these electrified components because of those competitive advantages. Furthermore, we're in a great position to support our customers through this transition as well, both in person training as well as training on our digital platforms.
Smaller, less capitalized competitors may have a hard time making all the investments that we're already making to capture this market in the future. So we're excited about electrification. As I mentioned previously, we see electrification as a great opportunity in Europe. We're going to have whole new categories of parts, such as electrically driven AC compressors and coolant pumps. And these parts sell at a premium to their mechanical peers.
For instance, electrically driven AC compressors are 2 to 3 times more expensive than the mechanical peers. And coolant pumps are 2 to 6 times more expensive than internal combustion engine equivalent. Increasing vehicle complexity, coupled with low volume of parts translates into a great margin opportunity for LKQ in Europe. Finally, vehicle electrification is going to bring whole new business models as well, such as hybrid electric vehicle battery pack remanufacturing that we're launching in North America. So with opportunities to increase market share, increase margins and go into brand new business models, we are very excited about the prospects in the long term of vehicle electrification on our European business.
So in closing, LKQ has 3 great businesses, underpinned by solid market fundamentals. Each of them has a strong competitive advantage, and they're protected by the scale position we've built, our differentiated capabilities and the unmatched footprint. And the strategy and innovation team, we're powering LKQ to gear forward into the future. Thank you.
Hello, everyone. My name is Justin Jude. I'm the President of our North American operations. I was very fortunate to come aboard LKQ via an aftermarket acquisition that they had in 2004. And since then, I've had various roles such as VP of Integration, I was in charge of supply chain, in charge of IT, I ran our specialty division for a year.
And in the past four and a half years, I've been running our North American operations. So today, I'm going to walk you through a little bit of insight into North America, do a little bit deeper dive, talk about 2020, how the COVID impacted us, what we're doing on a cost control standpoint and also look at why we feel the future is very bright for North America. If we take our overall North America and we kind of peel it back a layer, I operate as 4 main divisions. The first one is wholesale regions. That's our main product line.
So think of aftermarket collision, think of recycled automotive parts and think of remanufactured as well as paint. I'm going to spend most of my time today talking about the wholesale regions as it represents 80% of our revenue and 90% of our EBITDA in North America. But our other three segments are very strong, they're all leading providers, and they are also national. First one is PGW. They are the leading provider of automotive replacement glass and selling over 4,000,000 units a year to installers as well as consumables as well as installation tools that the installation companies need.
Our self-service operation, which dismantles around 600,000 cars a year, we will procure those cars, park them in a yard and then let consumers come in and pull their own parts of that car. So it's a very retail centric business, but it's very also heavy commodity and highly volatile. Our 4th division is our heavy duty truck division. So think of automotive recycling, but for heavy trucks, cement trucks, big box trucks and tractor trailers. When LKQ goes to market, we win because of the scale that we've built.
And Nick talked about us opening up in 1998, doing a lot of acquisitions, continuing to expand and grow and establish, it makes it very difficult for our competition to compete. We have the 35th largest fleet in the U. S. Today. That large fleet allows a connection between all of our locations to make sure we have the highest fill rates.
Today, when we go to market, we still compete with a lot of mom and pop players. There's still over 4,000 registered salvage yards in the U. S. Today alone. If I look at just the aftermarket side, our aftermarket business to our competitors' aftermarket business, we're still 20x the size.
And that scale that we've built, once again, makes it very difficult to compete. Several years ago, we had a large, well capitalized automotive parts dealership enter the aftermarket collision parts space. They since announced that they are exiting it due to profitability, once again showing the strength of LKQ. Not only do we provide high fill rates, but we also do have a value proposition. We make sure that we have a good savings to that of the OEM, but we also make sure that we're competitive and offer a fair price to other alternative parts providers.
The ecosystem that we play in today is very complex. You've got the vehicle owner, you've got the insurance company, the body shop, the parts distribution businesses as well as the estimating systems. We integrate well with all of those players, and we field over 2,000,000 to 3,000,000 part requests in a given week. That data that we bring in helps speed the efficiency of the industry, but it also gives us intel to make sure we understand opportunity, opportunity to gain margin or opportunity to gain some more market share. But these high fulfillment rates and this value proposition that we bring to the table plays very well for our customer base, the insurance carriers as well as the big body shops and MSOs.
On the insurance carrier side, it's interesting. They don't buy a single part from us today, but we heavily market ourselves to them because they do control and pay for 90% of repairable collision claims in the U. S. So we market ourselves to them to make sure they understand the quality that we provide, the consistency that we provide and at that fair value proposition of price. The MSOs want the same thing.
They want that consistent coverage across North America. It used to be the big 4 MSOs, now it's big 3. We do have agreements with all 3 in place, and we're very fortunate to have them as partners. 1 of those MSOs left us several years ago based on price, and we did win them back on a value, once again showing the value that LKQ North America brings. That scale that LKQ has that I talked about did not come easy.
So as we talked earlier, we opened up in 1998 with our very first salvage acquisition, with the intent of being the leading parts provider in the used world. We went public and we were really introduced in 2003, and we changed our motto to be not just the leading recycled automotive parts, but be the leading alternative parts provider, alternative to that of the OEM. So reman, aftermarket as well as used. Then in 2006, we knew who we wanted to be. Now it was time to grow, get the product lines, fill the geography, make the pie bigger as well as get more of that pie and ensure that we can get some cost out of the business to do level 1 integration.
So a lot of acquisitions led to a lot of warehouse consolidations, route consolidations as well as system conversions. But as 2018 approached, revenue looked a little bit different. The growth looked a little bit different. We were already established. We were the North American market leader.
We had built that moat. Now it was time to focus on margin expansion through operational excellence. With this intentional shift away from revenue at all cost to going after profitable revenue, more organic revenue, more share of the customers' wallets. We heavily looked at even rationalizing the businesses. Nick talked about that in Gear Forward.
So we had companies that we acquired, we had transactions, product lines, customers that weren't very profitable. We aggressively went after to fix that. And if we could not fix it, we exited the business if it did not make sense, if it wasn't core or if it was low margin. Additionally, in 2018, we established a continuous improvement team to help change that culture and constantly look at the future, always looking 18 to 24 months out on what's next, what can we do to improve. We also aligned pay on the incentive plans to make sure that our teams weren't just focused on growth, they were focused on profitable revenue growth as well as trade working capital and cash flow.
And when you speak about cash, prior to 2017 'eighteen, we really never even mentioned trade working capital or free cash flow. Now once again, it is part of our incentive plan, and it is one of the goals and targets that our team set for each year. And then 2020 came around in March, COVID hit. Luckily, we were considered essential, and we kind of had to put a pause on things temporarily make sure we could protect our employees. We pushed for many people to work from home, but unfortunately, we're a parts distribution business.
90% of our team is warehouse and delivery drivers, so we made sure we outfitted them with PPE, new protocols and procedures to keep our employees safe. And I want to give a huge thanks to our employees because I know it was a very tragic time and very stressful for everybody to deal with, both at work environment and our personal environment. And while this pandemic was occurring, we were focusing on safety. We started to see some volume drop. People weren't driving as much.
There weren't as many accidents occurring. Luckily, based on that strategic advantage that LKQ had, we saw the market drop 29%, but our revenue only dropped 23% for that same time period. So we were able to gain some market share, we should be able to hold on to some of that market share going into the future. Still to this day, our revenue is down roughly 12% going into Q3. We still see a slow recovery occurring, but unfortunately, we're still below prior year.
Some of those weeks that we saw the pandemic hit and bring our revenue down, our volumes hit an all time low of 45%. We had to react quick. We had to get costs out of the business, and we had to protect cash. The management teams we have took quick actions, very decisive actions and cut a lot of temporary costs. We froze CapEx.
We froze hiring. We froze travel, as Nick talked about. We moved over 6,000 people, onethree of our workforce, on a furlough. It was very disruptive, but I'm proud of the team to be able to get those costs out of the business to match what was happening with revenue. As we took care of safety and we took care of some of these temporary costs because of volume, we then changed our focus on to looking at those initiatives that we had that Continuous Improvement is working on in the next 18 to 24 months and accelerate those into a much shorter window.
So we used the pandemic as air cover to get some of these things done at a much quicker rate. So what normally was planned to take 18 months to 24 months, we accelerated most of that into Q2. We identified over $80,000,000 of permanent cost reductions. So once again, permanent, not COVID related, not volume related. We identified $80,000,000 and at the end of June, we had implemented 91% of those savings.
By the end of the year, we will have implemented 100% of those savings. So just putting it into context, if you look at our 2019 revenue numbers, once we get back to those and you factor in that $80,000,000 of permanent cost reductions or a 1.5% decrease in SG and A, that will translate to an EBITDA improvement of 150 bps. So I really want to say thank you for the North American team for getting that done. But part of that culture of continuous improvement, we just can't rest. We got $80,000,000 out, fantastic work.
But once again, we have to continue to look at the future, what else can we do. At the last Investor Day, I spoke about our salvage procurement system, how robust it is, how scaled it is, how none of our other competitors can actually compete with the sophistication that we do. We want to get better at it. One way we're doing is on towing centralization. So we buy around 380,000 cars a year from the auction houses and then take them to over 150 different yards.
Can we do that cheaper? Quite possibly. Can we do that more efficiently, get that car in quicker, be able to sell those parts even faster? Unfortunately, there's not any national towing company, so we're doing that internally. But we do feel that we will bring in some cost of goods reduction as well as more efficiency of getting that car available faster.
Additional on the part cataloging side. So I mentioned, we field millions of requests in a given week on availability of parts, parts that we may not even have or even have in our catalog. But most of those parts are sitting on a car today that we dismantle. So when we procure a car and we pay $2,500 that's a pretty good fixed cost. So if I sell 10 parts or if I sell 100, my cost of goods are $2,500.
So the more I can dig into that vehicle, make sure that I show up on the estimating systems, make sure that I can say yes on the phone call, the more opportunity we have to enhance gross margin and reduce our costs and have more sales. Additionally, when we buy those 388,000 cars, we really start with what the overall volume is at the auctions. So that's roughly 7,000,000 cars a year that we see at the auction houses. We do some quick filtering to get that down to 4,000,000. So we spend our time, which is very labor intensive time, looking at those 4,000,000 cars.
But those 4,000,000 cars typically have around 10 photos per. So our teams are looking at 40,000,000 photos a year to win less than 400,000 cars. Very labor intensive. Obviously, it's also prone to human error. So we're partnering with the company in rolling out artificial intelligence embedded into our salvage procurement system to make sure we can do it faster and to make sure we can do it more accurately.
