Collision repairers see brighter days ahead but with a catch
Survey responses present a picture of an industry expecting to rebound in 2010 after seeing significant economic setbacks in the last 12 months. At the same time, those results, coupled with additional feedback from repairers, shows that repairers aren't simply writing off 2009 as a poor year they merely survived. Rather, many repairers prefer to view the past year as a "prep test" for passing a larger, more significant exam – surviving in what should be an even more trying business environment going into 2010 and beyond.
A common question industry observers asked and responded to throughout 2009 was: How many shops are left? The number of collision repairers has been dropping steadily for nearly a decade. A weak economy could only serve to accelerate the losses, especially at a time when shops say pressure from insurers is making it more difficult than ever to turn a profit. Actual numbers still are difficult to come by. Some estimates put the number around 37,000. Repairers contacted for this article all reported knowing of several shops near them that went out of business in 2009, along with others that are on the brink. Repairers know what they're up against.
Still, most don't see themselves failing. According to ABRN's survey, well over 90 percent of the shops responding don't believe they will be closing in the next five years. That might be expected to a great extent because business owners tend to be optimistic. Running a business requires some optimism. Why remain in business if you believe you'll soon be closing your doors?
Others industry members, who don't run shops and therefore probably are a bit more objective, don't share this optimism. Of the manufacturers ABRN surveyed, 64.3 percent believe that the number of shops will decline by 40 percent during the next five years. Seventy-percent of distributors share this view.
These two groups still believe the collision industry, overall, is healthy (with 79 percent of distributors and 70 percent of manufacturers agreeing on this point). After seeing revenues dip significantly in 2009, most distributors and manufacturers are looking forward to a big 2010 (85.7 percent of manufacturers and 63.6 percent of distributors expect average revenue increases of 12 percent and 11.5 percent, respectively).
Repairers are more cautious with their 2010 expectations. Most of the shops ABRN interviewed say their revenues slipped on average between 10 and 20 percent in 2009 – in many cases, that average leaned to 20 percent for most months. Though a few saw their businesses turn around a bit in the last quarter of 2009, most said they don't expect to see their profits return to pre-2009 levels until at least mid-2010, when they hope the economy will recover enough for consumers to begin spending their insurer payout checks on repairs instead of banking them.
In the meantime, these repairers stress that it's important for shops to heed the lessons learned from the distressed economy of the last year if they are to survive in an ever-changing and challenging business landscape.
Here are five key lessons they say all shops need to pay special attention to.
Lesson 1: Keep knocking out the fat. Lee Amaradio, owner of Faith Quality Auto Body in Murietta, Calif., says that like most repairers, dipping revenues in 2009 compelled him to look for areas to cut. "When you're doing well, you don't always look where you're money is going. Once we looked at the numbers and started cutting, it was amazing to see just where we could cut and what the savings might be," he says.
On one case, Amaradio discovered the shop was spending $4,000 more than it needed for uniforms and shop rags. Last year, he received a bid from a competing uniform service that led him to renegotiate with his current supplier who proved more than willing to lower its prices to maintain Amaradio's business.
Amaradio went on to renegotiate nearly every one of his service agreements (including the one he had with his business's gardener) to ensure he was receiving the best possible price the market could offer. He even took another look at his shop's security monitoring system, which was costing $1,200 each month. He replaced it with another system costing just $200 a month.
All together, cutting this "pure fat," as Amaradio calls it, saved the shop $150,000. Amaradio additionally found savings by reducing his staff, though he made a point of avoiding the kind of large layoffs that can negatively impact shop morale and the business itself. Instead, Amaradio reduced personnel mainly through attrition. As employees moved on to other jobs, Amaradio would hire only replacements in "must have" areas. Otherwise, he passed on the duties of departing workers to other employees where the tasks would most logically fit.
For example, a quality control team employee began checking in vehicles. Amaradio says this practice reflects a larger industry trend that might be here for the long term.
"If you're going to work in this industry now, you have to wear a lot of hats. It's just the way things have become," he says.
Lesson 2: Return to fundamentals: Brian Guerrero, manager of O'Rielly Collision Center in Tucson, Ariz., said as his shop similarly searched for cost savings to offset slumping revenues, they also discovered it was just as important to reinvest in themselves, particularly in the most traditional business areas. "We really started to look at customer service and begin focusing on it," says Guerrero.
As a dealer-owned shop, O'Rielly's had a number of opportunities to work on its customer service techniques in 2009. As nearby dealers lost their GM franchises, O'Rielly's picked up their warranty and mechanical repair customers. "We had the chance to introduce a lot of new people to our services. It allowed us to write a number of customer pay estimates," says Guerrero.
While those opportunities didn't always translate into new business, Guerrero said that isn't the point. The real focus is transforming a shop long term, using the experience in handling a downturn to make the business more capable of handling challenges and successes.
"It's what you do in these down times that really makes you," says Guerrero. "Looking at customer service, you go above and beyond the duty to make your customers satisfied. Nobody may seem to notice, but actually they do. People remember how they're treated."
