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Letter to the Editor
This article originally appeared in the January 2009 Issue of INSIGHT
©2009 Collision Repair Industry INSIGHT All Rights Reserved
Solera Holdings Acquires HPI Ltd in UK
DuPont Makes Leadership Adjustments
DCR Systems and Summit Software Enter Exclusive Business and Development Relationship
Bill O’Brien Joins SCA Appraisal Company as Northeast Regional Director
PPG Provides Update on 4Q 2008 Financial Results
DEG Surpasses One Thousand Inquiries
Accident Scene Advanced Training Held in Arizona
CarMax Reports 23% Sales Decrease in 3Q
Progressive Confirms No Annual Dividend Will Be Paid for 2008
Database Task Force States: CCC Has Abandoned Commitment to Collision Repair Industry
INDUSTRY UPDATE
Solera Holdings, Inc., a leading global provider of software and services to the automobile insurance claims processing industry, has completed the acquisition of HPI Ltd., the leading UK provider of used vehicle validation services, from Aviva plc, the largest insurance provider in the UK.
Audatex, a Solera company, and Aviva have been strategic international partners for more than a decade. As one of Aviva's claims management technology partners, Solera provides an innovative suite of services that help customers improve performance within the auto and property claims environments. Solera believes its acquisition of HPI will enhance that capability significantly.
The total consideration paid for HPI at closing was approximately $117.4 million (78.3 million pounds Sterling), which consisted of approximately $100.5 million (67.0 million pounds) in cash and a subordinated note in the amount of approximately $16.9 million (11.3 million pounds).
"The acquisition of HPI is consistent with our strategy of investing in companies that are both aligned with and extend our core automotive claims and data services offering. The HPI suite of products and services will enhance our delivery of decision support data and software applications to our insurer, car manufacturer, auto dealer, and finance company customers. The acquisition will help us meet some of the increased demand from our clients for access to integrated historical information on specific vehicles and specific clients with which they are about to transact. Additionally, we will begin exploring the extension of the HPI model both regionally and internationally within the Solera portfolio. We are excited to have completed this transaction, and we very much look forward to focusing on building additional stockholder value through leveraging the assets of Solera and HPI for the benefit of our clients," said Tony Aquila, Solera's Chairman and Chief Executive Officer.
Although the company does not plan to update its previously issued financial outlook for Fiscal Year 2009 until the second fiscal quarter 2009 earnings release and conference call currently anticipated for the first week of February, 2009, its preliminary estimate is that the acquisition of HPI will add approximately $21.0 million (14.0 million pounds) to Fiscal Year 2009 revenues and approximately $9.0 million (6.0 million pounds) to Fiscal Year 2009 Adjusted EBITDA.
Solera is active in over 50 countries across six continents. The Solera companies include Audatex in the United States, Canada, and in more than 45 additional countries;, Informex in Belgium; Sidexa in France; ABZ in The Netherlands; Hollander serving the North American recycling market; and IMS providing medical review services.
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DuPont President and newly appointed CEO Ellen J. Kullman has announced leadership adjustments. In addition to her responsibilities as CEO, Kullman will be directly responsible for the Agriculture and Safety & Protection business segments. Her former executive vice president position will not be filled.
Richard R. Goodmanson, executive vice president and chief operating officer, will continue to be responsible for leading and accelerating the company's cost and working capital productivity programs. He will assume responsibility for the Coatings & Color Technologies and Performance Materials business segments, in addition to retaining responsibilities for Operations & Engineering, Sourcing & Logistics and Information Technology functions.
Thomas M. Connelly, Jr., executive vice president, will be responsible for strengthening DuPont's market-driven science capabilities to the global marketplace, focusing on emerging markets. Connelly, who held several leadership roles in Asia and Europe, will assume responsibility for Marketing & Sales, geographic regions outside of the United States, and the Electronic & Communication Technologies business segment. He will retain responsibilities for Central Research & Development and Applied BioSciences.
Other leaders' roles will remain unchanged, Kullman said.
"The leadership team has worked together for more than two years, with strong cohesiveness and teamwork," Kullman said. "DuPont has taken a number of aggressive steps, including actions announced earlier this month, in response to current economic challenges. The company is executing the plan with clear leadership focus and accountability. I am confident DuPont will emerge as a stronger market-driven science company."
Summit Software Solutions, Inc. and DCR Systems have entered into a long-term agreement where DCR Systems will utilize Summit Software’s shop and network management technologies in all existing and future DCR and DCR licensee locations. As part of this agreement, Summit Software will develop proprietary software and technology solutions for DCR’s patent-pending collision repair operating model.
