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Letter to the Editor
This article originally appeared in the July 2000 Issue of INSIGHT
©2000 Collision Repair Industry INSIGHT All Rights Reserved
CARA Collision and Glass Closes Doors
U.S. Representative Ron Klink Pushes Replacement Crash Parts Issue
ASA Hosts Meeting to Resolve Collision Repair Issues
Progressive Insurance Spins Off Netrex Connects
Hartford to Sell Insurance to Sears Customers
NAPA Launches Online Auto Parts Store
State Farm to Return over $1 Billion to North American Auto Insurance Policyholders
NADA Releases Checklist for Salvaged or Damaged Vehicles
Ontario Announces Mandatory Branding
AAA Study Confirms Communication Is the Key to Satisfaction with Auto Repairs
INDUSTRY UPDATE
CARA Collision and Glass, the Minnesota-based consolidator founded by Randy McPherson after he left ABRA Auto Body and Glass (also founded by McPherson), closed its doors on June 9, and filed for Chapter 7 bankruptcy, which calls for immediate liquidation of CARA’s assets at all locations at the time of closing.
Officials at the Marquette Capital Bank, headquartered in Minneapolis, notified CARA management on Thursday, June 8, that they were calling in CARA's notes and seizing their accounts. All operating accounts and assets were seized and all CARA operations were sealed, forcing CARA into Chapter 7 bankruptcy.
With Friday's paychecks unwritten, 250 employees have not been paid for their last pay period of work at CARA. It is believed that some vehicles were released on which repairs had not been started but many vehicles are still on the premises and will be held until a court-appointed trustee makes a determination as to their fate. Insurance companies may have to sort each case out with the bank for the insureds who may be facing far longer delays than they had anticipated in the collision repair process.
The timeline below presents a graphic overview of the rise and fall of the CARA organization. CARA was the fastest growing consolidator in the U.S. during 1998. By December 1998, CARA had opened 24 facilities in 21 months, with locations in Colorado, Indiana, Nevada and Wisconsin as well as in Minnesota.
However, by December 1999 problems arose. The recently acquired Indiana operations were sold, and it appeared that CARA corporate management was experiencing difficulties in attempting to apply a corporate framework to the far-flung CARA empire. Both the bottom line and customer satisfaction levels suffered.
In interviews this week after the filing some of the key players in the drama talked with INSIGHT about some of the factors that they believe contributed to CARA’s collapse. These include:
- Pressure came from the Board of Directors (the key investors) to expand rapidly to buy sales growth, and worry about profitability later.
- Rapid growth slowed or precluded the development and installation of adequate business systems to manage the company.
- Mistakes were made in hiring key people from outside the collision repair industry.
- Out-of-control marketing costs for free car rentals, detailing, etc., and media advertising from billboards to TV to radio were incurred.
- Fluctuations, mainly downward, in collision repair volume in key markets, primarily weather-related, further intensified competition.
- Variable quality of repair and severity jeopardized key DRP relationships and ultimately resulted in the loss of some of them.
- Excessive personal optimism and self-confidence on the part of the founding CEO impacted the company’s credibility.
- A reported lack of flexibility on the part of Marquette Capital Bank in the past few months when positive cash flow was achieved at several CARA locations, perhaps providing the impetus for turnaround, shut the doors.
In INSIGHT’s judgment, the two key factors, however, that primarily led to the bankruptcy are, first, the too-rapid expansion and acquisition of some marginal locations; second, the lack of involvement in management of acquired operations, either because they sold wanting to leave the business or left and/or became invisible because of differing management and operating philosophies from the founding CEO.
A Federal Bankruptcy Court judge in Minneapolis has appointed Michael Iannocone as trustee in the Chapter 7 liquidation of CARA. Many customers' vehicles are still on the premises and will be held until Iannocone makes a determination of their fate. Insurance companies and their insureds are facing potentially long delays in the collision repair process.
It is hoped that the bankruptcy process will be as painless as possible for CARA's employees, customers, insurer business partners and suppliers. Marquette Bank did allow CARA technicians to retrieve their personal tools from the sealed premises until noon on Saturday, and permitted the removal of many vehicles by insurers.
Concern for consumers whose cars are now in limbo has prompted three of the largest collision repair operations in the Minneapolis market, ABRA Auto Body and Glass, Lehman's Garage, and Master Collision Group, to offer their assistance to the trustee in facilitating as prompt a repair and return as possible for CARA's captive customers. In a letter to Twin City consumers and insurers, signed jointly by ABRA, with 33 facilities in the area, Lehman's, and Master Collision, each with 4 local repair shops, help is offered. Perhaps Mr. Iannocone may move swiftly to allow this sensible and sympathetic solution.