One depiction that we're showing here is just how that technology works. So our team looks at the picture, identifies a basket of goods and what's good on that vehicle to kind of build the shopping cart. And then AI uses our technology, which has over 400,000,000 trained parameters that the human eye can't catch. They understand blurriness versus dense versus dirt versus scratches versus cracks, spacing that shouldn't be there. And they enhance our humans, our teams that we have and make sure that from a behavior standpoint, we can scale it up and we can also once again take care of that human error that occurs when you're dealing with 40,000,000 photos.
Additionally, we've built that scale that I've talked about over the years from buying companies, competitive
advantage.
We feel it's pretty strong. It's a big competitive advantage. But can we get better? We think so. We want to maintain customer service levels or in fact try to improve it, but can we rationalize assets a little bit better like Nick talked about?
Can we have some less trucks on the road? Can we reduce our inventory, free up some more cash flow? Can we reduce some of that fixed real estate costs and reduce our square footage that we have across over 500 locations across North America. We think we can. We're going to do a deeper dive in the back half of this year and hope to see some implementation changes going into 2021.
And additionally, on the culture side, to make sure that we're constantly looking at improving, constantly looking at operational excellence, we've created 6 critical KPIs that our teams are going to be getting real time. So they have that instant feedback as to what is working, what's not, did you win today, what do you need to change. So they don't have to wait till that monthly P and L to understand if they did good or bad. They've got these 6 KPIs as well as other daily management metrics that they have to help them focus on the business real time. So we're pretty excited to have that rolled out.
So I talked about the overall change in the culture and that shift to operational excellence. But for the overall teams, I want to make sure that they understand the full vision of North America, and that is to responsibly grow profits and cash. And when I say responsibly grow, I mean more organic, more profitable growth. We don't want to just go after revenue for the sake of having revenue. We want to make sure it makes sense for the company, but we want to make sure we can grow that revenue and also improve our operating leverage as well as increase our cash generation.
But I also say responsibly, as Nick talked about, on the ESG side, we want to be responsible for all stakeholders, our employees, which is our biggest asset, our customer base, our supplier partners, our insurance partners and, of course, the shareholders. We need that balanced growth, accretive margins and continual improvement in cash generation. So I talked a lot about the margin expansion, how we're improving costs. But as Bob talked about, we're seeing that the market of collision, which is a majority of North America's business, is only growing at 1.1%. Now historically, I will tell you, North America has always outperformed the overall market for a few different reasons.
1, as Bob mentioned, APU growth. So if we can help continue to drive our fill rates, continue to drive our quality, make sure we do that at competitive prices, we will allow the markets to use more alternative parts and gain a bigger share to that of the OE in the collision world, ultimately driving up an opportunity for LKQ to grow even more. In addition, market share gains. We've gained some share during the pandemic. We will hold on to some of that share and continue to go after more and more share as time goes on.
All those opportunities should allow us to get much higher than that 1.1%. Additionally, Bob talked about diagnostics. We entered that space a couple of years ago with 2 acquisitions to help complement what our customers are doing today and help them with areas that they are struggling in. It's overall a $1,000,000,000 a year market opportunity, growing at 9%, as Bob mentioned. And we see that once again as a great opportunity for us to get some revenue opportunity, but also improve the inefficiencies that exist today.
We see countless times where a body shop will buy a product from us such as a fender or hood, paint it, hang it on the vehicle and then have to tow that vehicle to the dealership to get it calibrated. It causes issues in cycle time, it causes excess handling and it causes excess cost. So we can actually go help that customer out, diagnose a problem, make sure the system is calibrated and make sure that, that vehicle is safe to go back on the road. Also, we're looking at different adjacencies. So Bob mentioned hybrid batteries that we're kicking off.
But if you look at some of the other adjacencies that also could lead into acquisitions such as ATK. So ATK was a remanufactured engine line that we bought, great company, great quality. Since we acquired them, we've grown revenue almost three times. So what other product lines can we get into? What other adjacencies can we get into just as we enter diagnostics and services to really capitalize and make sure we can grow at least at that 2% to 3%.
So we'll continue to look at acquisitions, make sure that they're tuck in, make sure that they add good product lines, but we'll also heavily look at adjacencies to make sure that we have those alternative parts that our customers are asking for today. So in closing, I just want to make sure everybody is aware of the competitive advantage that LKQ brings. We built that moat to make sure that we will outperform our competition, and we will grow better than the market and at the same time, expanding our margins. The future here in North America is very, very bright. And now we're going to turn it over to questions and answers.
I'm going to welcome our Chief Financial Officer, Rick Galloway, to the stage here. And Joe, if you want to give us our first question.
Of course. Thanks, Justin, for that overview. And Rick, thanks for joining us and being part of the team on your 1st Investor Day. Thank you. We've received a few questions in advance, but I just want to prompt people and remind them that if they have any North America specific questions, you can submit them on the portal that you're looking at through the webcast.
Justin, in the midst of this crisis, can you give us an update on the competitive landscape? And also, when we could expect revenue to return to pre COVID levels?
Sure. Thanks, Joe. So as I did mention, a large well capitalized automotive dealership entered the space several years ago and just announced that they're exiting it. I think with the pandemic, with the competition of LKQ, it makes it very difficult for some of these guys to enter the space. So we I believe we will continue to see some of our competitors possibly go out of business, continue to cut inventory levels, continue to cut service levels.
So hopefully, we'll continue to gain some of that market share. But ultimately, the question of when do we think revenue will recover back to 2019. And as I mentioned, our revenue today is roughly 12% below prior year. All things being equal, and I don't have a crystal ball, I apologize. But if we look at how things are recovering we continue to kind of forecast that out, we feel by Q4 of 2021, we think we will be on a run rate equal to that of 2019 numbers.
But a lot of unknowns, right? The more precipitation we have, the more snowfall that could lead to better revenue. Vaccination and things like that could occur, but I think we do feel comfortable as we're seeing that slow steady improvements today.
Great. Thanks, Justin, for that comprehensive answer. Rick, I'm going to direct this one to you and it comes from Daniel Imbro of Stephens. With all the cost reductions you've been talking about and the $80,000,000 of permanent cost reductions, how should we think about the fixed cost structure of the North America operations?
Okay, good question. So with the $80,000,000 one of the things that we took a look at last year when I got here was the actual structure of our organization and the way we looked at fixed costs versus variable costs. One of the things that we proved, I think, in Q2 was to really take some things that we thought were fixed in the short run and really move those to variable in that very short run. We looked at 34 facilities that we shut down that we would have said were fixed in nature historically, and we actually move those towards a variable cost component. So when we look at overall SG and A, Justin mentioned it, we are expecting when revenues return to that 2019 revenue number for us to drop 1.5%, make those permanent, really transition those costs into a variable nature.
And then when I look at over our SG and A cost, we're looking around somewhere around 40% right now of our SG and A cost is fixed in the short run. We're working hard with the teams to try to make more of that variable. And some of that dialogue, some of that continuous improvement work that the teams have been putting in is really driving some of those improvements.
Great. Thanks, Rick. Justin, I'll direct this one to you, and it's from Stephanie Benjamin at Truist. Can you walk us through the increased complexity collision shops are facing due to ADAS and other technologies and how LKQ benefits?
Sure. I mean, as Bob spoke about and I spoke about, cars are becoming more complex. And it's creating some difficulty for the shops, because that technology isn't just changing year to year, it's changing month to month, quarter to quarter. And it's hard for our customers to keep their techs trained up on that evolving technology. But we see it as 2 opportunities for LKQ.
First one is on the part side. So a lot of these sensors, cameras and modules that control those components in the vehicle are on the outer shell of the vehicle. So when the collision does happen, a lot of those parts are damaged. Many of those parts we have today on our recycled inventory, and we are once again cataloging those. We are also working with suppliers to make sure we can capitalize on aftermarket opportunities of those modules, those cameras and those sensors.
So on the product side, we think there's good opportunity coming for LKQ. Now on the services side and the diagnostics, since our customers are struggling with this, we can actually go into there, once again, help them diagnose what the problem is, let them fix it. If they can't fix it, we can actually do that on-site repair. And additionally, we can actually then plug into the computer system of the vehicle and do the full calibration. So it's going to create a revenue opportunity for us as well as allow us to drive some product sales as well as drive more efficiency into the overall industry supply chain.
Great. Thanks, Justin. The next question, and this is for you as well, Justin, comes from Craig Kennison of Robert W. Baird. How does LKQ benchmark versus large or smaller peers on fulfillment rates, customer service and other operational metrics?
Unfortunately, we're really the only publicly traded company in this space where we could get that type of data to see how we're doing against our other competitors. But I will say over the hundreds of acquisitions that we've done in North America, we've always monitored what are their KPIs, what are their performance indicators from a customer service to make sure we don't go backwards. And we've always been better than the competitors that we've acquired. But I will say we can't rest on that. So we do pit ourselves up against other industries that may not just be automotive in nature.
We monitor our customer service levels through net promoter scores, through CSI. And as we've talked about with that continuous improvement, we want to get better. No matter what, if we're better than our competition, it doesn't matter. We want to continually try to drive improvement, whether it's the KPIs, whether it's through operational metrics or whether it's through customer service metrics.
Great. Thank you, Justin. The next question, I think is for you. Rick, I'll get to you on comes from Gary Prestopino from Barrington Research. The question is, can you discuss, Justin, our early initiatives in the refurbishing of EV batteries?
So as Bob spoke about, the nice thing about anything that you do on remanufacturing is you've got to own the core. And he who owns the core is king. And when we dismantle nearly 900,000 vehicles, we do generate the core in those situations. We've got solid history of remanufacturing products from engines to transmissions to rear axles to wheels to lights. We are taking that same concept with a little bit of improved technology and know how to get into the remanufactured hybrid batteries as well as long term full electric batteries.
So that was a process that just got kicked off in Q2. So slowly rolling that out right now, but we feel with our service distribution model and owning that core, we'll be able to compete in that space very well.
Great. Thanks, Justin. Rick, back to you. And also this question comes from Stephanie Benjamin at Truist. You mentioned accretive margins.
Can you be more specific on what are the areas of further margin improvements such as tech investments, route optimization, things of that nature?
Sure. Yes. One of the first things we look at is we look at the inflationary increases. So when we're putting together our longer term plans, we're looking at 2 point 5% to 3% inflationary increase that we're going to have to overcome. And so one of the things that we implemented back in 2018, Justin spoke about was the continuous improvement team, investing in that team to help drive some improvements.