Frank Terlep, president of Summit, commented, “Being selected as the exclusive shop and repair network management software provider by the DCR Systems management team validates our belief in how important the ‘right’ technologies are to implementing a successful lean operating model.”
Michael Giarrizzo, Jr., president and CEO of DCR Systems, added, “Summit’s commitment to a lean operating model, combined with their leading edge technologies, supports our unique operating model at the shop level, provides us with a platform to grow internationally, and offers us the opportunity to continually improve our business processes through the development of proprietary applications and technologies.”
DCR Systems offers Toyota dealers both turnkey collision repair outsourcing as well as collision repair licensing opportunities. DCR’s patent-pending, lean-based production process drives predictable, dependable repair quality and aims to deliver high-level customer satisfaction and greater owner retention.
Summit Software Solutions, Inc. is a business-to-business information technology provi-der that delivers information and communication management solutions to auto and truck collision repair businesses and repair networks.
SCA Appraisal Company has appointed Bill O’Brien as Northeast Regional Director of Client Services. With ten years of Property and Casualty claims industry experience with CCC Information Services Inc., O’Brien has in-depth insurance and collision repairer history.
O’Brien’s experience at CCC included senior management of Client Services, Internal Sales and National Account Management for the company’s Autobody and Insurance Division; Client Services Management for the Dealer Services Division; as well as training and territory management for CCC’s Client Services Division. O'Brien’s achievements at CCC include being awarded President’s Club, Autobody National Account Manager of the Year, and recognition as one of the top Insurance Trainers.
O’Brien commented, “I am honored to have been recruited by the SCA management. In my many years in this industry, SCA has always had the predominant national position in the IA claims industry. Their continued client-focused commitment to enhance their offering through their utilization of technology, partnerships, staff, process, and best in class service is a continued testament to the Davis family strategy of always being at the forefront in the industry.”
"We're excited to have Bill O'Brien join our team here at SCA. Bill brings a complex knowledge of the claims process along with successful history of providing strategic and innovative solutions," stated Bill Chval, Senior Vice President of Client Services.
Founded in 1979, SCA is an independent, privately owned auto material damage ap-praisal firm that currently services 46 U.S. states and Puerto Rico.
PPG Industries, Inc. has announced that its fourth quarter 2008 earnings per share will likely be in the range of $0.35 to $0.45. The lower level of expected earnings reflects the accelerating rate of decline in the global economy that has emerged in the fourth quarter 2008.
“Market softness seen initially in the U.S. industrial markets is now prevalent on a global basis. Our businesses that serve these industrial end-markets are experiencing significant volume deterioration, as our customers react to lower consumer demand and tight credit markets by curtailing their production and reducing their inventory levels,” said William H. Hernandez, senior vice president, finance, and chief financial officer. “As a result, in addition to the restructuring actions announced in September of this year, we have taken additional cost-reduction measures during the quarter, including lowering our operating rates and furloughing workers. We will continue to monitor economic activity levels as we enter the first quarter 2009 to determine what further cost-cutting actions may be warranted.”
Hernandez said volumes were weakest in the company’s Industrial Coatings segment, which includes the automotive original-equipment manufacturer (OEM) coatings and industrial coatings businesses, and in the company’s Glass segment. As a result, the Industrial Coatings and Glass segments are expected to report losses in the fourth quarter. Commenting further, he said that he expects the Commodity Chemicals, Performance Coatings and Architectural Coatings EMEA segments to perform solidly and that the company’s optical products business continues to show growing volumes.
According to Hernandez, the company’s fourth quarter 2008 results, expected in mid-January, also will reflect the benefits the company is now beginning to realize from falling raw material and energy costs.
“PPG has redoubled its focus on cash in the fourth quarter, seasonally a stronger cash-flow quarter, as we are managing our working capital and capital spending aggressively,” said Hernandez. “Currently, we have approximately $800 million cash on hand, up about $300 million from September 30, and our commercial paper borrowings total just over $200 million.”
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The Database Enhancement Gateway (DEG) has processed over 1,000 inquiries. This tremendous milestone for the highly successful breakout initiative comes before the close of its first full year of operation.
