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Letter to the Editor

Strategy and Action

Developing a Long-Term Growth Strategy and Translating That Strategy into Quantifiable Action...Part 1

Over the past year, an interesting trend has emerged. Increasingly, in our conversations with repair facility operators, INSIGHT finds these repairers talking not about their present successes, such as increased profitability and customer satisfaction, but more about the groundwork they are laying for their future. Why so?

Increased competition is a fact of life for collision repair facilities of all sizes, in all markets, large or small. The promotion of direct repair facilities by insurers, the emergence of regional and multi-regional consolidators, slow growth in collision repair claims volume and the increased professionalism of the repair industry are just a few of the factors fostering increased competition.

In years past, competition among repairers was essentially on a one-to-one basis: A potential customer came through the front door, they had been told by their insurer to get three estimates, and it was each facility’s job to sell their customer on their ability versus the competition.

Hopefully, the repairer convinced the customer it was not necessary to travel around town in search of three estimates. They sold the customer on their professionalism, their technical ability, and their reputation.

Today, the situation is far more complex.

New entrants to collision repair, the growth of multiple market consolidators and the capacity expansion of the most successful operators are forcing repairers to look beyond simply delivering the work in the shop today towards the future source of their business and how they must position their business versus the competition.

As competition for work intensifies, repair facilities are also faced with increasing competition for skilled technicians. This is a primary concern for many repairers faced with a shortage of skilled and semi-skilled technicians in their market. In many cases, this shortage is hindering repairers’ ability to grow.

All of these factors are forcing repairers to question the traditional collision repair industry model of accident, estimate, repair and check. Also, they are questioning traditional methods of managing and measuring success.

Over the course of the next several issues INSIGHT will examine the trends affecting the future of the repair industry and the tools repair facilities will employ to meet the challenges posed by the rapidly changing industry.

This article presents the large-scale trends repairers face and sets the stage for each reader to develop a comprehensive set of goals and strategies to secure a prosperous future in the collision repair industry.

The Big Trends

The first major trend that is impacting the future competitive nature of the market is the groundswell growth in professionalism throughout the 1990s. What evidence is there of this increased professionalism? The growth in computerized estimating drove a more numbers oriented management. Computerized estimating is the norm for the vast majority of the industry.

Collision repairers have also increased the depth and breadth of the benefits and incentives they offer to their technicians. Health insurance is the norm. Paid holidays and sick days likewise.

Also, the growth of large repair facilities with sales in excess of $1 million per year drove the growth of a more professional manager. As sales grew beyond $1 million, successful shop operators found it necessary to learn the skills of managing their growing enterprise. The need to delegate and control the expanded operation necessitated increased professionalism.

Increased Competition for Referral Relationships

The DRP race is done. The largest insurers have moved their claims operations towards DRP or DRP-like claims handling environments in many cases. DRP opportunities still exist, but increasingly, businesses find themselves going after their neighboring repairers’ existing referral relationships- both insurance and dealer.

Over the next several years the percentage of repair volume going through DRPs will grow substantially. The nation’s largest insurers hope to move 70 percent of their claims volume into DRP claims handling environments. This increased value of a DRP relationship for a repairer will create tremendous competitive pressures among repair providers.

(Editor’s Note: For more detailed analysis on the future of DRP, see the August, 1999 issue of INSIGHT.)

Investments in New Repair Technology Leveling Off

The last major, new, must-have repair technology offered to the repair industry was the computerized measuring system. Major new technologies, either driven by automotive technology or innovation on the part of the equipment supplier community, are more than a few years down the road.

Changes in vehicle technology, such as electric and alternative fueled vehicles, increased use of aluminum components, and new construction techniques will present challenges to repairers, but little in the way of investment need.

This decreased investment demand is coupled with a decline in necessary continuing education for a repairer’s employees- no new technologies translates into little demand for updated training. The decline in demand for I-CAR’s staple training courses is confirmation of this trend.

Increased Front Office Computerization

The growth in computerization in the collision repair facility is enabling the creation of large-scale databases of repair information that repairers analyze for both marketing and financial performance indicators. Insurers have long analyzed their claims experience both to better evaluate past performance and to project the future. Increasing computerization is enabling repairers to perform much of the same high-level analysis to better evaluate and control their operations.