Coming into this year, we had some ideas, some plans for an 18 to 24 month overall cost reduction for those accretive margins. The pandemic actually allowed us accelerate those, as Justin talked about, and pull those into more of Q2 than what we thought was possible. We're not done then. What we're looking at next is a couple of big projects that Justin spoke about. One of them is on the AI piece.
When we're looking at AI and we're looking at the overall cost, the human cost that it is to look at all these photographs and drive some performance, we're looking at how to reduce that cost structure. On top of that, the network optimization is another good example of over the next 18 months or so, we should be looking at the overall network optimization to further reduce our costs and then driving that cultural behavior through our KPI process. Daily management, what we're looking for and talking to our teams about is a little different than what we had done in the past, where we're looking at quarter over quarter improvements. So how can we get better every single quarter and not be okay with what we did last quarter? And so a couple of large projects, but also daily management, checkbook spending, those kind of things that we can do to actually increase that margins and then over deploy our cost reductions to more than offset our overall inflationary increases.
Great. Thanks, Rick. We have 3 more minutes for the North American Q and A section. I just want to remind everyone that towards the conclusion of the event, Nick is going to provide some closing remarks and that will be an open opportunity to ask questions again. So you won't miss out on further opportunities to ask questions.
The last question is, I think, Justin, I'll direct it to you. How has the increase in the cost of salvage vehicles affected your gross margins on recycled parts?
It's an interesting model the way we look at our gross margin and cost of goods on the salvage side. It's typically done at the overall inventory valuations versus a cost basis. So when I buy a car for $2,500 it's hard to understand what is the cost of that engine. But I will say when the pandemic hit and volume came down pretty drastically, yes, we did see availability of cars reduced at the auctions, which led to an increase in cost. But we brought our overall inventory down pretty significantly compared to revenue, which will allow us to, in our opinion, hold the gross margin dollars and hopefully the gross margin percentage.
So luckily, in the last few weeks, we've seen car availability start to pick back up. We've seen our average cost start to go back down. So that little blip that we had there for 2 or 3 months could have a slight impact on it. But so far, we haven't seen it. We're trying to where we can pass it on to the customer or drive efficiencies to minimize that cost of goods impact such as things with AI, centralizing towing or part cataloging.
Great. Thanks, Justin. So that concludes the first half of our presentation today. We're going to move to a 10 minute break from 9:35 to 9:45 and everybody can tune back in when we kick into an overview on our European operations from Zug Switzerland. Thank you.
Thanks. Thank you.
Welcome back, and thank you for joining LKQ's 2020 Investor Day presentation. My name is Arnd Frans, CEO for LKQ Europe. I'm speaking to you from our Interim European Head Office in Zug, Switzerland. For the Q and A session, I will be joined by Janik Canteni, our CFO for the European segment. As you could see from Nick's presentation, LKQ over the past 9 years has created a unique footprint in Europe.
With US5.8 billion dollars in sales, more than 900,000 part numbers in more than 1,000 locations in 22 countries, we are by far not only the market leader, but also a very attractive partner for both our customers and our suppliers. In 5 of our 6 most important markets where we run wholly owned operations, we are more than twice the size than the 2nd largest competitor. In addition, we are invested in adjacent markets like Scandinavia and Bulgaria. Even with this footprint, there will be more substantial growth opportunity as the European market is still tremendously fragmented. Our aim is to be more than just a distributor of parts.
With a strong base and focus on operational excellence, we are combining the largest distribution network, well balanced across the top European markets, strong private label brands and a mindset of continuous improvement that not only affects offsets inflationary pressure, but creates true value for our shareholders. The 1 LKQR program bundles the strengths of the businesses acquired, creates attractive volumes for better procurement by consolidating and streamlining product offerings and combines an integrated organization's driving for functional excellence with the necessary technology linking our business processes with our customers and suppliers. Excellence and integration will lay the basis for further above average growth in a very attractive market segment. Our reputation with customers and suppliers, vertical digitalization of our value chain, as well as training and support for our customers when technologies are changing will pave the road for further sustainable market share gains for LKQ in Europe. Our aim is to become the leading auto service system in Europe.
COVID-nineteen was a big learning for us in Europe. It has taught us to react fast and consequent, think things that we have not thought were possible and take care of our people. With the lockdown measures arriving in March, we felt a drastic drop in business activity that has affected the last 2 weeks of the Q1 and started the Q2 with a sharp drop in sales. The 1st 2 weeks in April were the worst weeks in the whole year to date. It was essential that in almost all markets served by LKQ in Europe, with exceptions of France and Belgium, independent garages were considered essential business and could stay open.
With traffic recovering through the Q2, we saw our sales pickup continuously narrowing the gap to previous year. In the meantime, our teams were successful in maintaining product availability despite almost every single supplier cutting down shifts and temporary plant closures, we were also able to defend margin quality, eventually even gaining roughly 100 basis points compared to 2019. With Q2 sales down by 20%, we were able to reduce operating expenses by just under 17%, which was mainly possible due to the strong commitment of our employees to our company, fast adjustment of the capacities to lower demand and government labor management programs in several countries. If you exclude the time lag that was necessary for some of the collective bargaining agreements to adjust labor in early April, we were able to adjust our cost structure in the Q2 slightly higher than the actual downturn in sales. This leaves us with good news for the upcoming future.
Even if we exclude the temporary cost saving measures, we expect that we will be able to reduce our SG and A rate sustainably by more than 80 basis points, taking the lessons learned from COVID-nineteen. As Europe is cautiously recovering from the shock of the lockdown, total economic growth forecasts are continuously updated. While LKQ has not a strong presence in some of the most affected countries in Europe like Spain or France, we could feel the strong downturn in Italy or the U. K. For these countries, economic recovery will take longer and into 2022, while our other large markets like Germany, the Netherlands and the Czech Republic should make up much of their downturn during the next year.
Our top 6 European markets saw an interesting impact from COVID-nineteen on our relevant market. With a crisis arriving, current not only predict a substantial drop in new vehicle purchases and therefore the decline in younger vehicles aged 0 to 4 years, mainly served by OE dealerships. Also, consumers hang on to their current vehicles, resulting the substantial decline of scrap rates and exports of used cars from 5% to around 3.5%. This means the car park aged 5 years and older relevant for LKQ's customer will grow stronger than expected before at between 2.1% 2.6% over the next 3 year, and that's a per annum number. Good news also for LKQ.
Coming to the 1 LKQ Europe project, our most important project, forming one company in Europe that will maintain the great strengths of our businesses acquired, proximity to our customers in each of our markets and a strong entrepreneurial culture all the way to our local branch managers. On the other hand, transformation of our company is leveraging the scale of our business, going to 1 ERP platform, a strongly rationalized product portfolio and a common head office. The 1 other KQ Europe program has 2 pillars, the organizational design and the strategic initiatives driving EBITDA performance, both go hand in hand. For our organizations, we have successfully jointly defined and started the implementation of important functions driving value for the business. We have also continued to staff and develop a best in class leadership across these functions and for the regions we do business in.
Together, between the executive team and more than 200 managers in the European segment, we are building a common culture, establishing common policies and procedures and share best practices. Our ultimate goal is to create and maximize value for our customers and our shareholders with effective decision making being accountable for our actions, the 1 LKQ Europe organizational design will be completed and implemented by the middle of the year 2021. By then, we will focus back on growth. In our profitability improvement program, we continue to pursue key elements in procurement, product management and revenue optimization. Our local initiatives support these Europe wide initiatives to take LKQ Europe to the next level of performance.
Our procurement initiatives have certainly experienced a strong impact from COVID-nineteen, With supplier plans closing, force majeure declared and logistic flows interrupted, we had to postpone important elements to later this year. Our pilot program, Next Gen Procurement, will continue later this month. We still made substantial progress in our working capital improvements, including vendor financing programs. As part of our product strategy, we have created a dedicated business unit to drive forward our LKQ product brands. MPM oils, optimal chassis parts and aera electrical and electronical components will be an increasing portion of our business with substantially higher margins compared to our supplier branded products.
Market introductions are proceeding fast. We expect a further acceleration in 2021, eventually doubling the share of our LKQ product brands in our business. For our supplier branded products, the consolidation is proceeding. We have phased out or replaced more than 150 brands just in the past years. We will reduce the complexity of our portfolio and reduce the number of suppliers by more than 70% compared to the start of the program last year.
In our revenue optimization program, we have established practices for price variance analysis, measuring elasticity of demand and defining specific characteristics for products we distribute to balance supply and demand in a consistent and optimized way. Our local initiatives, on the contrary, have accelerated greatly during COVID-nineteen. Among many other examples, the integration of the previously acquired platforms like Andrew Page in the UK, PV Automotive in Germany or the merger between Auto Kelly and Elid in the Czech Republic is progressing ahead of schedule, providing a consistent allocate queue customer experience in these important markets and reducing our operating costs at the same time. COVID-nineteen has made us focus on the health of our employees and our day to day business, especially in the Q2. With thousands of people at LKQ and also our partners on furloughs and out of work, we had to slow down the activity levels in our procurement initiatives, our new head office in Switzerland, our new ERP system and also product related activities.
But we have also picked up opportunities to accelerate our succession planning and talent management systems, the integration of previously acquired networks, sharing resources across LKQ and also learning from COVID, moving faster than ever with the digitalization of our business models. Today, we would also like to give you an update on the EBITDA impact of our 1 LKQ Europe program. Compared to the incremental improvement ranges we had shared with you in the same day last year, we wanted to be confident to achieve our committed performance. Our procurement, product and revenue related programs will be delayed by 3 to 6 months when we had to prioritize crisis management over strategy earlier this year. On the other hand, COVID has accelerated many of the local initiatives, so we feel stronger than last year on the potential they will realize during the coming year.
Even with the delays caused by COVID, total segment EBITDA will show a substantial impact already in 2021 and continue to develop further potential thereafter. Including the 55 to 65 basis points for transformation costs, we expect the 2021 segment EBITDA margin between 9.2% and 10.3%. And we are convinced that we will achieve the previous range of 9.5% to 11.1% some 3 to 6 months later, taking into account COVID related program delays. This already includes a lower than expected contribution from organic growth for this period of 3 years with the COVID crisis in its very center. European segment EBITDA margins in 2020 already point in the right direction, Especially compared to the average 2019 sales levels, LKQ's European business is showing a clear upward trend.
At sales levels lower than prior year, our EBITDA margin for the second half of twenty twenty is expected to come in above 2019. In addition to EBITDA margin, we are also on a strong track for our trade working capital and cash flow performance. Since 2019, we have made progress on supplier term negotiations, stock level alignment and reduction of our past due receivables. The improvements of the trade working capital of the European business will be more than enough to completely fund our integration, transformation and restructuring costs. A prominent example of the progress we've made in the capital employed in our business is our supplier payment terms and vendor financing program.