Darrell Amberson, a member of the DEG Joint Operating Committee (JOC), commented, “The three national trade associations joined together for this initiative to offer a service to the industry that we believed would improve the communication process as it related to collision estimating data. With no other similar initiative in place it made it difficult in the beginning for us to effectively project how successful the endeavor would be, and if, and how quickly, it would establish itself within the industry to accomplish its goal. Clearly at the end of the first year, we are elated that we have achieved this level of use and even more so with the impact this initiative has had on the industry.”
Nick Kostakis, fellow DEG JOC member added, “The DEG relies upon several things for it to effectively work. We want to recognize that without the industry utilizing the DEG for their questions and communications with the Information Providers the success of this initiative would not be possible. Similarly, without the support, cooperation, and dedicated efforts of Audatex, CCC/ MOTOR, and Mitchell we would be left with a whole lot of unanswered questions. Thank you to all that have been involved in the process for helping us realize the success that we have had in this first year. We look forward to continued growth and impact next year.”
The formation of the DEG has been often credited as a logical extension to the success of volunteer efforts led by the late March Taylor prior to the DEG’s creation. March inspired many initiatives because of his unrelenting belief that a single individual could in fact make a difference.
In recognition of the spirit in which the foundation of the DEG was established, the Joint Operating Committee has recognized two individuals within the industry who have exemplified good industry stewardship by submitting the leading volume of inquiries through the DEG website. The DEG thanked Benjamin Stephens, manager of North Star Automotive in Bethlehem, PA, and Patrick Burke, estimator at Olsen Auto Body and Collision in Bellingham, WA, for their individual efforts to improve database accuracy.
While the first year comes to a close with this accomplishment, those involved in this project recognize that there is still significant room for growth and an opportunity for the industry to take greater advantage of communicating questions and concerns with the information providers in regard to the estimating data.
“One thousand inquiries is an accomplishment all of us are incredibly proud to see come to fruition,” noted Barry Dorn, DEG JOC member. “But we also realize that we are only currently capitalizing on a small percentage of the inquiries that potentially exist. Our hope is that, as the successes of the DEG are relayed throughout the industry, more individuals will take advantage of opportunities available to them, such as the DEG, to proactively communicate with the information providers in the interest of helping to achieve the most accurate data possible.”
The Database Enhancement Gateway is an initiative which enables those who use collision repair estimating databases to provide feedback to the information providers in an effort to promote data accuracy. DEG resources include an easy-to-use website (www.degweb.org) and inquiry form, dedicated administration for the processing of inquiries, and a current database of both pending and resolved data inquiries submitted to the three major Information Providers. The DEG is created, equally funded and maintained by the Automotive Service Association (ASA), the Alliance of Automotive Service Providers (AASP) and the Society of Collision Repair Specialists (SCRS).
911 Collision Centers, Kent Automotive, Hertz Local Edition, and Nationwide Insurance combined to deliver state of the art emergency extrication training to more than 150 emergency service personnel in Tucson and Scottsdale in December.
With advancements in vehicle design, multiple air bags, and passenger restraint systems, first responders to an accident need additional training to be most effective at the scene. Additionally, first responders are seeing more and more hybrids at the scene of accidents and need additional training on these high voltage vehicles.
“Learning about the wiring and voltage on hybrids was beneficial,” stated Captain Joe Willis of the Phoenix Fire Department. “We’re at least two years behind on technology. We need all the training we can get.”
Hertz Local Edition provided two hybrids for display purposes.
First responders learned the importance of being careful when working around un-deployed air bags, especially un-deployed side curtain bags. Budget cuts have forced many departments to eliminate extrication practice or to purchase only older vehicles to cut apart.
“First responder training on late model cars is more important now than ever,” said Toby Chess, instructor.
Kent Automotive western regional sales manger Craig Olivera added “The need is here, we feel it important to sponsor these events. Nation-wide Insurance stepped up and donated several vehicles for this training and 911 Collision purchased the other two cars so we could cut them apart.”
“It’s great to have the opportunity to cut apart late model cars. I also learn a lot from other departments. Time spent talking to my counterparts and exchanging ideas is invaluable,” said engineer John Montgomery of the Mesa, Arizona Fire Department.
Captain John Dean, a trainer with the Phoenix Fire Department, said, “You guys nailed it on the head. This training saves lives on both sides – first responders and accident victims. On your way home tonight, God forbid you should have an accident, just how much training do you want the first responders to have?”
Patrick O’Neill, 911 Col-lision Centers Chief Operating Officer concluded, “We as repairers need to facilitate these types of training classes. There is a great need out there for this training that can help save lives right here in our neighborhoods. We are committed to hosting these classes in the communities we serve on an annual basis. I challenge other repairers to get involved and host a class in their communities.”