Jim Keller, an ASA board member and, until Friday, a CARA vice-president in charge of human resources, has announced that within six weeks he will open with his brother a new shop in Wisconsin. Keller hopes also to reopen shops occupied by CARA in building he himself owns in the next few months as the court and trustee resolve CARA’s bankruptcy.
Should a shop owner still consider selling to a consolidator, given that the purchase arrangement is often a combination of cash and stock? According to Robert Sidman, a former Federal Bankruptcy Court judge and practicing attorney, sellers need to be cautious but can protect themselves, based on personal guarantees of the acquiring company. Designating shop equipment, work in process, inventory and supplies as collateral for any loans included in the purchase agreement further protects the seller. o
U.S. Rep. Ron Klink, D-Pa., has requested that the U.S. General Accounting Office (GAO) review what role the National Highway Transportation Safety Administration (NHTSA) and the Federal Trade Commission (FTC) should play in regulating replacement crash parts.
"We cannot allow insurance companies and their bottom line to win out over consumer protection," said Klink. "I believe that this is an issue that is worth looking into. As a member of the Commerce Committee that has jurisdiction over NHTSA, I intend to work hard to guarantee that use of crash parts does not compromise safety."
Klink, who is ranking member of the Oversight and Investigations Subcommittee of the House Commerce Committee, sent the letter to GAO as an effort to push NHTSA into reviewing the quality and safety of crash parts.
In the letter to GAO, Klink stated, "[NHTSA] is responsible for the safe manufacturing and performance of motor vehicles. While rigorous performance tests are conducted before an automobile can be brought to the market, it would appear that crash body parts are not held to the same standards."
Klink added, "It is my understanding that NHTSA has exercised jurisdiction over certain aftermarket crash parts such as brake hoses and lights. However, NHTSA has not exercised this authority in regards to aftermarket crash body parts, such as fenders and hoods. I am concerned that the government has not adequately investigated this issue."
The parts at issue are those parts typically replaced during the repair of a collision-damaged vehicle including, but not limited to, exterior sheet metal and plastic components such as fenders, hoods, doors, bumper systems and related structural components.
Bob Redding, ASA's Washington, D.C., representative, commented, "For a long time now NHTSA has focused on safety and quality standards of newly manufactured vehicles and all but forgotten about the cars on the road today. It is our hope that Rep. Klink's letter may be a catalyst to focus attention back towards the safety and quality of the cars already on the road."
Representatives of leading information providers and paint companies met in May with members of the Automotive Service Association’s (ASA’s) Collision Division Operations Committee in an attempt to resolve several industry issues. The day’s agenda included a range of concerns collision repair shop owners across the nation face, pertaining to repair procedures relative to the paint companies’ lifetime warranties.
Among issues discussed were the possibility of automating the procedure for clearcoating jambs, edges and undersides, because of the turning off of this function by the end user; extending clear to the edge of a panel; and blending. Representatives of the major paint companies in attendance recommended the following language be added to ADP, Mitchell International and MOTOR procedure pages:
All major refinish paint manufacturers recommend that when performing refinish repairs on an OEM multi-stage or basecoat/clearcoat finish, you must extend the application of clear to the nearest panel edge or breakpoint to qualify for lifetime warranty.
The three information providers agreed to add this language to their reference manuals and procedure pages.
Kevin Caldwell, AAM, director of ASA’s Collision Division, pointed out that “the industry has been confused over the ‘word track’ on blend issues. The blending formulas have been developed for new, undamaged panels. The blending formulas do not apply to repaired panels.”
ADP’s representative, Rick Tuuri, said that ADP’s next release will incorporate language that prevents users of the system from selecting a repaired panel if blending. Jim Powers and Bruce Yungkans of CCC Information Services said their company now has a work order turned in to prevent users of the system from selecting a repaired panel if blending.
Also discussed were the possibilities of automating when detrimming an auto is necessary (door handles, moldings, mirrors, etc.); warranting procedures for application of corrosion protection equivalent to e-coat, not just the priming or sealing operations that may be included in the data base; warranty refinish procedures for window opening or flange areas when glass is removed or replaced; the possibility of ADP, Mitchell and MOTOR providing a formula for additional covering of a vehicle; warranty procedure for paint adhesion to flexible bumpers (both raw and primed) and plastics; and current methodology regarding the period of time that body work stops and paint work starts.
Sharon Merwin, manager of ASA’s Collision Division, commented, “By clarifying proper repair procedures relative to the paint companies’ warranty programs, this coalition of industry experts will clarify misunderstandings and heighten awareness of some of these required refinish procedures.”
