January 1998 INSIGHT Feature:

State of the Industry

Wide seasonal variations in business levels coupled with repair facility consolidation produce major impacts in 1997...

The year just ended was a mixed bag for most collision repair facilities across the U.S. and Canada. Business levels fluctuated dramatically throughout the year- starting down in the first quarter then roaring back in the second and third. Collision repair facility consolidation, coupled with consolidation in the OE vehicle dealer body, began to gather steam in 1997, grabbing headlines and causing concern for repairers seeking to grow their business.

Market Size

In the first quarter of 1997, insurance claims volume was down approximately nine percent versus the first quarter of 1996. In large part this decrease was due to the absence of winter storms that were prevalent in 1996. But, business levels have shown robust growth rates in the second and third quarter of this year that should more than offset the declines in the first quarter.

Though final insurance industry statistics are not available, Trendline Survey results show increases throughout the second half of the year. Overall, INSIGHT estimates that business levels will show a fair increase in 1997 over the previous year. This is due in large part to an expected increase in fourth quarter claims that will accompany the storms that affected much of the west coast in December, coupled with a number of northeast U.S. storms. INSIGHT’s current estimate for the total collision repair market in 1997 totals $24.3 billion for the U.S. This represents an increase of approximately 3.8 percent over the level of 1996. It is important to also note that this will also take the industry above the 1994 peak level of $23.9 billion, the last year of the major auto manufacturer paint delamination warranty programs. (Editor’s Note: See the chart below.)

Shop Population

The number of facilities performing collision repairs in the U.S. continues the decline that began after 1992. The Historic Shop Population chart on page 13 shows the number of collision repair facilities derived from Yellow Page data from 1984 through 1996. The peak years, at 71,000 reported shops, occurred in 1991 and 1992. Through the end of 1996, the last year that comparable numbers are available, the number of repairers has declined over 13 percent to 61,500. Please note that the Yellow Page numbers should be used only as a comparison to show the relative increase and decline in the shop population as a whole- the number of "real" businesses is significantly lower. The 1997 Shop Population chart on page 13 details INSIGHT’s current research on the "true" number of collision repair businesses in the U.S. by the size of their sales dollars. As the chart illustrates, the vast majority of businesses fall under $600,000 in sales per year. The total number of repair facilities for 1997 is 49,150 businesses in the U.S.

1998 Game Plan

In preparation for the coming year, INSIGHT presents our traditional Game Plan for the new year, highlighting important trends and action items for shops to consider during the next 12 months.

Prepare a Plan for Growth

Consolidation’s effect is being felt in the collision repair industry. Long predicted, signs of a decline in the number of collision repair facilities are beginning to show in data collected by INSIGHT over the past two years. (Editor’s Note: See chart at right.)

Traditionally, shop populations have increased during times of increased business. This was not the case in 1997 or in 1996. Professionally managed facilities are achieving growth rates above the rate of increase in the overall collision repair market by attracting work that would have gone to their competitors. Prepare a plan focusing on both the sales and marketing requirements to secure work from competitors and also the requirements of the production facility to meet turn-around goals and maintenance of customer satisfaction.

The following list includes key issues that should be considered in the creation of the 1997 Game Plan:

Front Office

In-Depth Market Analysis-

To prepare your facility to compete against potential consolidators, or existing repair businesses in your local market, an in-depth analysis of the market should be performed. This analysis should include estimates of the dollar size of your trading area, an analysis of competitors and details on current and potential referral sources.

CSI Tracking-

Customer satisfaction is of primary importance. If you do not currently track customer satisfaction, this is a primary item to begin in the new year.

Financial Analysis and Benchmarking-

Understanding a shop’s operating and financial performance is a key factor in preparing the growth game plan. Where are we now? and What is achievable? are the two key questions answered through financial analysis and benchmarking exercises.

Electronic Data Interchange (EDI)-

Being able to prepare a computerized estimate is only one portion of the computerization taking place in collision repair shops across the US. EDI is becoming a large part of many collision repair facilities’ business. This trend increased dramatically through 1997 and will continue to do so in the new year as insurers take advantage of new product offerings from ADP, CCC, and Mitchell that allow improved claims assignment, estimate, repair order and electronic funds transfer transactions between shop and insurer.

Build Non-Traditional Referral Base-

The importance of referrals from insurers, as a part of a DRP relationship, or direct from agents and claims staff is of obvious importance. Many repair facilities still miss the boat on non-traditional business sources of referrals. These can include towing companies, tire and wheel alignment shops, mechanical repair facilities and OE dealer relationships. Look towards your facility’s supplier base first for potential referral sources.

Prepare to Compete or Concede-

Put simply, now is the time to make a decision about the long-term future of your business. How will you handle the possible entrance of a consolidator in your market? There are two basic options, concede defeat and sell your facility, or prepare your business for the increased level of competition for the collision repair claims dollar that is the inevitable result of consolidation. INSIGHT research indicates that the majority of our subscribers feel comfortable with their ability to compete against new entrants, or their current competitors who may sell to a consolidator. However, closer attention must be paid to protecting current referral business and finding new sources before the competition arrives in force. Increasing your business now will prepare you for either route you decide to take by either making your business more attractive to a consolidator, or make the prospect of competing against you less attractive.

Production Floor

Production Management-

We pushed production management last year, and continue to suggest sound production management techniques to achieve maximum productivity.

Analyze Employee Training Base-

Increased pressure to control the rise of collision repair claims cost will place higher importance on technician and management productivity. To determine training needs INSIGHT suggests that repairers first analyze productivity statistics by employee. Low performing technicians are primary candidates for increased training.

Also, I-CAR Gold Class status is the baseline for participation in many insurance company referral programs and will continue in this role for the foreseeable future.

Conclusion

Though competition will increase in 1998, acting on this year’s Game Plan will assure your business a prosperous new year.

Reprinted from the January 1998 Issue of Collision Repair Industry INSIGHT.

© 1998 Collision Repair Industry INSIGHT. All Rights Reserved