Industry Updates - November 1997

  • FinishMaster to Acquire Thompson PBE
  • PPG Buys European Auto Refinish, U.S. Coatings Pretreatment Firms
  • Farmers Sees Strategic Advantage from Announced Merger with Zurich Insurance-- Merger to Create Third-Largest P&C Group in the U.S.
  • Ford Releases Refinish Paint Approvals
  • CCC Information Services Reports Record Quarterly Revenue and Operating Profits
  • Caliber Collision Centers Expands into Texas; Purchases California Store
  • Mock Appointed ASA Collision Division Director
  • Travelers Exec Talks of Increasing Customer Expectations
  • Cleveland CIC Report

    FinishMaster to Acquire Thompson PBE

    FinishMaster, Inc. and Thompson PBE, Inc. jointly announced October 15 that they have signed a definitive Agreement and Plan of Merger under which FinishMaster will acquire each of the outstanding common shares of Thompson for $8.00 in cash.

    Under the agreement, a wholly-owned subsidiary of FinishMaster will promptly commence a tender offer to acquire all outstanding Thompson shares for $8.00 per share. The transaction price represents a 73 percent premium over Thompson’s stock price on July 8th, 1997, the last trading day before Thompson announced it would explore strategic alternatives to maximize shareholder value. The transaction price is also equal to Thompson’s 52-week high closing price.

    "We are very enthusiastic about the potential this opportunity presents in supporting our long-term commitment to provide value and quality services to the auto refinish industry," commented Andre B. Lacy, chairman and chief executive officer of FinishMaster. "The combined company will be a significant aftermarket distributor of automotive paint and related supplies. We will service over 150 distribution sites and expect pro forma sales of approximately $320 million. From a financial point of view, we believe this is an excellent transaction for our shareholders. It is expected to enhance earnings per share in calendar year 1998 on a pro forma basis and improve our prospects for the future."

    Thomas Young, president and chief operating officer of FinishMaster added, "The acquisition of Thompson will give FinishMaster enhanced national distribution capabilities and permit us to better serve our customers."

    Mort Kline, Chief Executive Officer of Thompson, stated that, "Combining Thompson and FinishMaster is good for Thompson stockholders and employees alike. We are pleased that our business will be in the hands of people who have a long-term perspective and fully understand all of our challenges and opportunities."

    The transaction is expected to be completed late in 1997, subject to customary conditions, including receipt of required regulatory approvals. The transaction is not subject to any financing contingencies.

    There is minimal geographic overlap between the two businesses, which will enable the combined company to serve its customers on a national scope. Both FinishMaster and Thompson are distributors of automotive paints, coatings, and paint-related accessories to the automotive collision repair industry. FinishMaster currently serves customers from sites located throughout the Mid-Atlantic, Southeast, and Midwest regions. Thompson, based in Marina del Rey, California, supplies the automotive collision repair industry with distribution sites throughout Southern California and the Northeast, Southeast, Southwest, and Rocky Mountain regions.

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    PPG Buys European Auto Refinish, U.S. Coatings Pretreatment Firms

    PPG Industries announced October 8 that it is expanding its automotive refinish coatings business and broadening its coatings pretreatment capabilities with two acquisitions.

    Raymond W. LeBoeuf, chief executive officer of PPG announced that the company will acquire Max Meyer Duco S.p.A. of Milan, Italy, a well-regarded European supplier of automotive refinishes, fleet finishes and decorative coatings, from Santavaleria S.p.A. Pending government approvals, he said, the purchase should be completed by year-end.

    LeBoeuf also announced that PPG has completed the purchase of the pretreatment and process lubricants business of Man-Gill Chemical Co. in Euclid, Ohio, a Cleveland suburb.

    According to LeBoeuf, annual sales of the two businesses total about US$150 million.

    "When we announced in August we would buy BASF’s worldwide packaging coatings business, I said more acquisitions were ahead," LeBoeuf said. "Those announced today are consistent with our strategy of pursuing profitable growth with geographic and product-line expansion in businesses with consistently superior financial performance."