The group agreed to meet again in the fall, as a follow-up to identify the progress of implementation with each of the information providers.
Progressive Insurance has spun off its claims services and third party administration into Netrex Connects Technologies & Business Services.
Netrex is really three companies operating under the Netrex Connects umbrella: Netrex Claims Services, Netrex Technologies, and Frontier Adjusters, all providing products for the financial services and auto industries, offering claims services and third party administration and technologies and claims administration software with particular emphasis on Internet applications. According to Michael Williams of Netrex Technologies, "Our commitment to accelerating development in the areas of technologies and business services motivated us to become an independent entity."
Netrex Technologies provides Internet-based software products and programs to the insurance, financial, and automotive industries. Its Claim Management Systems software efficiently manages the process of adjusting property and casualty claims, with ease of use its top priority. Service and assignment requests are entered via the Internet.
The system identifies the closest resource to complete the assignment, then tracks the request, providing status reports throughout the cycle. Field service results, including digital images, expedite the transfer of information back to the central office and to customers.
Netrex continues to expand its role as a leading provider of claims services for companies in the daily rental car market. Milo Bolender, of Netrex Claims, comments, "Our claims specialists are trained to look for opportunities to tender coverage to other carriers when appropriate and to continuously evaluate which claims to settle and which to defend."
The Netrex Subrogation Group focuses on third party liability indemnification collections. Collectors are thoroughly trained in litigation management and capable of analyzing coverage and other legal issues to maximize collections.
Netrex Connects encompasses former Progressive Diversified Business Group companies: DBG Claims, DBG Technologies, Vehicle Inspection Services, and previous acquisitions JW Software and Frontier Adjusters. A staff of over 350 employees work in office headquarters in Cleveland, OH and Melville, NY and remote offices: Sacramento, CA; Memphis, TN; Winter Park, FL; and St. Louis, MO.
Hartford Financial Services Group Inc., the U.S. No. 9 property-casualty insurer has signed an agreement to market home and auto insurance to the 60 million customers of Sears, Roebuck & Co., the U.S. No. 2 retail chain.
Sears is to market the insurance products under its own name, but the policies will be underwritten by Hartford. Sears is to earn a commission on policies sold, but further financial terms of the deal were not disclosed.
The program is to launch in about 40 states on July 1, through direct mail, billing statement inserts and referrals from Sears customer service centers, Hartford said, followed by plans to sell through independent agents and the Internet.
Hartford already has similar arrangements selling insurance to customers of Ford Motor Co. and members of the American Association of Retired Persons (AARP).
Sears offers its own-brand life and health insurance products under a similar arrangement with Allstate Corp., the U.S. No.2 property-casualty insurer it used to own until it spun it off in 1995.
An international team from BASF Aktiengesellschaft and BASF Corporation has worked with American banks and investment advisors, including Morgan Stanley Dean Witter, New York in preparation for the June 7 listing of BASF, with symbol BF, on the New York Stock Exchange. BASF began reconciling its accounts under U.S. GAAP (Generally Accepted Accounting Principles) in 1998, a requirement for the U.S. listing in 2000. BASF is not raising capital nor issuing any new shares as part of its listing of ADRs on the NYSE.
According to the company, the listing will broaden the international nature of BASF’s shareholder base, help finance U.S. initiatives and facilitate U.S. acquisitions, enhance financial dealings with shareholders in the United States through higher U.S. visibility, and allow U.S. employees of BASF to invest in employee stock purchase plans.
BASF has approximately 372,000 shareholders in 146 countries. Non-German shareholders control 37.8 percent of the company’s share capital, with British shareholders holding 16.1 percent and U.S. 8.5 percent. Institutional investors hold 73 percent of the company’s share capital.
Senior executives responsible for BASF Coatings and Plastics businesses briefed foreign and domestic media representatives on BASF’s growing involvement with the global automotive industry at the BASF Automotive Campus in Southfield, MI. as a prelude to the company’s listing June 7 on the New York Stock Exchange.
In addition to the steady growth in its automotive coatings business, BASF expects robust growth in automotive plastics, expecting the production of an all-plastic car by an original equipment manufacturer in the near future.
BASF Corporation ranks among the top producers of chemicals and related products in the United States, Canada and Mexico, with sales of $7.2 billion in 1999. BASF in North America has its regional headquarters in Mount Olive, New Jersey, and is a member of the BASF Group (Ludwigshafen, Germany). BASF in North America employs more than 15,000 people at about 50 locations.
Steve Handschuh, NAPA president, commented, “For consumers, NAPA now combines the best of two worlds. They can use the Web to shop on NAPAonline 24 hours a day, seven days a week and depend on fast delivery, while relying on local NAPA stores for immediate shopping needs, expert advice and product returns.”