Our total direct spend amounts to US3.5 billion dollars per year, our top 40 suppliers representing about 60% of that amount. A large percentage of these suppliers have already agreed to substantially longer payment terms with an average improvement of greater than 100 days with an expected cash flow contribution of more than $200,000,000 by the end of 20 21. We believe this is a great sign from our partners towards a stronger strategic relationship, while we will continue to consolidate our supply base, eliminating complexity from our business. Working remote, ordering online, video conferencing and virtual trade shows. The COVID crisis has proven that digital tools will be developing faster than most people have imagined before.
The independent aftermarket in Europe has already for a few years been expecting change. Key challenges like parts information, access to repair data or vehicle history remain typical inefficiencies in the sector. New e commerce players have arrived. During the peak of COVID, our LKQ online orders have grown nearly 30% above previous year. Connected, partly autonomous and electrified vehicles will create further opportunities to enhance consumer experience, but also require the development of capabilities of our direct customers.
We at LKQ believe that as a leading independent parts distributor in Europe, we also have a great opportunity to make a substantial contribution to the next level in vehicle services. In our European digital strategy, we will bring all our European businesses to a new and common standard, eliminating and integrating multiple solutions. We will exceed customer expectations for businesses like wholesalers and workshops, but also provide consumer solutions driving business opportunities for those workshops. For our business customers, we will offer a consistent solution that will make interaction with any LKQ platform easier than ever before. Our garage management systems will take customer bookings, organize workshop resources and handle invoices and payments.
Our learning management systems will, together with our LKQ Academy concept, convey the latest knowledge in vehicle technology, service and repair. And many additional features will enable tens of thousands of workshops across Europe to generate more income with happier customers. Our consumer solutions finally will enable consumers in certain markets to order the right part or accessory for their vehicle. And if they need a specialist to install it, they find the right partner in our referral database. We are thinking beyond today to save time and costs for consumers, workshops and wholesalers and keep vehicles safe, clean and their wheels turning.
In summary, our market environment is positive. The absolute number of cars in the relevant older segments will be increasing stronger than before, and many people will prefer to use their cars over collective transport. We believe our business will recover in 2021, and it is probable that we will show organic growth over 2019. The One LKQ Europe program will deliver its results. There has been a COVID delay for volume related programs, but we have accelerated efficiency and network programs.
The European team is committed to delivering the results. And we are thinking ahead. In a market where data will drive more value and efficiency, we are streamlining our digital offerings and will take them to the next level. Thank you for your attention. Our European CFO, Janik Canteni, and I are looking forward to your questions.
And also when we could expect revenue to return pretty turbulent levels? And I understand that some of that was in your prepared remarks, but do you have any comments beyond what you have provided?
Yes, sure. Thank you for the question. Of course, it's something that we think about on a daily basis. Although, of course, the European aftermarket, as fragmented as it is, it's very hard to get solid data and compare on an equal basis because the businesses are very different. But overall, we believe, and that's based on national data market by market and there is nobody that has the same footprint at LKQ.
But in a market by market data, we believe we are very even with the other big players in those markets in terms of growth and also in terms of our earnings quality with some slight advantages here and there. But what has become clear in this crisis, bigger is better. The solidity of our business, the scale that we can offer, the financial stability and also the inventory and the landscape certainly put us into a position to fully compete to this in this crisis and gain market share afterwards. And so that would be my summary for the competitive landscape. In the view of 2021, as a balance between miles driven vehicle car park age that I talked about, we believe we can be above 2019 level, still knowing this is based on assumptions regarding another lockdown or other things happening like that.
We believe from the experience of the past weeks that all the major economies in Europe will try to avoid a full lock down and focus on local and regional measures to fight any infections that will come back up. So we believe we can be slightly above 2019.
Great. Thank you. Very comprehensive answer. I'm going to move on. And I have a question for Jan, great to have on our 1st Investor Day as the new CFO of our European operations.
This question comes from Bret Jordan of Jefferies.
Well, thank you for asking. We've been very proactive in reaching out to our key suppliers in order to offer them the opportunity to participate in our vendor financing program or to extend payment terms outside of the program. Our objective is to improve our trade working capital without diluting margins. To date, we have successfully negotiated with approximately 30 of our suppliers, representing more than $800,000,000 of annualized spend. As mentioned by Hart, we've been able to extend our payment terms by more than 100 days with that group of suppliers.
And we expect that this will generate in excess of $100,000,000 in incremental cash flow by improving our trade working capital in 2020 and over $200,000,000 by 2021. We're very excited about the value which the program is creating for LKQ and for our suppliers and we are well on track to achieve our target.
Yes. Thank you. I think we're very confident in our local initiatives that have, as I mentioned, picked up in speed and also in dynamics during the crisis because certainly we had to adjust capacity. And of course, as part of the capacity adjustment, we had also to accelerate some of the integration things that were going on with some of the local previous acquisitions. So that's an area where we are very confident.
One area that always is a disclaimer is anything that's driven by volume. So that's related to the organic growth component of our programs and our plans and that's also related to the volume impacts on some of the programs we have on the procurement side and on the product side. And so that's the area where we always try to be a little bit more careful. Obviously, we did not have the COVID crisis in our plans last year. So there was a timing impact on procurement.
There was a timing impact on product management. We had paused some of those things just because we were focusing on the daily business. We were reducing our inventory, so we had to pretty much cancel a lot of the supplier orders and that is not a good environment for negotiations about the next year. So those programs will all come back on. Partially, they have come back on since the beginning of Q3 already.
And our team is very confident to achieve the complete size of the program, albeit with a 3 to 6 month delay, which was the second quarter and the ramp down and ramp up of those activities.
Great. Thanks for that, Arnd. The next question, I'll direct your way as well. Someone asked, I wanted to confirm Arnd's comment on being completed with the 1 LKQ integration by mid-twenty 21. And does that include the ERP integration as well?
Yes. It's a very good question because it clarifies some of this. So in the 1RKQ Europe program, as I mentioned, we have 2 pillars. 1 is the organizational design and implementation, which is dealing with centralizing the functions that are driving the value in the EBITDA procurement as an example, product management as an example, but also logistics and so on. So this organizational design and implementation, that's the one that we are looking forward to have done by the middle of 2021.
It's ambitious for the teams because we haven't pushed out that time line a lot during the COVID crisis, but all the teams are committed to make it happen. And our aim is really after 2 years focusing on our integration, we need to focus back on growth to take advantage of some of the good things we have achieved with this integration. The other topics may last longer, and here I especially refer to some of the IT related projects. Those normally take longer because we have to go entity by entity. And so for example, our ERP system will at least take us until 2024.
But also here, we are certainly looking on a continuous basis at ways how we can accelerate and simplify things, managing the cost. The pilot program that we launched in Switzerland in early February this year was extremely successful. The team has worked hard and I was very happy and I think everyone at LKQ was very happy with launching that pilot program. We didn't lose a single order that day. The maximum delay was around 70 minutes reaching out to the customer with product shipped.
And although everyone has been working extremely hard, we're all very happy with how the program goes so far. But we have to stay focused on the cost and on the function and the synergies it delivers.
Thanks, Arnd. I'm going to send one more question your way, and we need to move on to Bill Rogers' following. This question comes from Craig Kennison or Robert W. Baird. And the question is, how do Europeans view private label parts?
And can LKQ develop its own brands to drive better margin? I want to repeat that one more time for you, Arnd. How do Europeans view private label parts and can LKQ develop its own brands to drive better margin?
I think Europeans in general is always a difficult term because there is different markets with different purchasing power and different preferences. We have today business that really also have a pretty high share of LKQ product brands, like I said, but we want to bring that total level up substantially for the whole group. So far, in spite of the COVID crisis, I'm pretty happy with the progress that we have made in the penetration of our product portfolio with the brands that I have mentioned and others, but we're looking forward to more acceleration there. And we believe there may be a lower limit to the penetration compared to, for example, the U. S.
For Europe overall, but we're confident that we can double the share of our private label brands in our own business and doubling the share in the business also means that with every dollar that we sell, we will also
Good morning, everyone. My name is Bill Rogers, and I've been leading the Specialty segment for the last 5 years. I'm happy to be here today and thrilled to provide an overview of our business. This slide provides a summary of the Specialty segment. As you likely know, we are the smallest segment within the LKQ family, but we are actually quite large within the markets that we serve.
Last year, we had overall revenue of just under $1,500,000,000 We have over 2,500 associates, 7 large distribution centers, 38 additional cross dock locations and multiple call centers, all servicing well over 20,000 customers, primarily in North America. We carry products from over 1,000 suppliers and stock over 185,000 SKUs. We are number 1 in the distribution of aftermarket automotive accessories, commonly thought of as the SEMA market. We are also the number 1 distributor of parts and accessories in the RV market. And we are the number one brand in off road recovery equipment with our Warren Industries business, which has 2 primary locations.
As you can see, we have experienced very solid growth and profitability over the last 6 years since being acquired by LKQ in 2014. I thought it would be good to provide a brief summary of how we have managed through the current crisis that has affected everyone. We took very quick steps in the beginning to preserve cash and cut costs. Like others, we did not know what was going to happen, but it seemed appropriate that there was going to be a major economic impact, and it would be broad. As you can see from the chart, our sales dropped significantly when the country shut down.
We stayed open and operational, but made significant changes. We then saw more demand in the e commerce area, which we were well positioned to serve. As other sales began coming back, we knew it was due to certain geographies opening back up. We went into the crisis with an excellent stocking position, and we took a very conservative approach to adding anything back in, figuring there was going to be a definite decline due to unemployment, business closures, etcetera. We then saw more demand in the RV area, and that seemed quite logical.
We also saw strong demand in the automotive side in geographies that had opened up, and that seemed to make sense as well. There is a tremendous amount of money that is not being spent in the hospitality area, on sports, travel, events, restaurants, etcetera. Our business serves enthusiast markets, and there's no doubt they are spending money on their passions and projects as opposed to other areas. Our challenge now and since this realization around midsummer is replenishing supply to take advantage of the real demand that is definitely out there. Given all the disruption in the supply chain, there are significant challenges, and we are currently limited by them.
We are still, however, in the best position in the markets we serve, and we are laser focused on getting the supply line back in shape. Again, the demand is there, and I have no doubt it will be there for the foreseeable future. Our network is our strength. We've invested in it over the years and are well positioned to serve the current demand and more. We continue to optimize our processes and have been able to attain productivity with a continuous improvement mindset.