    "The purchase of Max Meyer Duco is a significant step in our ongoing European expansion for auto refinishes," he added. "It reinforces PPG’s position as a leading coatings supplier to Europe’s auto industry. With a well-established presence in Italy, France, Germany, Greece, Spain, Switzerland and the United Kingdom, it will expand substantially our auto refinishes and fleet finishes activity in Europe, where PPG is the leading supplier of original equipment automotive coatings."

    Max Meyer Duco, which employs about 600 people, has a plant and laboratories in Milan and another plant in Naples, Italy. As does PPG, it has several refinish training centers in Europe.

    Max Meyer’s U.S. distribution business was part of this transaction. INSIGHT anticipates that for the time being, it will be business as usual for both PPG and Max Meyer here in the U.S. The question remains, though, "Will the Max Meyer product line be used as a tool by PPG against other European competitors in the US market?"

    Products of Man-Gill’s chemicals business, with about 100 employees, are used prior to the application of finish coatings in production of appliances and packaging as well as in metal fabrication operations.

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    Farmers Sees Strategic Advantage from Announced Merger with Zurich Insurance

    The merger agreement announced October 16 between B.A.T Industries’ financial services group, which includes Farmers Group Inc. and Zurich Insurance, with headquarters in Switzerland, to form Zurich Financial Services Group, will create one of the world’s largest property and casualty insurance groups and the third-largest property and casualty group in the United States.

    Farmers, with operations in 30 states, is currently the nation’s fifth-largest property and casualty group. Farmers will be the largest U.S. member of this new insurance and financial asset management group that includes Scudder investments and Kemper and the reinsurance operations of Zurich U.S., among others.

    "We are enthusiastic about this merger and the opportunity it provides Farmers," said Martin D. Feinstein, president and chief executive officer at Farmers. "This will provide Farmers with the opportunity to access an expanded menu of new products and services. This joins us with a truly global organization dedicated to insurance, and one which will enhance our future growth plans."

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    Ford Releases Refinish Paint Approvals

    First mentioned in the July issue of INSIGHT, Ford released their refinish paint approvals in mid-September. Published in the Ford Technical Service Bulletin (TSB) article 97-21-4, the approved paint systems cover testing for both steel and plastic applications. Products from BASF, DuPont, ICI, PPG and Spies-Hecker were included in the approved materials listings.

    Ford recommends that dealers begin using the approved products as early as possible, though no firm deadlines are established. Ford does suggest future mandatory usage requirements. According to the published bulletin, "The products listed in this bulletin may be made mandatory sometime in the future. As a result, dealers that have jobber/paint company contractual agreements should only contract with recommended suppliers (when existing contracts expire)."

    The bulletin also states that suppliers that are not currently listed in the approved products charts may submit systems in the first quarter of 1998 when Ford begins testing Low-VOC paint systems.

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    CCC Information Services Reports Record Quarterly Revenue and Operating Profits

    CCC Information Services Group Inc. announced October 22 record revenue growth and operating profits for its third quarter ended September 30, 1997. Highlights for the quarter include

    In announcing the results, David M. Phillips, chairman and chief executive officer, stated, "Third quarter revenue growth of 24% and year-to-date revenue growth of 20%, combined with two major contract wins confirm CCC’s ability to generate continued growth on a contractual basis. GEICO and TIG Insurance represent forward-thinking clients that share CCC’s focus on claims solutions for the future."

    Third quarter 1997 revenues of $40.5 million were $7.9 million, or 24%, higher than the same quarter last year. The increase in revenues was due to additional workflow/collision estimating software licensing in both the autobody and insurance markets and higher demand for the Company’s valuation services. CCC also experienced continued growth in revenues from network fees and significant revenue gains from its newly implemented digital imaging product.

    As a result of higher revenues, third quarter operating income of $6.5 million was $1.2 million, or 21%, higher than the same quarter last year. Operating margins for the quarter, however, declined from 16.5% in 1996 to 16.1% in 1997. Operating expenses increased in terms of both dollars and percentage of revenue due principally to an increase in commissions, royalties, and license fees driven by the additional workflow/collision estimating seats which carry both a commission and a data royalty.

    In addition to the record operating income, quarterly results also include sharp reductions in interest expense and dividends and accretion on preferred stock, offset by an increase in income taxes due to the accelerated release of income tax valuation allowances taken in 1996. The reduction in interest expense, dividends and accretion on preferred stock, and the extraordinary loss on the early retirement of debt were attributable to the recapitalization which resulted from the Company’s initial public offering of common stock in August 1996.

