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Letter to the Editor

The State of the Industry

An industry finds itself at a crossroads...

Looking back on the 1990s, collision repairers will see in themselves an industry dramatically changed from that at the start of the decade. In 1990, direct repair was only beginning its rapid growth as a means of claims handling. Collision repair facility consolidation was not even on the industry’s radar screen in 1990.

Major issues in 1990 centered around preferred provider insurance policies, fairness of direct repair programs, non-OE parts usage and hints of collision repair facility licensing in some states.

The collision repair industry’s song remains essentially the same- a good portion of it anyway. DRP, PPO, and non-OE parts are issues as large in 2000 as they were in 1990. Only repair facility licensing has taken a step back.

The Year in Review

The largest bit of news in 1999 centered on non-OE parts and State Farm’s $1.2 billion loss in a class-action lawsuit over plaintiffs’ contention that non-OE replacement parts did not fit the State Farm policy definition of like kind and quality. Most other major insurers also found themselves subject to non-OE parts class-action lawsuits. And, following their success in the State Farm lawsuit, plaintiffs’ attorneys filed a suit alleging a conspiracy to commit fraud by insurers that have participated on the Certified Automotive Parts Association’s board of directors.

In 1999, collision repair facility consolidation continued at a brisk pace. ABRA, Caliber and Collision Team of America maintained aggressive acquisition and greenfield growth programs.

This fact, coupled with an increase in the market for collision repairs attributable to a slight rise in claims frequency coupled with rising repair costs, has created a higher level of competition in many metropolitan markets throughout the U.S.- a trend that will continue for the foreseeable future.

The materials and equipment suppliers to the industry also experienced dramatic changes during 1999. On the paint supplier side, in March DuPont closed its previously announced acquisition of the Germany-based Herberts, parent of both Standox and Spies-Hecker refinish brands. Later in the spring, PPG announced the acquisition of UK-based ICI’s Autocolor brand. Though Standox, Spies-Hecker and ICI Autocolor have not ceased to exist as brands, the number of major paint companies competing for shop paint business in the U.S. has declined from nine to six during the year.

What do these dramatic changes mean to the typical INSIGHT shop subscriber? Certainly, competition will continue to increase. Why?

First, the market for collision repairs is growing only very slightly, at rates only slightly above inflation.

Though final insurance statistics are not available, INSIGHT’s current estimate of the size of the collision repair market for 1999 in the U.S. totals $25.6 billion, an increase of roughly 3.2 percent over 1998. A slight rise in severity, coupled with an increase in the claims frequency rate is expected to drive this increase for 1999.

Also, shop populations have shown declines as larger shops continue to grow at rates above the growth in the overall market.

Taken together, these facts will force collision repairers that wish to increase their business to grow at the expense of their competition. Whether through acquisition or increased marketing and relationship building, you or your competition must change to meet these facts head-on.

2000 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 twelve months. Not much has changed since last year’s plan. Shops that followed last year’s Game Plan will find they can enter a fine tuning mode for the coming year, seeking opportunities to better translate the strategies they developed for 1999 into actions for 2000.

Repairers should prepare a plan for growth as they enter the new year. Consolidation’s effect took hold in many metropolitan markets across the U.S. and Canada. 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 three years.

Prepare a plan focusing on both the sales and marketing requirements to secure work from competitors and also focus on 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 2000 Game Plan:

Front Office

Prepare or Update an 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.

Build a 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-

We stated it in each of the last two years and say it again: 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 against their current competitors who may sell to a consolidator.

However, increasing your business now will prepare you for whatever route you decide to take by either making your business more attractive to a consolidator, or by making the prospect of competing against you less attractive.

Production Floor

Production Management-

We continue to suggest sound production management techniques to achieve maximum productivity.

Implement Industrialized Production Methods-

Where possible and practical, the use of new production techniques geared towards the high-volume repair center should be investigated. As repair centers gain in size, the ability to predict and control the flow of work through each facility becomes more practical.

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.

Conclusion

Increased competition is an established fact for many collision repairers. Proper planning and attention to critical business processes such as marketing, information flow, production management, and customer follow-up are your best keys to success in the coming year.

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