With its huge inventory of ready-to-ship aftermarket parts, accessories, tools and equipment, more than 6,000 NAPA Auto Parts stores and nearly 10,000 NAPA AutoCare Centers nationwide, the addition of e-commerce capabilities will, NAPA believes, encourage consumers to “park their cars on the Web,” as NAPAonline builds its offerings to include auto sales, insurance, and other automotive services such as vehicle maintenance records and service scheduling at NAPA AutoCare Centers.
“We’re bringing 75 years of experience to a new generation of customers by combining the ease of online shopping with the convenience of neighborhood NAPA AUTO PARTS stores,” Handschuh said.
o State Farm Mutual policyholders in 49 states, the District of Columbia and three Canadian provinces will receive a total of just over $1 billion in the company’s latest policyholder dividends program, which was approved June 13 by the State Farm Mutual board of directors. Policyholders will receive their dividend by check or a credit to current customers’ accounts over the next renewal cycle beginning in mid-June.
This brings to about $3.3 billion the total amount of dividends State Farm has paid to auto insurance policyholders since 1991. Dividends are a one-time return of premium based on recent financial results. State Farm doesn’t plan for dividends when setting prices, but returns money to customers when financial results are better than anticipated and business conditions permit. Changes in financial results that are believed to indicate long-term trends typically are reflected in rate adjustments.
“While franchised new-vehicle dealers conduct routine inspections, making every effort to ensure that only the best used vehicles are on their lot, that doesn’t necessarily hold true on used car lots and in private transactions,” said Harold B. Wells, NADA Chairman and a new-car dealer from Whiteville, N.C.
Some signs of damage that consumers should be on the lookout for include:
NADA supports state and federal legislation to uniformly brand flood- damaged or “salvaged” vehicles. This would prevent unscrupulous rebuilders from victimizing both dealers and consumers by obtaining “washed” titles for severely damaged vehicles that should have branded titles.
The National Automobile Dealers Association represents more than 19,500 franchised new-car and -truck dealers holding nearly 40,000 separate franchises, domestic and import. o Ontario’s Collision Industry Action Group (CIAG) reports that Transportation Minister David Turnbull has announced that the Ontario government intends to introduce legislation that, if passed, would require insurers and others to report information on severely damaged cars that are written off.
Since July 1998, a voluntary program has been in place to identify those vehicles and change their registration status to show either “salvage,” meaning the vehicle has the potential to be rebuilt, or “irreparable,” in which case the vehicle is “parts only” and never able to be roadworthy.
Over 50,000 motor vehicles that have been reported stolen remain unrecovered in the province, and the rate of auto theft has increased by 79 percent in the last 12 years. Branding of registration documents discourages vehicle registration fraud and theft activities and provides consumers with the information they need about a used vehicle’s history.
Ontario has over 400 collision repair facilities that are licensed to inspect “salvage” branded vehicles once repaired. If the vehicle successfully passes this structural integrity inspection, the vehicle’s registration brand is changed to “rebuilt.” This is a permanent brand and can never be removed.
The collision repair and auto refinish industry in Ontario supports mandatory branding. Shops anticipate that used parts will become more readily available and cheaper. Collision repair shops, that were not fixing many repairable vehicles because of high salvage prices, caused by fraud and theft of Vehicle Identification Numbers (VINs), will probably begin repairing those cars. Many shops have experienced dealing with consumers who have purchased a collision damaged written-off vehicle, some with structural damage, who were unaware of the vehicle’s history.
By removing the incentives for fraud in obscuring a VIN history, the salvage marketplace will now be better able to adjust pricing to a fair market value for damaged vehicles.
“Repair providers in general appear to misunderstand what consumers really want from them,” said Ed Lindsay, approved auto repair manager for the Automobile Club of Southern California, the largest affiliate of AAA. “This means the repair industry needs to listen to the consumer and determine if they are allocating enough resources in areas consumers judge to be important.”
The top three reasons consumers said they chose a repair shop are: quality of work, ability to diagnose problems properly and the knowledge and expertise of service personnel. In general, consumers say their satisfaction level with repair providers is 18 percent below what repair providers believe it to be. AAA members rate their satisfaction with repair providers at 76 percent, while repair providers believe customers are 93 percent satisfied.
AAA’s findings are based on a mail survey to more than 3,850 AAA households and 4,600 repair facilities with a response rate of 16 percent and 32 percent respectively. o Have a comment about this article? Send Email to Editor, INSIGHT's Editor ©2000 Collision Repair Industry INSIGHTFeedback
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