Your Source for Up-To-Date News and Research on the Collision Repair Industry 

 

click here to subscribe to the FREE INSIGHT Editor's Desk News Alert Email

SUBSCRIBERS-ONLY
Today's News
INSIGHT This Month
INSIGHT Archives
Survey Center
Letter to the Editor

Business Tools
Subscription Information
CSI Reporting
Financial Analysis
IRS Audit Guide

Management/
Technical Info
Market Watch Rates
INSIGHT Inside this month's issue...

Feedback
Letter to the Editor

Consolidation Update

Growth is just one of the key issues facing auto body repair shop consolidators - and the independent shops competing with them

Two years ago, Caliber Collision Centers' CEO Matthew Ohrnstein told INSIGHT that many in the collision repair industry seemed to have an incorrect assumption about the speed with which consolidation of the industry would take place.

"Three or four years ago when we started, back in 1997, I think there was this expectation in this industry that consolidation would be this huge wave that would take over the industry," Ohrnstein said in November of 2000. "But look at other industries. It can take 20, 30 or 40 years to consolidate just 30 percent of an industry."

Ohrnstein's words may have provided some comfort to independent shops convinced the torrential pace of consolidator acquisitions in the late 1990s was set to continue. And he certainly set the tone for two years that have followed, in which consolidators for the most part have appeared to focus much more on integration and implementation than dramatic growth.

New hires over new shops

The announcements made by consolidators this year have been as likely to discuss new hires than new shop locations.

The Minneapolis-based ABRA Auto Body & Glass in 2002, for example, added a VP of information technology and a VP of training and education, and moved other execs into national positions overseeing integration and industry relations for the company. But it added only four shop locations - including greenfields in Sandy, Utah, and Conyers, Georgia - bringing its total shop count to 72 (54 corporate owned and 18 franchises) in 10 states, not a dramatic increase from the 69 ABRA stores listed in INSIGHT's December 1999 issue.

Similarly, M2 Collision Centers this year brought on a new chief financial officer and appointed a new VP of operations for its nine Northern California stores, but an-nounced only one acquisition during 2002. The company now operates 30 California locations, up just three from late 1999.

The trio of shop owners whose merged operations now make up True2Form have added just four locations in the past three years (they operate 33 stores), and even Sterling Collision Centers, despite its acquisition by Allstate and much talked-about growth plans, has only nine more locations currently operating than it did in late 1999 (though it has greenfields underway in a number of states.)

The Canada-based Boyd Group has added two dozen company-owned locations over the past three years, but none during 2002.

In terms of actual growth in number of locations, Caliber is the leader in recent years, checking in at 67 locations in California and Texas, more than double what it had in late 1999, including about a half dozen acquisitions in 2002. That growth has helped Caliber land on Inc. magazine's list of the top 500 fastest growing private companies not once but twice. It slipped this year from 9th place on the Inc. list to 126th, but still showed more than 1,500 percent revenue growth from 1997 to 2001 (when it had annual sales of $175 million).

Quasi-consolidators grow

Meanwhile, a number of companies that are often lumped in with consolidators because of their multi-locations posted some impressive growth in 2002.

Sonic Automotive, which continued in 2002 to gobble up auto dealerships, added more than a dozen dealership collision repair shops under its ownership, bringing its total to more than 40 such shops in Alabama, California, Colorado, Florida, Georgia, Maryland, Michigan, Nevada, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas and Virginia.

Similarly, AutoNation is estimated to operate about 100 dealership collision repair shops among the 381 new vehicle franchises its owns in 17 states.

About two years ago, CARSTAR announced an ambitious 5-year growth plan calling for the addition of 200 company-owned locations. One year ago, it received a "substantial" capital investment from Harbert Management Corporation, an Alabama-based asset management firm. Although the dollar amount was not disclosed, it was "the largest in CARSTAR's history," and was to be used to "fund [their] plans to expand [their] network, acquire additional company owned stores, and develop and implement strategic technology solutions."

Indeed, CARSTAR did ac-quire two more company-owned stores in 2002, bringing its total to 18 (up from 11 as of three years ago). But the majority of its growth continues to be in the form of franchises, now numbering just shy of 300 (184 in the U.S., 108 in Canada), about 50 more than three years ago.