It should also be noted that we were able to expand our cross dock network significantly after being acquired by LKQ. We share a number of facility locations with the North American business and went from 24 fulfillment locations when we were acquired to where we are today with 45. We are fully connected with the North American segment on all facility decisions. Additionally, it's worth mentioning that we have integrated 48 other facilities into our current network, 32 of which were DCs through the acquisitions we've done since 2014. I would like to walk you through this illustration, which is a great way to show the power of our network.
You can see in the top left a contractor walking into a shop in Wisconsin looking for a toolbox. That jobber, our customer, places a call to our call center that happens to be in Dallas, Texas. Our associate identifies and orders the correct part. A drop or pick ticket gets created and dropped in our Kansas City distribution center, gets loaded onto a tractor trailer. That tractor trailer drives through the night and arrives in La Crosse, Wisconsin at our cross dock there at about 3:30 a.
M. In the morning. Our drivers for the cube vans are there waiting. They break down the load, load it onto the cube vans, and by 7 a. M, they're off and running.
In this case, by 12 noon, our driver delivers that toolbox to the driver that placed it around 4 p. M. The day before. And he can install it by 2 p. M, the whole process taking less than 24 hours from that time it was identified to the time it was installed.
This shows how our network enables us to deliver big and bulky products to our customers next day, and that is something for others that is hard to duplicate. The $95 value based on the lowest cost 3PL ground transportation rate is could go up to as much as $2.40 for next day delivery like the customer gets from us. This is a huge competitive advantage for us. As you can see, our primary markets currently served are the SEMA space, the RV space, the trailering market space. I have listed what we see as addressable market in each, and I'm showing the approximate share of these three markets that we serve as a distributor in the stacked bar.
It maps to our sales mix. These are great markets to be selling into right now as demand is very strong. One area where we are able to leverage our position in the market is in the area of the RV OEMs warranty fulfillment. Working with the industry, we took on the challenge of trying to reduce repair event cycle time or RECT. This is the time it takes between a customer dropping off their RV for maintenance, repair or service and the time it takes to get it back.
One of the significant contributors to this historically has been parts availability. In one industry study, the difference between having parts on hand at the dealer versus not was 18 days. This is where we excel and can cut huge time out of the process. We worked with some of the best OEMs and have established programs that are paying off for them and for us. These programs are well supported and advocated for by the dealers and help us further our already strong relationships with them.
There's a lot more opportunity for these programs with the other RV OEMs and with other manufacturers. As you can see from the Q1 survey done by RV Pro, our standing in the RV space is significant, and the OEMs that we have worked with fare extremely well in these same surveys. When it comes to longer term growth initiatives, we have a proven track record of being able to move into adjacent market space and grow. This is the exact playbook we used in RV, and it will work in other areas like those shown here. Again, we have listed our view of the addressable market opportunity for each of these adjacent space markets.
We use the corporate strategy team's market assessment framework to help assess the opportunity areas. You can see where the marine adjacent space fits in as an example. More specifically, when we look at attributes like market size, growth, profitability, competition and whether there are meaningful acquisition targets product overlap and availability product characteristics and finally, types of products. We like seeing independent establishments used to being supplied by wholesale distribution. We see in the marine space, as an example, all the items are checked off.
Then honing in to the right on just the product overlap and availability attribute, you can see just how much there is. This is largely due to the RV business. In fact, many of the marine market distributors are also RV distributors. So the Argo app is great. Additionally, we have access to any additional product areas we may need as we further develop the space.
For us, this is all upside, and I think this market, similar to the others we play in, is extremely strong right now. One of the areas we have improved immensely on is our e commerce capabilities. 70% of our orders come in electronically. This number has been on a steady climb, and this was a huge benefit for us in the height of the COVID crisis when we were limited on staff. All the improvements we have made really shine through in those months.
Our B2B sites are truly the best in the market and have significant value to our customers that, in fact, they are willing to pay for. We have made massive shift from publication based marketing materials to digital. We introduced a mobile app in 2018 with a VIN lookup feature that enables our jobber customers to use their device of choice to go out into the parking lot and shoot a vehicle VIN to ensure the right parts are available and ultimately ordered. We have also developed digital tools for suppliers and a lot of social media, dealer management software and website tools to assist our customers. We also introduced Interactive Garage at SEMA last year, which enables anyone to visualize accessories on their specific vehicle.
This tool is extremely useful and our customers who use it can drop any project they're working on into their cart seamlessly. You can even check it out on our partsvia.com website right now. That also highlights another tech innovation that has been growing fast. Parts Via is something we developed to support our brick and mortar customers and enable them to participate in online consumer selling. It is innovative in that we use the platform that we have to promote in shop delivery, which we do on our trucks.
The network dealer, our customer, facilitates the consumer pickup, return, installation, etcetera. We are driving traffic to our customers, and they also benefit from the proceeds of the sale. We have supplier sites up and running on this right now and other high traffic domains on the way, like outdoorsy, which is an Airbnb type site for RVs. The big benefit of teaming with manufacturers' sites that likely did not sell direct before is that they can now because they are supporting the job or customers, and the natural traffic a manufacturer gets is significant. We have over 30 partner sites set up to date and continue to grow it.
Again, we have made huge project progress here. Our e commerce platform serving consumers have been high growth areas, especially during the crisis. We saw a 50% increase in the part in this part of our business during the extended shutdown period. This is not surprising as our dropship fulfillment is the best in the industry and we service the toughest requirements. I already spoke about Parts Via and how well that is doing, but truly, the best is yet to come with the seamless installation tie in that's on the horizon.
We really do have significant advantages over others. Our network is set up for reliable next day delivery. We have the advantage in location, inventory, breadth and depth. We manage transactions extremely well. Our product and application data is the most complete and best in the industries we serve.
We have significant sales resources focused on business development, and we have great technology. All these advantages are difficult for others to replicate. To summarize, we are in a great position with a great team in very strong markets. Thank you. Now, Joe, I think we'll go to questions.
That's correct, Bill. And let's start off with the question that we have directed to Arnd as well as Justin, just to give an overall. In the midst of this crisis, can you give us an update on the competitive landscape? And also, your revenue has been trending well, but what the business looks like post COVID, so
speak? Great question, Joe, and thank you for that. The competitive landscape is, in our market, tough to tell, similar to others. There's not a lot of public information out there. But from what we hear from customers, we are in the best position from a stocking position.
And right now, whoever is in the best position stocking wise is really king in terms of the market. The supply chain is stressed. The demand is high. So really, it's all about supply at the moment. And our efforts right now are focused on bringing back our suppliers and making sure that we have the right products in the right locations.
The demand is already there. So really, whoever has the supply is going to win out from a competition perspective right now. So it's a good position to be in. Great.
Thanks. Thank you, Bill. The next question comes from Scott Stember of C. L. King.
And Scott's question is, within the Specialty segment, what are the main drivers for growth? And also, can you flush out the growth drivers specifically in the RV space?
It's really simple right now in terms of what the growth drivers are for the marketplace. And very specifically in RV, it's really about supply. So whomever has supply is able to get the growth in the RV market because it's doing quite well. And like I said, the other markets that we play in right now are also doing quite well. Also, as part of my prepared statements, you could see the areas we're going after in terms of growth, be it adjacent space markets where we have excellent playbook that we employed when we did the RV activities and that we will duplicate when we do other adjacent space moves.
So I think that really addresses the growth areas for us.
Great. Thanks, Bill. The next question comes from Craig Kennison of Robert W. Baird. Bill, do you believe the specialty business is at risk of structural unfavorable trends and at risk of being disintermediated?
We think the long term risk there is low. It can be disruptive at times as it was in the Q4 of last year when we had a couple of major suppliers that had some other ideas on how they wanted to approach certain channels. The reality is that we serve a significant purpose in the industry. And the distribution business, while some think it's something they can do. It takes time and effort, and it takes a lot of investment.
And we have seen suppliers come back that started there. We have seen other suppliers that had a direct to dealer distribution model to start out, adopt or start to do business with us. And we've seen great growth from some of those that have made up some of the challenges we had in the Q4 last year. So I think we responded very well in the Q1, bouncing back from the Q4 challenge. And long term, most of those suppliers find the opportunity isn't quite what they thought and some portion of that, if not all, comes back to us.
Great. Thank you, Bill. The next question comes from Bret Jordan of Jefferies. Which does do you believe, Bill, is more cyclical, RV or the other parts that we offer high performance and the like?
Well, as you saw in the study that Bob did, there's a high degree of the RV business that we feel is more based on usage. And because of that, I think the RV business has that kind of structural component that is less about cyclicality and more and in fact, probably benefits in some cases from some downturn in the overall economy because it's a very affordable way to vacation. So I think the RV business is in solid shape from that perspective. And the automotive space, much of what we do is very practical, even essential products that serve contractors and many other areas that need the products for cargo management, for towing, for other areas. So I think while there may be some, we've seen how we have fared through the COVID crisis, and I think we're in probably the best shape in terms of the overall business in terms of overall demand.
And it's due to the demand that's coming from the marketplace.
Great. Thank you, Bill. Next question comes from and it's a follow on question from Craig Kennison or Robert W. Baird. To what extent does the specialty business rely on warehouse and other infrastructure tied to the North American business?
So as I said in the prepared remarks, we have a number of facilities we share with North America, and we are tied extremely tight with the business on all the real estate matters that happen in North America. If Justin is looking to open up a warehouse or a facility somewhere, we are always factored in before that happens. And the same goes for us. Anytime we are looking at expansion or movement on any particular facility, we work together to make sure that we're looking at it the same way. So our distribution centers are a bit different than Justin's, and we don't share too many on the distribution side.
But we share a lot of cross stock facilities and as much as we can in that area.
Great. Thanks, Bill. This will be our last question before we move on to Varun and the financial presentation. And this question comes from Daniel Imbro of Stephens. And the question is, and I know you touched on it, Bill, in your prepared remarks.
Can you expand more on what we're doing with some of the RV OEM programs?
Yes. So as I stated, the whole industry has been very focused on something called repair event cycle time. And that whole effort is then focused on part availability. So given our role in the industry and our relationship with all the independent RV dealers that are out there in North America, we have a great value to offer to the OEs in terms of getting the parts there quickly. And we saw in the prepared remarks that there is a significant reduction in that overall RECT that takes place when the part is available.