911 Collision Centers was the recipient of the National Auto Body Council’s Pride Award for its commitment to community service. The company was also honored with the DuPont Joe Jackson award for community service.
CarMax, Inc. has reported results for the third quarter ended November 30, 2008. Total sales decreased 23 percent to $1.46 billion from $1.89 billion in the third quarter of last year. Comparable store used unit sales declined 24 percent for the quarter. Total used unit sales decreased 17 percent in the third quarter.
The company reported a net loss of $21.9 million, compared with earnings of $29.8 million in the third quarter of fiscal 2008.
“During the third quarter, the most significant factor affecting our sales was a sharp decline in customer traffic,” said Tom Folliard, president and chief executive officer. “We believe the slower traffic reflected the weakness in the economy and the stress on consumer spending, which caused many households to take a very conservative approach in anticipation of more difficult times. While traffic fell by slightly more than our 24 percent decline in comparable store used unit sales, solid execution by our store teams allowed us to improve our conversion rate compared with last year’s third quarter. Including the contributions from stores which have been open less than a year, total used unit sales declined 17 percent.”
CarMax's total wholesale unit sales declined 15 percent compared with the prior year quarter, reflecting decreases in both appraisal traffic and our appraisal buy rate (defined as the number of appraisal purchases as a percent of vehicles appraised). Industry wholesale prices for virtually all vehicle classes declined at an unprecedented rate during the third quarter, reflecting the weak demand environment. The vehicle depreciation rate was approximately three times the historical rate for this period.
Compared with the third quarter of fiscal 2008, other sales and revenues declined 12 percent. Extended service plan revenues fell 16 percent, similar to the decline in total used unit sales. Service department sales increased six percent. Third-party finance fees decreased 58 percent.
Total gross profit decreased by $43.6 million, or 18 percent, to $199.2 million, primarily because of the significant decline in used and wholesale unit sales. However, gross profit dollars per used unit declined by only $32 per unit to $1,854 compared with $1,886 in last year’s third quarter. The company believes its ability to maintain a generally consistent level of gross profit per unit, despite the challenging sales environment and the steep decline in wholesale market prices, was due in large part to the effectiveness of its proprietary inventory management systems and processes.
Compared with inventory levels at stores open as of November 30, 2007, CarMax has reduced its used vehicle inventory by more than 18,500 units, representing a reduction of more than $340 million. During this year’s third quarter, comparable store used vehicle inventories were reduced by approximately 8,300 units, or nearly $140 million. Wholesale gross profit per unit increased by $20 to $794 compared with $774 in the third quarter of fiscal 2008.
CarMax Auto Finance (CAF) reported a pretax loss of $15.4 million compared with income of $16.3 million in last year’s third quarter.
“We believe that the decrease in our third quarter results stems mainly from external conditions and that we are taking the necessary and appropriate steps to navigate through this difficult environment,” said Folliard. “We have been successful in dramatically reducing inventories to align them with current sales. This, together with the agility of our car-buying process, has largely allowed us to preserve our gross profit per unit. We continue to focus on aligning costs with current sales levels, and we expect to continue to find opportunities to further shrink costs. At the same time, we remain committed to delivering the exceptional customer service that underpins our long-term prospects.”
The Board of Directors of The Progressive Corporation has confirmed that there would not be a dividend paid under the company’s annual variable dividend policy, with respect to 2008.
A dividend to shareholders would be calculated using the company’s operating results for the full year of 2008, but a dividend would not be paid if after-tax comprehensive income is less than after-tax underwriting income.
Progressive’s after-tax comprehensive loss (which amounted to $860.8 million for the year-to-date period) will be less than after-tax underwriting income for 2008 and, therefore, the Board of Directors determined that no dividend would be paid for 2008.
The Database Task Force (DTF), comprised of representatives from AASP, ASA, and SCRS, recently completed a multi-year effort involving discussions, data gathering and arguments, in an effort to convince CCC that its estimating system bumper refinish prompt was in direct conflict with paint manufacturer approved refinish procedures. As a result of these discussions, CCC removed the “Bumper Refinish Prompt” in their March 2008 software release. Unfortunately, CCC now feels compelled to once again go against ALL paint manufacturers' information and has reintroduced the “Bumper Refinish Prompt” in its Pathways 4.5 release.