Fix Auto had perhaps the biggest jump in size of all in 2002. More similar to a franchiser than a consolidator, the Fix network now has more than 100 U.S. locations, a huge increase from its 15 shops three years ago, and triple the number it had as recently as just 18 months ago.

Growth just one issue

But aside from growth issues, players in the consolidation effort faced some interesting challenges in 2002 that will likely impact them moving forward.

Ford's decision to jettison the 33-shop Collision Team of America did not come as a big surprise to many, who have watched the struggling auto-maker sell off other related businesses to refocus on its core competency. That the ultimate buyer turned out to the very shop owners who created (or sold their businesses to) CTA was a bit more of a shocker. ABRA and Caliber had reportedly been within days of closing a deal that would give them control of the majority of CTA's shops.

But Dan Hall in Indiana, Paul Tatman in Illinois, Mark Fuller and Wayne Baker in Texas, and the other former owners of CTA shops had a lot to lose if CTA was dissolved and sold off piecemeal. So thanks to a deal Hall managed to put together in just over two weeks, the former owners found themselves once again in the collision repair industry.

Following the bankruptcy of CARA Collision and Glass in 2000, and Allstate's purchase of Sterling in 2001, the CTA saga marked the third year in a row that reverberations from significant changes among consolidators were felt far beyond the markets in which consolidation is occurring.

"It's going to make a lot of people think a lot more carefully before selling to a consolidator, and to really look at the details of the agreement rather than just focusing on the short-term," one of those involved in the recent CTA transaction said.

Also this year, Caliber found itself caught in the midst of the California Bureau of Automotive Repair's on-going fight against fraud. The state regulator shut down Caliber's Costa Mesa, Calif. location for five business days for violations of the state's auto repair regulations. Although a few of the violations included some parts that were allegedly charged for but not installed, most revolved around careless paperwork: failure to record the name of a person authorizing additional repairs by phone; not clearly indicating if a part was new, used, OEM or non-OEM; and in one case, not getting signed authorization for repairs from the vehicle owner.

Caliber admitted to the violations but said the problems were caused by human error and simple oversights, not intentional fraud. It paid $8,000 in cost-recovery to the Bureau of Automotive Repair, and, according to Caliber's chief operating officer Bill Lawrence, spent $200,000 to modify its internal systems to prevent such procedural errors.

Lawrence pointed out - probably quite correctly - that many shops would have difficulty undergoing such scrutiny without some similar errors being found. But the situation also points to the difficulty - and expense - consolidators face in creating and successfully implementing company-wide systems to ensure consistent quality and compliance.

The third challenge consolidators faced in 2002 revolved around insurer investment in collision repair companies.

Those opposed to Allstate-owned Sterling entering their markets won initial victories in a Chicago suburb and the California legislature - only to see the final votes go in Allstate/Sterling's favor. (The Interinsurance Exchange of the Automobile Club of Southern California also has nearly $30 million invested in Caliber Collision Centers, but dropped its opposition to proposed legislation that would have prohibited insurer investment in shops in that state when the bill was changed to allow an 8-year divestment period.)

To what degree insurer investment in shop consolidators becomes a public or legislative issue in jurisdictions around the country remains a key question for 2003.

"If we aren't able to communicate the problem and the conflict of interest this situation creates, and how it will hurt consumers, soon - in this next year - these guys are going to have gained too strong a foothold to turn back," a California shop owner involved with the failed legislation in that state said.

Trends to watch in 2003

Looking ahead to the coming year, INSIGHT sees several key trends, questions or issues - in addition to those mentioned above - to watch for regarding consolidation.

First, virtually all of the consolidators are at least publicly predicting continued - or a return to - growth in the coming year. Most say this will be through greenfields or acquisition, not just increases in same-store sales. But this return to faster growth was also predicted in each of the last three years, with few if any of the consolidators showing strong growth in all of those years.

Second, some of the most interesting markets to watch are those - primarily in California and Texas - in which two, three or even four major competitors are duking it out for the 10 to 20 percent of market share each of them wants.

Third, will the various "networks" springing up give independents greater ability to compete with consolidators, or further limit shop acquisition targets for consolidators?

Stay tuned...   o

Feedback

Have a comment about this article? Send Email to Charles Baker, INSIGHT's Publisher

©2002 Collision Repair Industry INSIGHT
All Rights Reserved

FEATURED
LINKS:

INSIGHT Supports the NABC!
Do You?