So the best option is to have it at the dealer. The second best option is to have it with us, so it's the next day at the dealer. And we have, I think, just somewhat touched we're working with some of the best RV OEMs out there in terms of programs, but there's a lot more to go. So there is a number of brands that we haven't started with and the value proposition is there. The dealers are our biggest advocates because they love the programs that we've instituted with Grand Design and Jayco in terms of getting the products quickly.
So there's a lot more opportunity in that whole front where we can support not only the OEMs in the RV world, but manufacturers as well. And in the automotive world, automotive accessory world, we can do the exact same thing with major OEMs.
Thank you, Bill. And that concludes Bill's Q and A portion. And as I mentioned, we're going to now move on to, Varun Laroyo, LKQ's Executive Vice President and Chief Financial Officer for our financial update.
I'm not seeing the second screen is blank. Well, thank you, Bill, and a very good morning to everyone from sunny Nashville. My name is Varun Laroyia, Over the next 20 minutes, I will take you through key elements of LKQ's financial priorities, how these link up with the corporate strategy, performance of the business through the pandemic and finally, capital allocation and the balance sheet. This slide provides a snapshot of LKQ's financials. Revenues of approximately $12,000,000,000 solidly profitable, manageable debt levels, ample liquidity, BB rated with a stable outlook, and a market cap approaching $10,000,000,000 Overall, LKQ has market leadership positions in each of the 3 segments and operates in stable environments of North America and Europe.
Starting in 2011, the company has diversified into Europe and, as you learned earlier today, is the market leader there too. Now market leadership didn't happen overnight. In the 1st 2 decades of the company being founded, we were focused on consolidating and developing scale in the collision parts market across North America, both in salvage and the aftermarket, And a similar strategy in Europe too, by acquiring the national champions across multiple geographies, starting with ECP in 2011. This strategic focus drove incentives, capital allocation, and hence, the balance sheet too, as you can see from the left hand panels on the slide. From 2019, we made a conscious switch to drive operational excellence.
We have market leading positions in each of our segments that we operate, and it was the right time to pivot towards driving the operational focus and monetizing the capital deployed. This in turn drove the change in the incentive structure in 2019, calling out organic revenue growth, accretive margins and strong cash flow generation. On capital allocation, utilizing the free cash flow to widen the moat around our businesses by investing in organic growth investments, high synergy tuck in acquisitions, building critical capabilities, and starting in October of 2018, the share repurchase program was authorized by the Board, the first in the company's history. As a result, the balance sheet has been delevered to moderate levels of around 2x net debt to EBITDA and focusing on supporting long term equity returns. With the operational excellence focus, our approach to balance sheet and capital allocation is now targeting a sustained investment grade profile.
We believe we can get there by increasing organic growth, outpacing the market, or said differently, continuing to take share a consistent focus on profitable growth from a globally diversified portfolio and a continuation of strong free cash flow conversion as we've delivered since the second half of twenty eighteen a greater and more refined focus on disciplined capital allocation with moderate capital expenditures and share repurchases utilizing the excess free cash flow and finally, a conservative leverage philosophy targeting investment grade credit metrics, and over time, transitioning to an unsecured capital structure to improve financial flexibility. We believe there is shareholder value creation by managing the financial profile to investment grade. 2019 was the 1st full year demonstrating the potential of the operational focus with: a, profitable revenue growth, including some acquisition growth, though with the headwinds related to actively divesting or eliminating businesses that were either non core or do not, frankly, meet our financial priorities. The automotive battery contract within the North America Glass business is a prime example of this point. More recently, the divestiture of Stahlgruber Telecom is yet another example.
B, accretive margins. We fundamentally believe that world class businesses have the ability to be recognized for the value they provide to their clients. At LKQ, as industry leaders, we expect to continue to drive incremental value to our clients with a class leading service quality, the depth of inventory and again, market leading fill rates, while at the same time continuing to refine our internal cost structure. The last point about the internal cost structure related to productivity has been highlighted by each of our segments earlier this morning. Each of these elements taken in conjunction drives margin expansion.
And C, finally, strong cash generation as has now been demonstrated not only in 2019, but now for the past 8 quarters and with more to come. As you will no doubt appreciate, such results don't happen by accident. These have been architected and executed over the past several quarters as is very clearly evident in our results. The past few months have been very interesting with this once in a 100 year health crisis. The good news is that LKQ operates in a growing and economically resilient industry.
The chart on the screen shows that the current COVID-nineteen related stay in shelter measures trigger downturn is a unique and rare shock to underlying VMT and will inevitably recover. The same is true of Europe too. A stable VMT coupled with an aging car park, precipitated by the economic downturn, provides a steady demand for aftermarket auto parts given the value delivered. As such, we believe our business to be largely recession resistant. More to the point, during the Q2 of 2020, arguably the worst period during the current COVID-nineteen pandemic, LKQ has proven to be incredibly resilient.
On a year over year basis, despite a significant drop in revenue, adjusted gross margin was expanded. OpEx was dialed back quickly to align with the revenue activity, thereby protecting margins, and cash flow surged, which was used to pay down debt. Clear financial priorities, coupled with crisp communication, resulted in the field teams executing to the playbook. As a distribution business, LTQ has always had the ability to generate cash, though the rigorous focus on this aspect came through in early 2018 with the results beginning to flow through from the Q3 of 2018 onwards. This consistent, metric driven operational focus rigorously applied, coupled with the incentive plan being revised across the organization, is clearly evidenced from 2018 onwards.
And while the 2020 year to date conversion at 136 percent of EBITDA is frankly not sustainable, it does prove the nimbleness and the agility of the business to generate cash during periods of extreme volatility. The good news, as you heard from each of the segments, is that there is more to come, especially from our European business. Our goal is to get to stabilize our net leverage at approximately 2 times, With no near term maturities, a combination of some further debt pay down and continued EBITDA expansion will lead to further deleverage and the ability to reshape the balance sheet by beginning to term out some of the $3,500,000,000 revolver we have. There will be natural trigger points starting as early as the Q2 of 2021, which gets us to capital allocation. The goal of the management team is to continue to generate organic investments, tuck in acquisitions with high synergies or building critical capabilities and share repurchases.
Since the start of the share repurchase program in October 2018, we have repurchased approximately 16,500,000 shares for a total investment of $440,000,000 over the past 2 years, and we have a further $560,000,000 available under the current authorization. Expect this last aspect to increase in the future. Based on everything you've heard from the management team this morning, it's only natural for us to update the financial policy, essentially targeting enhancing shareholder value. In closing, I'd like to reiterate the 3 key pillars underpinning the investment thesis on LKQ. Strong market leadership position in each of the 3 reporting segments with unparalleled customer and geographic diversity and industry leading service reliability and inventory depth, organic revenue growth and operational excellence, affording the business the ability to grow faster than the market and continue to take share.
We are experiencing this phenomenon during the current pandemic. By executing on our near term priorities, be it One LKQ Europe or the plans and programs that Justin talked about for North America, and the long term ability to drive continuous improvement across our operations and margins and finally, the focus on sustainable cash flow generation, coupled with rigorous application of capital allocation principles. With these key principles in place, we are optimistic of being well positioned to deliver consistent, strong growth in adjusted earnings per share over the long term. Thank you once again for your time this morning. And with that, I will turn to Nick for his closing comments, following which we will have further Q and A.
Thank you, Varun. Hopefully, all of you in the audience can now appreciate why we are just so excited about our company, its position and most importantly, the bright prospects in the future. While we operate in 3 different segments, there are many, many similarities. Importantly, each of our segments operates in the wholesale distribution of vehicle parts and accessories. In each of our segments, by a very wide margin, holds the leading position in the product and geographic markets in which they compete.
It's always good to be number 1. All of our segments operate in extremely large and highly fragmented marketplaces that provide significant room for us to continue to grow our business and increase our market share. We can use our scale and our abundance of capital to create real competitive advantages by offering the widest and deepest inventory to our customers. In our business, high fill rates are the key to success. As each of Justin, Arnd and Bill discussed, they all have an ability to drive operating leverage and expand margins.
There are plenty of adjacencies, which provide a path for continued growth. And I'd put my leadership teams against any competitors knowing that LKQ will win at the end of the day. While we are extremely excited about our company, what does it offer you as investors? Well, first, an opportunity to own the clear market leading company in every major market in which we operate. Again, being number 1 is a good place to be.
LKQ provides exposure to the broadest array of automotive parts and accessories for the do it for me marketplace and the broadest geographic coverage of any of the publicly held automotive parts distributors. We bring a track record of growth and improved earnings and cash flow. And we represent 1 of the most advanced environmentally sensitive platforms in the industry. Importantly, we believe consistent organic growth, when combined with a thoughtful capital allocation plan, will allow us to deliver double digit EPS growth. While 2020 will obviously be impacted by the pandemic, and 2021 will likely result in higher growth due to the low base in 2020, over the long haul, we believe we can grow earnings per share north of 10% a year, about half of which will come from our organic growth and productivity gains and about half of which will come from our capital allocation decisions, including share repurchases, tuck in acquisitions and a slight deleveraging of the balance sheet.
That concludes our formal remarks, and we will now move to the open Q and A session wherein you can address a question to anybody on the team.
Thanks, Nick. And as I've reiterated, folks have an opportunity to submit their question through the webcast Q and A portal. And we have many that we've already received. So we're going to start with that. And I'm going to direct it to the appropriate person to ask the question.
So we're going to start with a question from for Varun from Stephanie Benjamin of Truist. And the question is targeting a sustainable investment grade credit profile is a big shift for LKQ. What precipitated this move? And what does it mean for future growth, including M and A?
Thank you, Joe. And Stephanie, good morning to you. Great question. And as you rightly point out, it is a shift in LKQ's historic sense from a capital allocation perspective. If you go back to the time when we closed on Stahlgruber, since then, the company has generated just under $2,000,000,000 of free cash flow.
The vast majority of this has gone down towards paying down our debt levels. We're currently at about 2.2x net debt to EBITDA. And the question really is, we've got this kind of disconnect between, say, the equity markets and perhaps the credit markets. All you have to do is look at other BB rated with a stable outlook bond issuers and see what their bonds are yielding versus what the LKQ euro bonds, 3 of which maturing in 2024, 2026 and 2028 are yielding. Clearly, we are trading significantly tighter than, say, other similarly rated businesses.
In addition to that, as you kind of talked about as you heard from each of our segments, we have market leading positions. More recently, whether it be in Europe with the Andrew Page acquisition or for that matter with the divestiture of the Stahlgruber owned Czech Republic operations or for that matter our ability to go and acquire further collision part businesses here in North America is limited. And this is where the disconnect comes because we have a large revolver that we have, about $3,500,000,000 on the credit facility, which is secured. In the past, it was perfect given the strong consolidation focus because it gave us the flexibility. But at this point of time, we are at crossroads because arguably, there could be a perception out there from the investors that all LKQ is interested in doing is relevering up for the next big transaction.