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    Caliber Collision Centers Expands into Texas; Purchases California Store

    Caliber Collision Centers announced October 13 that it has completed the acquisition of the two PRO-CO Paint & Body stores located in Fort Worth and Colleyville, TX. Formerly owned by Joe Sanders, who also served as the Automotive Service Association’s Collision Division and NACE chairman and Craig Stephens, PRO-CO represents Caliber’s first acquisition in the Dallas/Fort Worth market.

    "We are very pleased to have acquired the leading providers in the Fort Worth and Colleyville markets and at the same time partnered with one of the best management teams in Texas, Joe Sanders and Craig Stephens," commented Matthew Ohrnstein, Caliber’s president and chief executive officer.

    The acquisition of PRO-CO adds two 25,000 square foot facilities, both leaders in their respective markets of Ft. Worth and Colleyville, to the Caliber portfolio. The two centers are each equipped with state-of-the-art systems and repair equipment and each is an I-CAR Gold Class and ASE Blue Seal of Excellence facility.

    Joe Sanders assumes the role of vice president, regional manager, and is responsible for managing the business and development activities in the region.

    Sanders resigned his position as ASA’s Collision Division chairman concurrent with the announcement of his joining Caliber.

    Sanders has served in leadership positions in numerous collision repair associations and insurance advisory groups including past chairman of ASE. He was named Bodyshop Business Executive of the Year in 1995.

    Craig Stephens assumes the role of vice president, regional operations for Caliber’s Dallas/Ft. Worth center conversions and operations. Craig has more than 15 years of hands-on managerial experience in the collision repair industry.

    Prior to joining PRO-CO, Stephens served in senior management positions with Chief Automotive, a division of Dover Corporation, a leading equipment supplier to the collision repair industry.

    Caliber also announced on October 6 that it has acquired Fernandes Paint, Body and Frame of Norco, CA, a 25,000 square foot facility established in 1992. Former owner Joseph Fernandes will assist in the transition and then devote himself to managing his dismantling and towing companies.

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    Mock Appointed ASA Collision Division Director

    The Automotive Service Association (ASA) announced October 13 that Johnny Mock has been appointed Collision Division Director, a vacancy created by the resignation of Joe Sanders.

    Mock was vice president of the ASA Collision Division Operations Committee and affiliate director on the ASA national board until his recent appointment. He owns Johnny Mock’s CARSTAR Auto Body, Inc., Turtle Creek, Pa., and has been an ASA member since 1984. He is a 25-year veteran of the collision repair industry and has also served as an Inter-Industry Conference on Auto Collision Repair (I-CAR) district coordinator.

    Mock is a member of two area vo-tech advisory boards and earned the Accredited Automotive Manager (AAM) designation from the Automotive Management Institute (AMI) in 1994. He is also a member of the CARSTAR national advisory board and the 1996 recipient of the ASA Collision Division Phoenix Award for his commitment and dedication to the collision repair industry. His business is an I-CAR Gold Class shop.

    "ASA is very fortunate to have such an experienced and knowledgeable individual as Johnny to accept this new responsibility," said Bob Anderson, chairman of ASA and the person responsible for Mock’s appointment. "His Collision Division committee involvement makes him well-prepared to continue the projects and direction established by Joe," said Anderson.

    Sanders resigned from his position due to the recent sale of his business to Caliber Collision Centers. (Editor’s Note: See article on page 7 of this issue.)

    "Joe’s new job responsibilities as Vice President, Regional Manager for Caliber do not allow him the opportunity to continue to serve as Collision Division Director and fully represent the interests of the entire collision repair industry," said Anderson.

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    Travelers Exec Talks of Increasing Customer Expectations

    At the CCC Industry Conference, held this year in San Francisco, one of the featured speakers was Jon Madonna, vice chairman of Travelers Property Casualty.

    Madonna primarily spoke to the insurers in the audience about how customer expectations are driving change in the industry. He suggested that they look at themselves as consumers instead of insurance companies.