Guerrero goes on, "The reward is that when a recovery comes we're going to turn around a lot faster than shops that may have taken their customers for granted."
Lesson 3: Keep training. Tough times can make businesses do short-sighted and even foolish things. Corporations cut back on research and development, robbing themselves of long-term profits. Small businesses like shops cut back on training, robbing themselves of long-term sustainability.
"If you're holding back on training, you're making yourself obsolete," says Guerrero, repeating a point made by a number of shops ABRN spoke with. The common theme here: Training is more important now than ever before.
"With vehicles becoming more complex, if you're going to fix them correctly, you have to train," says Amaradio. "There's no way around it." Though repairers have heard that notion repeatedly, Amaradio said now there is a greater sense of urgency.
The current trend in training is gaining manufacturer certifications, which can be a significant part in maintaining or gaining a DRP agreement, running a lean operation or simply running a shop with the best available training qualifications.
Becoming manufacturer certified takes time. "It took us two years to get some of our certifications," says Amaradio. He points out that as certification becomes more popular, access to this training will become more restricted. The best course for shops to take then is to start their certification training now.
Lesson 4: Distinguish yourself. What's the difference between your shop and the one on the corner or any shop in your region? According to Amaradio and Guerrero, how your shop stands out is going to mean a whole lot more in the near future. Terry Motts, owner of M&S Collision Works in Philadelphia, concurs. "Don't assume that just because the number of competitors is dropping, your life is going to get any easier. You need to find new ways to attract insurers and vehicle owners to your business," he says.
Going lean or adopting a lean or waste-cutting methodology isn't enough, says both Amaradio and Motts. A lot of shops are taking this approach. Now is the time for you to determine what your business is going to be. "You need to be something special in the eyes of your customers. You have to offer them a particular reason for selecting you," says Guerrero.
Motts says repairers need to abandon the "worn out" notion of the plain-faced shop on the corner that advertises auto body repair.
"Create an identity for your business and then build off of this reputation," says Motts, who recently assumed full ownership of his family's business. "We had a decent year, probably because a lot of our customers had been going to the shop from when my dad and uncle ran it. But I'd be crazy to expect this to continue for me."
So Motts is rolling out new services, including complete mechanical repairs and a marketing plan aimed at bringing in new customers. "We're positioning ourselves as a neighborhood shop where you can stop in grab a cup of coffee and talk to the manager and also be confident you're going to get the best repair anywhere," he says. "We're going to offer customers something familiar and something different.
"Your customers, even insurers, walk into a business with certain assumptions," Motts says. "You have to make that extra effort to provide them what they expect and generally want. You also need to let them know that your business is different and that it's going to change to get them what they want. Customers are getting more savvy. They're getting used to looking for services on the Internet. They expect a lot more."
Lesson 5: Face the new world. If your business has navigated the perilous waters of 2009, and you believe a revived economy will return your shop to normal, you're in for a rude awakening. Say goodbye to the pre-2009 collision industry. There are other powerful forces at work changing the body repair business and you need to prepare for them now, according to Amaradio and Motts.
Amaradio said recent court rulings in California stand to remake the industry. He said says the ruling of one case, Eugene Levy vs. State Farm, included language that spelled out the responsibility of insurers in a collision repair. Among those responsibilities was ensuring that a vehicle is returned to pre-accident "safe, mechanical and cosmetic condition."
According to Amaradio, as insurers become involved in the decisions over what repairs are performed, they can be held accountable for the repairs, most notably in ensuring that a safe repair is done. He expects trial lawyers to begin litigating on the safety point. He said this will force the insurance industry to take steps to ensure vehicles are repaired strictly according to OEM recommendations.
"Insurers don't always understand what is involved in a safe repair," says Amaradio. "They don't want their customers driving away in unsafe cars. They've always just expected shops to do a safe repair and assumed it was getting done."
Insurers no longer will be able to rely simply on these assumptions. To take on insurer-paid work, shops could very well need to become manufacturer certified. That means investing in training and equipment – potentially expensive investments that some shops simply aren't going to be able to afford.
On the upside, insurers will need to raise rates to ensure the correct repair is performed, Amaradio said. While that sounds like great news, he cautions that such a change won't necessarily mean shops suddenly will see significant increases in revenue. Gains in insurer pay could be greatly offset by overhead necessary to make OEM standard repairs possible.
Shops will be working harder, but easy profits won't follow, Amaradio said. Insurers still are going to be looking for ways to hold down costs. More than ever, shops will need to focus on improving their systems and look at their own numbers.
Motts said he sees a similar future.
"You can bet things are going to change. It's not going to be that much longer when repairing new cars is so sophisticated that insurers will have to work with us to make sure they even can get a car fixed," he says. "They can't simply total everything. Their customers won't stand for it. The only solution is taking a car to a shop that can do the work and do it affordably. That's going to put a lot of pressure on them and us.
"But I'd rather be making a good living with that pressure than the alternative. I believe this industry has a good future for anyone who can stick it out and make the commitment. That all starts today."