And so now is the opportune time to draw a line in the sand in terms of why the focus on operational excellence. We've got great businesses, great cash flow generation. And frankly, from a value creation perspective, we are at Crossroads. We certainly believe that we can enhance TSR for our investors while maintaining a moderate leverage out there also. Finally, in closing, listen, investment grade metrics is what we are targeting.
When the switch to investment grade takes place, that's not in our hands other than what we can control, and that really is what we are focused on. With that, Joe, I'm going to turn it back to you.
Thank you, Varun. The next question comes from Daniel Imbro at Stephens. And I'm going to direct this to Rick. Thanks, Rick. In North America, demand is challenged now and we are hearing the salvage players talk about a few 100 basis points of tailwind to total loss rates.
Do you believe we can show growth in that environment?
Yes, it's a good question. So if we're looking at our salvage partners that we work with on the auction side, we're seeing the same thing that they're seeing. Within the model that we've put together, we have that total loss factored in as a bit of a headwind for us. In addition to that, we have the ADAS as a bit of a headwind. Bob talked about some of the other things, part proliferation, some inflationary increases, some technological advances that we expect to have as a bit of a tailwind.
So when we look at that 1.1% growth over the next decade that we think the market will give us, it really is the tailwinds outweighing some of our headwinds. And then Justin spoke about, in addition to that, we have some APU growth that we're expecting to see on the APU side, along with some market share gains that we're looking at and then also some diversification. So looking at our diagnostics business, our services business, you could see that there's pretty significant growth that we talked about. Bob mentioned earlier in his presentation that we're expecting to have that come in. And so when we're looking at North America in particular, that 2% to 3% over the next decade is something that we think is absolutely attainable.
And just to be
clear, that 2% to 3% is compounded on an annual basis. Yes, absolutely.
Great. Thanks, Rick. Okay. The next question comes I'm going to direct this question to Bill. And this is from Sam Darkash of Raymond James.
Would you likely grow into specialty adjacent markets like powersports and marine organically or via M and A? And if the latter, how many large and well run players are there?
So clearly, our first objective is to grow organically. We have the infrastructure in place. We have the network in place and applying those independent owned customer base like in the marine market, like in the powersports market is something that we can do just by pulling in the customers or using our sales force to help develop that customer base, going to the meaningful industry events, starting to participate in those industry events. We know the playbook because it's what we did when we went into the RV market. We started organically, and it just so happened that there were opportunities for acquisition.
And as part of the overall review of what a good adjacent space would be, we do look at the opportunities for acquisition. And in each of those markets, we do think that there are players that are available, be it regional or national, probably more so in the regional in terms of the numbers, that we could pursue in terms of acquisition if that opportunity made sense and was an economical option for us.
Great. Thanks, Bill. Nick, I think I'll direct this question your way. When we talked about the focus on growth full year 2021 for 1 LKQ Europe, what does that mean from an acquisition standpoint? Or is this strategy similar to the growth strategy in North America?
Thanks, Joe. As our
will be done by mid-twenty 21. And he indicated, will be done by mid-twenty 21 and he indicated that that will allow us to resume a focus on growth. To be clear, that focus is largely organic. The continuation of growing perhaps the number of branches, getting the biggest share of our customers' wallet, and taking market share. There are always abilities to go ahead and do tuck in acquisitions.
We've been very successful with that in Europe thus far. We've completed 5 platform acquisitions and another 65 tuck ins. So people should anticipate tuck in acquisitions here and there, but we're not anticipating any major platform additions in Europe at this point in time.
Great. Thanks, Nick. And since we're talking about Europe, I'm going to direct a question to our friends in Zug. And Janik, I think, I'll let you answer this one. We talked about permanent cost reductions.
Pardon me, this question comes from Michael Hoffman of Stifel. During our prepared remarks, we mentioned the permanent cost reduction of 80 basis points. That said, could you give us a sense of where additional opportunities exist within your various businesses?
Sure. Thank you for asking the question. So Hart mentioned earlier, the COVID-nineteen pandemic forced us to rethink our business processes, to focus on business efficiencies and to find more productive ways to work. The 80 basis point improvement we referred to as a result of decisions to accelerate the consolidation of branches and restructuring and to work more efficiently without impacting the overall customer experiences. We believe that there are more opportunities to make our business leaner and more profitable such as through our common ERP system and further analytical tools to improve our efficiency and gross margins, our Logistic Without Border programs to optimize logistic effectiveness across Europe, our shared service initiatives for head office functions to improve our business efficiency, our branch management excellence, which we are deploying across Europe and we see other opportunities such as in travel expense reduction and further savings by improving our indirect spend by bundling purchases volume across Europe.
In short, we are confident to be able to capture more opportunities.
Wonderful. Thank you, Janik. And since we're over in Zug with our questions right now, I'll direct the next one to Arnd from Scott Stember of C. L. King and Associates.
Arnd, do you expect the European aftermarket to benefit from the same countercyclical factors as has been witnessed with the mechanical parts players here in North America?
Yes. I wouldn't call it countercyclical, but it's certainly more resistant to cyclical impacts on the economies compared to many other sectors. And we've seen this also during the Q2, and we believe the recovery is going to be and is actually already at the moment faster than in other areas, specifically when we compare it to vehicular production. And so I believe that our business is resisting cyclical effects, but it's not completely isolated from cyclical effects. Like I showed on the market situation, we believe that based on continuous growth of the car park and especially with the favorably changing mix of the age of the vehicles, we will see above average growth for LKQ, not least by because of our size compared to other players in automotive, compared to other segments in the automotive and also in the automotive aftermarket.
Great. Thank you, Arnd. I'm going to take a second question that we received from Michael Hoffman at Stifel and Varun. I'm going to send it your way. And the question is, what is the path to $1,000,000,000 of free cash flow?
And what has to happen, margins, working capital, vendor financing, 1 LKQ Europe to get there?
Thank you, Michael, for raising the cash flow question also. We are not obsessed with $1,000,000,000 of free cash flow generation. It is a process that will occur naturally. What we are intensely focused on is the consistent delivery of high free cash flow generation by the business. And whether it be as a percentage of EBITDA or as a percentage of adjusted net income, the question really out here that we essentially are driving hard towards is starting from EBITDA, you think about taxes, the 27%, 28%, think about interest expense, and that's running at about the $100,000,000 $110,000,000 mark as of now on annualized basis.
That will continue to come down based on our average debt levels. And then finally, it's capital expenditures. And those will run at roughly about 2 to 2.25 point as a percentage of revenue. So call it about the 2 $50,000,000 to $300,000,000 mark, no different to what we've kind of given guidance. These are all pre COVID numbers.
Clearly through a COVID situation, we've scaled back our capital expenditure, we've paid down more debt. Long story short is, our ability to get to $1,000,000,000 or whatever the number may be, we are really focusing on hitting those corridors as a percentage of free cash flow conversion, say, from EBITDA or from adjusted net income. And it's that containing that sustainability piece of it that we intensely focused on. And as the business EBITDA continues to expand based on all the productivity measures that you heard from Bill, Arnd and also from Justin, EBITDA will expand. Through the current health crises, really what we've done is we've accelerated that productivity focus, and we're making tremendous gains on that front.
And as Nick has mentioned multiple times, there will be a lag before any of that cost comes out. Apart from some of the smaller discretionary expenses, the bigger piece, as you heard from both Arnd but also from Justin, are essentially taking out permanent cost. And that piece will result in a higher EBITDA. And from there on, based on the stability that we have on interest expense, taxation as of now, pre elections, but also on a capital expenditures, it is just a matter of time to get to the number that you mentioned earlier. So I hope that gives you a good sense in terms of how we're thinking about generating free cash, consistent, sustainability, and there are multiple levers that we are working as of now to ensure that consistency continues.
Great. Thank you, Varun. Justin, the next question is for you. What are some of the pardon me, what are the positive and negative impacts of inflation on our North American business?
So obviously, the negative side would just be the cost inflation that we're seeing on real estate, labor, Rick kind of spoke about them earlier. The benefit is we're the best suited to withstand those cost inflationaries. It could lead to some higher prices in some cases. Typically, when you always raise prices, aftermarket alternative providers can raise prices as well. But I think in many cases, if there's more inflationary pressures, it'll hurt our competition a lot more in us.
Because once again, we have that scale, we've got the infrastructure built in to outlast our competitors on that piece.
Great. Thanks. Thanks, Justin. Let's see. The next question, let's see.
Who we should direct this to. We're trying to mix it up to our folks here. Bill, specialty question for you. This is from Bret Jordan of Jefferies. And it's 30,000 foot question, but it's more of what are the trends from a fulfillment perspective we're seeing with online providers like the Amazons of the world and things of that nature?
I think the trends we're seeing are service is critical, Having the right products in the closest location so that they can fulfill a service level is something that's critical to them. I think they struggled like everyone did during the COVID crisis with service levels, and they're focused on getting back. When it comes to the types of products that we carry, we have excellent capability of getting it to consumer locations through a 3rd party shipper the next day in many cases. So our service levels are terrific. We meet the highest standards of service for all customers.
And I think the trends certainly are that more consumers are buying online, and I think that's going to stick. So those service levels are going to be a focus, and people are finding their sweet spot and allowing the people that do it best to take their positions and participate in the growth that comes with it.
Great. And Bill, since I have you off there, I'll ask another specialty question from Daniel Imbro of Stephens. I know you touched on in your prepared remarks, but some of the RV OEM programs that we've discussed, what do we think it will take to drive further adoption from those who aren't yet partners?
I think the dealers are very focused right now on products and ensuring they have products and spare parts. And the whole industry is very focused on ensuring that the experience that many new people getting into the space are experiencing is a good one. And part of that is having the right spare parts available. So I think the programs are actually going to be in higher demand. And again, the dealers are the biggest advocates for these programs because you can just imagine the difference of being able to get a part on average 18 days away versus next day from us.
So, I believe that there will be more adoption of it from both the RV OEMs and manufacturers.
Great. Thank you, Bill. Bob Reppa, this question, I can direct your way because you covered it in some of your prepared remarks as well as in conjunction with Justin. So to the extent Justin wants to participate in this question, it's from Sam Darkash of Raymond James. Looks like our 1.1% CAGR assumption for the North American collision replacement part market assumes no growth for the 1st 3 years and then above trend growth to get to that 2% to 3% rate?