Mining repair facility data provides a clear understanding of where the repair facility’s customers come from geographically and the referral or marketing activities that brought them to the store. Tracking this data provides excellent feedback for managers looking to develop marketing strategies. For example, how have investments in referral relationships impacted the typical customer profile?

Using data analysis techniques, profit analysis by referral relationship, vehicle type and other factors helps management determine what relationships work best and how the facility performs on certain types of jobs.

Using this data, the repairer can better forecast profit, and gear marketing activities towards the most profitable repair work.

Beyond past performance analysis, repairers can use their information technology investment to manage the repair process and provide better control of workflow and repair scheduling.

On the opposite side of the equation, repair facility computerization is enabling more accurate auditing systems for insurers. Common in the health care industry, computerized profiling increases the productivity of auditing staffs by analyzing repair orders and raising red flags on out-of-parameter charges.

Comparing individual estimates against target or agreed-upon profiles will become increasingly common in the very near future. Shops must understand how these profiles will impact their profits.

Declining Trained Technician Availability

Competition from other industries and lack of a focused industry marketing effort are failing to draw young people to careers in the collision repair industry. The most recent study by the I-CAR Education Foundation paints a grim picture regarding the industry’s ability to attract technicians to replace those who will retire in the near future.

Consolidators and large repair facilities that are growing find it difficult to attract technicians, both experienced and entry-level, in most markets.

Any repair facility operator thinking about growing their business must determine where the people will come from to fuel growth. Investments in local vocational education programs and in-house training will be necessary.

Also, redesigning workflow and the job process to better utilize skilled technicians is a must. Implementing team and industrialization methods will enable repairers to increase productivity and improve skilled technician utilization.

Thinking Outside the Box

It’s been stated so often that it’s the 1990s cliché, but thinking outside the box is one of the skilled repair facility operator’s necessary tools. Competitors are looking to break or re-create the rules that govern the relations between collision repair businesses, customers and suppliers.

Doing business the way it’s always been done, even for the best performers, will not guarantee success in the future.

New Entrants with Horsepower

Consolidation is a fact in the repair industry. As in other industries, the clearest examples are online retailers such as Amazon.com. New entrants will increasingly be the competition for collision repairers in their local market.

The growing interest in the collision repair business by OE dealer consolidators such as AutoNation and United Auto, and the OEs themselves, will create increased competition in both the short and long terms.

Couple this interest from parties on the retail and manufacturing sides of the automotive business with the emergence of well-capitalized independent consolidators and the stage is set for a massive redistribution of business. Collision repairers can no longer focus on competition from their traditional, independent competitors.

Supplier Consolidation

The globalization of the refinish business has produced a dramatic consolidation among paint suppliers. This consolidation has increased competition among suppliers for repair facility business. The current drive for top line sales and market share at the expense of bottom line profits will continue for the foreseeable future among paint companies. Repairers must balance price with support and product performance. Switching paint brands for up-front cash, loan guarantees or other incentives is fine, but if the product and support do not meet the repair facility’s requirements, the repair business will suffer.

Repairers must examine the entire value proposition behind their supplier relationships.

Goal Setting and Strategy

Given the large-scale trends outlined above, INSIGHT believes that repair facility operators must examine their business in terms of these macro forces to determine an effective growth strategy.

Over the course of this month, INSIGHT suggests collision repairers ask themselves the following questions:

• Who are my competitors?
• What is the likely future of my competition?
• Will my competition grow themselves or sell to a consolidator?
• What referral opportunities exist in my market?
• How can I secure available relationships or position myself to capture existing relations from competitors?
• Is my financial and operational performance at optimum levels?
• And finally, What do I want to achieve in the next five years?

Conclusion

Opportunities exist in the collision repair industry to dramatically change the nature of competition in a repair facility’s local market. For an individual repair facility operator to succeed in this environment, they need to determine their goals, the strategy they seek to use to achieve these goals and the actions necessary to implement their strategy.

In next month’s issue, we will examine the goal setting and performance measurement processes repair facilities have employed to determine their growth strategy.   o

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