The DTF was shocked and disheartened to learn of this most recent reversal. Interestingly, after literally years of discussions and the task force providing documentation, coordinating meetings with all the paint manufacturers, as well as providing accolades publicly for CCC “doing the right thing”, CCC elected to “forget” to discuss the change in direction with the Database Task Force prior to implementing the change. Furthermore, documentation that the task force has received subsequently shows that at least one major insurer was fully apprised of the proposed changes at least 60 days in advance of the release. In fact, this major insurer drafted instructions (including screen shots), and distributed them, on how they want its “Repair Partners” to set the default in their systems (regardless of how repairers perform the actual repairs).
During a CIC meeting at NACE 2007, the following statement was publicly read by Bruce Yungkans, representing CCC, to the audience. “Based on some documented and very compelling and convincing new information to us, we’ve been able to determine unequivocally that… refinishing non-metallic bumpers require use of a material that is not recommended on the rest of the vehicle.”
Following that, Yungkans also stated that CCC would, “as soon as practical,” change its estimating system to ensure “the refinish overlap between bumpers and other parts refinished on the vehicle will not be applied” and that “clearcoat refinish labor and material that is applied to the bumper will not be included in the calculation of any pre-defined clearcoat caps.”
In an attempt to resolve this extremely sensitive issue, members of the Database Task Force contacted Jim Powers of CCC, and then had additional discussions with Jim Powers, Jim Dickens, and others from CCC. Jim Powers stated that CCC had information from one or more paint manufacturers that led them to believe that utilizing the same materials on flexible parts as well as on metal parts was fully acceptable. Interestingly, when the Database Task Force contacted each of the major paint companies, none of them were able to confirm that statement.
CCC committed to promptly furnish that data to the task force for review, but after five days notified the Task Force they “were having a difficult time obtaining the requested documentation”. In addition, CCC stated that in discussions with their repair center customers, they were “told” that it was okay to use the same products on all surfaces.
Once again, we find it amazing that an information provider goes against a paint manufacturer’s recommendation and changes its system to allow a process because they were “told” it was acceptable. During a conference call with CCC, representatives of the Database Task Force applied the analogy that any estimating software that produces a calculation where 5 + 4 = 6 is by all measures inaccurate and indefensible. Pathways software that enables the lowering of estimate values, based on outside influence or non-scientific conversations with a few repairers choosing to deviate from recommended procedures, is similarly indefensible.
Many in the collision industry have contended for years that the estimating platforms have been influenced by market forces in a manner that sacrifices accuracy. The DTF was created to address this very issue, and continues to exist today both to enable a constructive working relationship with the information providers, but also to act as a watchdog to address issues such as this one. As such, the Database Task Force is fully committed to taking strong and immediate action to have this prompt removed.
The documentation that was furnished by CCC to the Database Task Force in December consisted of excerpts from trade publications, paint manufacturer marketing materials, and emails to and from paint manufacturer representatives dated just days earlier. These documents in no way provide a justification for a reintroduction of the bumper prompt, and we contend that the information provided pales in comparison to the ironclad and “unequivocal” documentation that the Database Task Force had to furnish to CCC to remove the prompt. In fact, the majority of the documentation references the ability to utilize the same refinish products. However, it did not specifically address the need for additives or additional processes in order to properly use the products on flexible substrates.
Most disturbing though, is the apparent fact that the paint manufacturers were first formally contacted on this issue just recently, while the decision to reintroduce the refinish prompt was made as early as September of this year. One cannot help but conclude that CCC made the decision first, and then later, only after being challenged, unsuccessfully attempted to generate and furnish documentation supporting the decision.
Until compelling evidence is provided otherwise, the Database Task Force contends that this prompt was once again added to the CCC Pathways estimating system without cause, in a probable effort to assist a select few. Furthermore, the documentation that was sent out with the 4.5 release explained that CCC’s newest update “introduces several enhancements to make estimating easier and support good relations between DRP repairers and insurers.” We find it interesting that to “help” DRP relationships, CCC elected to go against paint manufacturers’ recommendations. This type of biased alteration to the system without justification from manufacturer recommendation is exactly the type of activity that causes the industry to question the accuracy of the databases as well as the motivation of those responsible for these decisions.
The Database Task Force is committed to ensuring the accuracy of the data that the industry at large is utilizing, and therefore will not accept arbitrary changes without justifiable cause. In light of the current scrutiny by the FTC over CCC’s proposed merger with Mitchell, we find it even more unbelievable that this was implemented now. The members of the Database Task Force encourage the repair community to express your thoughts regarding this reversal and the publication of processes that are contrary to manufacturer recommendations.
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