    "I think you’ll find that you’re a very different consumer today than you were ten years ago," said Madonna. "You’re looking at price. You’re looking at convenience. And that convenience factor is enabled by technology. That is changing everything we do: how we buy, how we shop."

    Madonna used the banking industry as an example of the types of changes going on in the insurance industry. "Consumers are saying they want to buy 24 hours a day, seven days a week. By and large (the consumers) are questioning whether they want to use intermediaries."

    What Madonna was referring to in his last statement is the new competition by insurance companies such as GEICO and Progressive, where customers buy their policies direct, without going through an agent. Insurance is now also being sold through banks, at car dealerships, in booths at warehouse stores, and over the Internet. All these changes are bringing about a consolidation of the insurance industry.

    "It’s a new game with new consumers and new competition," said Madonna. "And the game that all of us are in is fighting for survival."

    Madonna went on to identify some of the things insurers will have to possess to be successful. Among them were financial strength, brand name recognition, strong management, acquisition experience, competitive prices and low costs.

    Madonna also predicted that in the future there will be six to eight major personal lines carriers and that the price of insurance is going to be driven down.

    Travelers itself is planning to be one of the "six to eight" major carriers. The insurer is aggressively pursuing national distribution, and plans to make it possible for potential and present customers to buy insurance or file a claim 24 hours a day, seven days a week. And they are exploring a number of alternative ways of offering that insurance, such as selling property and casualty policies through the workplace, to whole companies, much the same way that medical insurance is provided now. As Madonna put it, "We want to provide insurance to everyone."

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    Cleveland CIC Report

    The October Collision Industry Conference (CIC) in Cleveland, Ohio, featured discussions on digital imaging, parts and estimating guidelines and the re-election of Erick Bickett as chairman for 1998.

    Faster, Better, Less Expensive

    Russell Thrall III, chairman of the Electronic Commerce Committee and Kevin Caldwell, chairman of the Estimating Procedures Committee teamed up to present a special program on digital imaging.

    First up was John Blake, Jr., worldwide marketing director to the insurance industry for Kodak imaging systems. He demonstrated how the digital technology is advancing. For instance, software Kodak currently has in development allows you to save and attach audio reports as well as written notes to the estimate. The image quality is improving and prices are coming down.

    Blake also talked about the advantages of reusable, compact flash cards that are used by the newer cameras. The flash cards will store anywhere between five and 100 images depending on the resolution selected. You remove the flash card from the camera and upload the images to your computer, then reuse the card to capture other images.

    Bickett expressed concern over the transfer speed between the shop and the insurer.

    Blake responded that the communications industry has the capability to provide faster modems, but hasn’t introduced them yet. He added that Kodak is continually working on increasing the compression ratios so the estimates and images will transfer much faster.

    One of the concerns of the insurance industry is security of the image. Blake said that Kodak has been demonstrating to them that there are ways to encrypt the image from the moment it leaves the camera and goes to the computer, thereby preventing alteration of the image.

    Blake was followed by a panel of representatives from ADP, CCC, and Mitchell.

    Commenting on how the use of imaging is growing, Ken Karutz from ADP stated that they had polled 35 of the top 50 insurance companies and 28 revealed they had some sort of imaging project underway.

    Ron Kaplan from Mitchell explained the cost advantages of digital imaging over 35mm film and Polaroids. He also talked about some of the standards that are being developed. One of the standards enables any camera to transmit its images to any PC.

    Parts Handling and Quality

    Lou DiLisio, Chairman of the Parts and Airbags Committee, presented the results of the written and telephone survey taken to determine the fair guidelines for parts quality and handling. Direct Opinions, a CSI provider based in Dublin, Ohio, conducted the telephone portion of the survey. Guidelines based on these responses will be presented at the Dec. 3 CIC meeting in Las Vegas.

    Estimating Guidelines

    Also working on guidelines for the industry - in this case estimating guidelines - is the Write It Right Committee. Chairman Bob Matejzel, PARNET, presented a committee report on their progress. "We’re trying to get a handle on the proper way to do this," said Matejzel. "But people have to remember that ours is just a fact finding committee. We have no enforcement."