Yes, Joe, thanks. Part of that is our model is driven by park growth. And so with COVID, the next couple of years, we're going to see a decline in new vehicle sales, we think. So we modeled that in, but we expect that to catch up probably back around 2022, 2023, 2024. Now at the same time, Rick, I think mentioned that there could be a little bit of headwind as well from the increase in the total loss rate.
Again, it's incorporated into the model. But at the same time, what I expect is that over the next couple of years, in particular, with the decreasing part growth that's below trend because of new vehicle sales, that it's going to impact our business less perhaps than others just because the mix and the vehicles that are in their 0 to 3 year old age will kind of propagate through the park here the next couple of years with that lower SAAR. And they're less likely to use APU, but at the same time, we're always looking to drive our share of APU across the board. So we'll be aggressively looking to do that. And I'm sure Justin will agree with that.
Thanks, Bob. This question I'll direct to Nick and it's related to and this question comes from Michael Hoffman of Stifel. Any update on State Farm? And do we have any read through into whether or not impacting aftermarket demand?
Thanks, Joe. And Michael, thanks for bringing up the State Farm question. The reality is the move by State Farm to move forward with extensive use of aftermarket product has been slow. We anticipated it would be slow. They are a very thoughtful organization.
They don't do anything quickly. But what we have seen is there were some pilots going back couple of years ago related to the utilization of aftermarket chrome bumpers. We thought that was a prelude to further expansion in aftermarket parts. It was a very controlled program by them because chrome bumpers was 1 part type on 1 type of vehicle, that being a pickup truck. It was no surprise that when they finally settled their lawsuit, their class action suit, one of the first areas they expanded into, was using aftermarket, plastic bumper covers, which go on passenger cars.
It's the same product set, just a different type of vehicle. And fairly quickly, we saw our sales of plastic bumper covers and the aftermarket plastic bumper covers go up close to 20%, and they're about 18% of the total market. We are seeing some slow growth in other product sets. We anticipate that's going to continue. Nobody should assume that State Farm's utilization of aftermarket parts is going to flip completely overnight.
It's going to be a slow, steady process. And that will allow us ability to service our customers with those parts as State Farm begins to write them on more and more estimates.
Great. Thank you, Nick. And the next question is for Varun and it's a follow-up on your previous comment from Daniel at Stephens and to follow-up on CapEx. I think during COVID, you guys delayed a significant amount of CapEx. How should we think about the catch up?
Will CapEx need to step up in 2021, 2022?
That's a great question, Daniel, and thank you for your insight on that. Just to recap for the broader folks that are listening in on the call. In 2020, our guidance on CapEx was between $250,000,000 $300,000,000 With the COVID pandemic roiling through initially in Europe and then coming across the ocean, we roadmapped as part of our overall cash management and also our operating expenses, we had roadmapped a reduction of $100,000,000 from our CapEx, right? So just to kind of give you the bookends in terms of how much we had essentially deferred. As productivity initiatives have come back, as the recovery in VMT has come back a lot sooner, cash flow has continued to come through very strongly.
We have continued to meter out in terms of where we believe we had some critical capital expenditures to make. For example, the strategic decision to have an advanced logistics distribution center for our Force business across the Benelux, we have continued to plow ahead with that. And then there are a few others that we have certainly given the green light to, seeing the recovery and seeing how our businesses have been recovering. So as you kind of look at 2021 2022, there could be some little pickup, but it's not expected to be massive, okay? And really, when I talk about little, I'm talking of $10,000,000 to $20,000,000 max $25,000,000 uptick, which basically is the deferral from 2020 moving into 2021.
From a deferral perspective, you should note though, and we've called this out previously, is as part of the government's stepping in, there have been some savings on cash taxes. For example, in the United States, the FICA deferral goes through till the end of 'twenty one and the remaining 50% till the end of 'twenty two. That again is in the similar number in the $60,000,000 to $80,000,000 range that we're benefiting from right now, but we will get that piece caught up at the end of 2021 2022 also. The long story short is the various initiatives that we have underway, the way those are progressing, and I do want to call out our European team also. A year ago, we had called out the target of about $200,000,000 of incremental free cash from the European business.
If you go and do the math as to what Janik just said earlier this morning of about $800,000,000 of annualized spend has already been negotiated. And on average, about 100 days uptick is what we're benefiting from. Even if you were to call it, say, 90 days, it's basically a quarter furthermore. So about we are very confident of hitting that $200,000,000 number that we said, but that's only the start. There is more to come.
Okay. So long story short, whether it be CapEx or other elements of it, the business is well positioned. And now that it's part of the DNA and the operating excellence methodology of the business, it is something that doesn't go away overnight. We feel very confident about the future.
Great. Thanks, Varun. Next question, Nick, this is for you and this is from Michael Hoffman at Stifel. And we broadly talked about building out the talent pool and additions to the team as well as touching on Board refresh. And when looking at those two updates, organization that you believe we should think about filling?
Thanks, Michael. And I always talk to my employees when I address them about how important talent is to the organization. At the end of the day, we need to identify, attract, develop and retain great talent. We've made incredible progress over the last 2 years, as noted on that one slide in my presentation. There are no major gaps to be filled at this point in time.
Below the senior levels that I identified, there have also been several additions kind of in the mid level of the organization. Always, we're going to have people who are coming up on retirement. We have a few of those, on the horizon over the next year or so. And we will work through just a normal transition process of succession planning related to those key positions. As it relates to the Board, I feel terrific about the Board that we have today.
Again, we greatly appreciated the time and talent and service of some of our longer dated directors who have who have retired from the Board. We have a whole new host of talent that bring really specific expertise to bear, that was by design. If there was one additional focus from a Board perspective, and that would be on to continue to diversify the board. Again, we've done a good job with respect to women on the board. I think further diversification probably would be the next step.
Great. Thank you, Nick. And this question is, I guess directed both at Justin and Bill, and it comes from Scott Stember of CL King and Associates. Can you give us a little look into some of the supply chain constraints we're seeing in the North American business, specialty and whatnot and its kind of impact on sales?
So I guess I can go first. In terms of our constraints, it's really around the demand being very high for the markets that we serve and unusually high and combined with some of the disruption that's taken place due to COVID and the uncertainty of some labor, some of the supply lines that some of the suppliers do have that may have been disrupted during that time. And then the ongoing uncertainty as people might test positive and the impact that might have on any of their facilities. So I would say our situation is improving, and the demand for the markets that we serve is now better understood. And due to that, production is increasing, and I think the supply chain will sort itself out in the next quarter.
And I hope that we'll be in advance of that in terms of sorting our aspect of it
out. Thanks, Nicole. Luckily, on the North America side, we've had very little impact on supply chain restrictions. So a lot of our products come either directly or indirectly through and from Taiwan, which really didn't have that much of an impact. We've got a smaller subset of our inventory that comes out of China.
So there was a little lag there in some of our products, but it's a very small percentage of our overall products. Today, we're experiencing a little bit of delays on getting containers out of China. But for the most part, our inventory either comes from salvage auto auctions, which we did see a reduction in availability, which, as I mentioned earlier, it's starting to rebound. But then on the aftermarket side, it's primarily coming out of Taiwan. So overall, for North America, supply chain restrictions have a very limited impact.
On the flip side, it's actually helping us from a market share standpoint, we feel, because a lot of our competitors and the OEs, the manufacturing of the OEs are having restrictions, are having difficulty getting the parts in the supply centers into the DCs and out to the dealers. So that's giving us an ability to, we feel, increase APU and increase some of our market share.
Great. Thanks, Justin, and thanks, Bill. Nick, this I'll direct the question your way. It comes from Craig Kennison of Robert W. Baird.
And respecting that we don't give quarterly or intra quarter guidance, especially in a year where guidance has been removed. Do you have any commentary on the trends we're seeing in Q3, respecting that we're 10 weeks into the quarter?
Thanks, Joe, and thanks, Craig, for the question. I think, Justin, Bill and Arnd pretty much addressed kind of where we are in Q3. In Arnd's presentation, you saw that July was down 4% on a year over year basis from a revenue perspective. We would anticipate that that level of performance will probably continue through the full quarter. Justin mentioned being down roughly 12% on a year over year basis in the core North American operations.
Again, we would anticipate that, that will continue to persist for the Q3 and get to a very slow and gradual improvement over the next several quarters to get back to pre COVID levels of revenue. That said, in both Europe and North America, our margin programs, our productivity programs are absolutely in high gear and that should allow even better performance on a year over year basis from an earnings perspective as opposed to just the revenue. And as Bill talked about it and you saw on his slide, he's actually running ahead of 2019 levels in the specialty segment due to the incredibly strong demand as people have shifted their spending habits away from those activities that were kind of crowd focused and whether that be restaurants, whether it be ball games and sporting events, concerts, all that into their core passions and for those including working on their cars and utilizing their RVs. And so we feel pretty good about Q3 from a revenue perspective, and we are very confident in our ability to deliver very strong productivity gains from an earnings perspective.
Great. Thank you, Nick. And this will be our final question. And just to remind people that, obviously, there's a lot of questions unanswered or will be thought about after people walk through the discussion today to reach out to Investor Relations and we'll reply accordingly. So Nick, last question for you and then you can close us out for the day.
This is from Bret Jordan of Jefferies. The question is, how do we weight the margin opportunity between North America and Europe, timing in North America going to come sooner than Europe given less structural changes, ERP, things of that nature?
Thanks, Brett. North America is a little bit further along on its margin journey, starting really in early 2018. And you've noticed the very considerable progress that we've made over the last two and a half years. The focus in Europe really came to come to bear when Arnd moved into his position. And obviously, last September, we announced the 1 LKQ Europe program.
We are going to be making progress on all fronts. All three segments will have the ability to drive margins forward. And the bigger opportunity is in Europe. We've always talked about 300 basis points of margin improvement. Arnd reiterated today his ability to generate that 300 basis points of improvement to get us north of 11% from a European EBITDA margin by early 2022, about 3 to 6 months behind the original target.
We did not anticipate the pandemic getting dropped into the mix there, but we will get to 300 basis points. And so from a size perspective, Justin and his team will be able to generate anywhere from 20 to 30 basis points as he included in his slide of margin improvement year in and year out. The steps in Europe are going to be more significant to get us north of 11% by early 2022. So with that, on behalf of everybody at LKQ, we really want to thank the audience here for your time and attention, for your participation in our Investor Day. We look forward to continuing the conversation with our shareholders, potential shareholders and the analyst community as time goes on.
And we will next be in touch with you when we announce our Q3 results at the end of October. So thank you very much for your time and attention. And
we hope you have a great day.