    "The crux of the problem is estimating the car the proper way," Matejzel explained. "We all recognize the problems. Today’s consumer has to have an invoice that matches the repairs done to the car and the repairs have to match the estimate. We feel these (guidelines) can help the process."

    It would not be appropriate to publish the suggested guidelines because at this time they are incomplete and still in draft form. But we can report that the ones presented by Matejzel covered the steps the adjuster needs to take, agreements between the shop and the adjuster, and the steps the shop needs to take during the repair process if there are changes to the estimate. He also identified administrative issues between the insurance company and the shop such as practices and procedures that inhibit the expediting of the billing or payment, and other functions that increase delays and expenses.

    Another item discussed was writing real times on the estimate. Chuck Sulkala responded saying that if you’re going to charge real times, then you have to charge real rates. Matejzel reminded the audience that what a shop charges is their choice and the committee can’t determine that for anyone. "It’s impossible for us to come up with a recommendation (regarding labor rates) that will fit everyone," Matejzel stated. "And even if we could, if people don’t do what they say they’re going to do when they leave these meetings then it’s all for naught. There is a way, there has to be a way, but we first have to create that avenue to get to there."

    The committee will be bringing more of these guidelines to the December 3 meeting in Las Vegas, just prior to NACE. They are hoping to complete them at the Gold Pin Planning meeting in January and then be able to publish the guidelines early in 1998.

    Other Presentations

    * Regulatory Committee Co-chairman Randy Stabler, Pride Collision, announced the committee is going to be addressing the issues of PPO legislation, attempt to identify the impact on the collision repair industry, and report on the expansion of these programs around the country. At the Las Vegas meeting, a representative from the NAII will give a presentation on the "Evolution of PPOs in Auto Physical Damage".

    * Roger Cadaret, executive director of the Collision Industry Electronic Commerce Association ran a video on the work the Automotive Industry Action Group (AIAG) is doing. The AIAG was formed back in 1981 by Ford, Chrysler and GM to address the development of electronic commerce and quality standards.

    In 1996, the three manufacturers released a letter announcing a common set of EDI (electronic data interface) standards extending down to their third tier suppliers. For two years they have worked with 13 of their suppliers using these standards and have significantly reduced manufacturing assembly cycle times and increased productivity. This pilot program demonstrated that implementing EDI standards made sense for companies and supply chains.

    * Anti Fraud Committee Chairman Bob Smith presented the first draft of the consumer anti-fraud brochure, as well as a first draft of a CIC position statement on the subject of fighting fraud. Second drafts of both will be presented at the Las Vegas CIC meeting.

    * Roger Wright, Integon Insurance, presented the second draft of the Recommended Guidelines for Defining a "Class A" Auto Physical Damage Insurance Operation. There were only minor changes and so the final version will be available at the Las Vegas meeting.

    When it came time to review the second draft of the Recommended Criteria for Professional Independent Appraiser, which was presented by Bob Smith of Storm Appraisal, considerable time was spent in discussing the matter of making sure the customer has full disclosure of the parts that are being used. Since it is often the insurance company that dictates what types of parts to use in the repair, Art Dahm from Southeast Toyota suggested that shops would like the adjusters to take on the role of explaining the situation to the consumer and having them initial the estimate that they understand and approve.

    * Dusty Womble, B & B Body & Paint, asked if there were any OEM reps in the room who could state what percentage of the model years 1994 to 1998 use base coat/clear coat. When no one spoke up, Womble reported he had done some of his own research and in his opinion, the majority of late model vehicles have base coat/clear coat. He inquired why, if this is the case, the estimators are required to "switch on" the base coat/clear coat option on the estimating systems. He wondered why it could not be the other way around and have the option be the single stage. "I believe an option should be for the exception and not the normal occurrence," said Womble. Both Mitchell and ADP indicated they were moving in that direction.

    Rick Tuuri, ADP, added that while the majority of late models cars are clear coated, 80 percent of the estimate population still goes back to 1987. Womble requested that by NACE, the electronic estimating companies provide a statement as to what their plans are with regards to making single stage an option instead of base coat/clear coat.

    The next meeting will be December 3 at the MGM Grand Hotel in Las Vegas, just prior to NACE. For more information on the CIC, contact administrator Jeff Hendler at 509-547-3810 or visit the CIC website at

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