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Market Profile: The Collision Repair Market in 1997

A year filled with changes and challenges, some shop owners came out ahead while others dreamed of getting out

By Georgina Kajganic
6/1/1998

The collision repair market was anything but boring in 1997. Large shops continued to sell out to consolidators, other large shops became consolidators and still others wished they'd be consolidated. Many shops struggled to get on DRPs, while other shops struggled and were on DRPs. Some shop owners were still learning how to negotiate with insurers, others were determined to rid the world of insurers, while some insurers bought body shops - determined to rid the world of independent shop owners.

It was quite a year. The kind of year that, for some, offered opportunity and, for others, frustration. The kind of year that could suck the life out of an industry.

But it didn't.

Most shop owners were surprisingly optimistic about the future, despite the present chaos. Said one such shop owner: "After 48 years, I still enjoy the business and love working for myself." Ironically, one discouraged shop owner said nearly the exact opposite: "I don't feel self-employed anymore."

About 66.5 percent of our respondents said their businesses are financially better off today than five years ago (up from 57.5 percent in 1996), while 22.4 percent said they weren't better off (down from 31.3 percent in 1996).

When asked to predict the future of their businesses, most shops owners, again, were optimistic. About 79.5 percent said their businesses will be more successful in five years (up from 69.8 percent in 1996) - with shops making $125,000 to $249,999 a year being the most optimistic (90.5 percent expect their businesses to be more successful), followed by 88.2 percent of shops making more than $1 million a year. Only 10.6 percent of our respondents said their businesses would be less successful in five years (down from 14 percent in 1996).

Why all the optimism? Was it a profitable year?

For many, yes. For others, not particularly. "It seems that costs increase and profits decrease every year," said one shop owner, who didn't have a particularly good year.

The average gross sales volume in 1997 was $480,930, up only 2.6 percent over 1996's $468,911. Still, 54.1 percent of our respondents said their 1997 sales had increased over 1996 sales, 33 percent said sales stayed the same and 12.8 percent said sales decreased. (About 45.3 percent of gross sales was attributed to parts and 54.7 percent to labor.)

But an increase in sales is meaningless if profit margins fell, right? And how many times during the past year have we heard that shops are taking on less profitable work to maintain volume - and, in the process, destroying their profit margins? While this is true to a certain extent, most of our respondents weren't suffering from the "my profit margins have fallen and can't get up" syndrome.

On average, 39 percent of our respondents experienced profit margin increases over 1996 (down slightly from 44 percent who said their 1996 profit margins increased over 1995), 44 percent said profit margins stayed the same and 17 percent said they decreased.

The average gross profit margin in 1997 was 30.9 percent - with 26.6 percent coming from parts (holding steady from 1996) and 45.2 percent coming from labor (down from 51.3 percent in 1996) - while the average net profit margin in 1997 was 17.3 percent (up from 15.6 percent in 1996).

The average customer base also increased slightly - from a 29-mile radius in 1996 to a 33.6-mile radius in 1997 - while the ways shops marketed their services held steady; about 91.9 percent of respondents relied on word of mouth, 67.8 percent on the Yellow Pages, 31.3 percent on community sponsorships, 23.7 percent on radio ads, 12.8 percent on direct marketing, 10 percent on television ads, 6.2 percent on billboards and 17.1 percent on other (which included the Internet, newspapers, brochures, etc.)

What do shop owners stress in their advertising? About 81.1 percent stressed repair quality, 65.5 percent experience, 56.8 percent services offered, 31.1 percent shop and technician certification, and 23.3 percent prices.

Once word is out, shops get 52.9 percent of their business from word-of-mouth/car-dealer referrals (down from 58.2 percent in 1996), 18.9 percent from insurance referral (down slightly from 19.2 percent), 11.5 percent from advertising/direct sales (up from 7.6 percent), 10.1 percent from direct repair programs (up from 7.5 percent), 4.1 percent from fleets (up from 3.8 percent) and 2.5 percent from other (down from 3.8 percent).

Despite the optimism shown earlier by many shop owners regarding the future, about half of our respondents - 45.3 percent - said they'd sell out to a consolidator if the price were right (the larger the shop, the more likely it would be to sell out).

Why would so many sell? Most cited insurance-company "meddling" as their reasons for wanting out; others just don't have it in them anymore. Other reasons cited included:

• "A consolidator is the only one who could afford to buy it."
• "Thirty years in this business is long enough."
• "It's too hard to making a living and produce a quality product."
• "I'm near retirement age."
• "I'm getting tired of arguing with insurance companies for what's right."
• "Industry labor rates don't reflect our knowledge."
• "I'm burnt out."
• "We work too hard for too little appreciation."
• "Every year it takes more capital and time. I'm also tired of fighting insurers who have little working knowledge but control the work."
• "I don't believe the benefit outweighs the expense. We're no longer independents when we're governed by someone else."
• "This business used to be fun. Now it's about going to work every day and arguing with insurance companies about wanting to repair cars correctly."

On the other hand, 54.8 percent said they wouldn't sell to a consolidator - no matter what the offer was - with many citing a love of the business as why they wouldn't quit. Other reasons given included:

• "My shop has been family owned and operated since the beginning, and I wouldn't want it any other way."
• "I'm happy working for myself."
• "I'm not interested in selling. I love this business."
• "Then what would I do?"
• "I like what I'm doing, and my business is sound."

Despite being ready and willing or totally unwilling to sell their shops, all respondents were in agreement that the next year holds some major challenges. And most shops had not only identified these challenges, but were taking steps now to overcome them.

These challenges aren't anything new - they come as no surprise to anyone - but what is new is that many shops are now beginning to accept the challenges - and to do something about them. Gene Brown, who heads up Louisiana Tech University's newly created National Collision Marketing Institute (NCMI) said it best: "[This] industry has a tendency to sit in a room and tell a bunch of war stories, and bitch and moan and groan about stuff without any focus. I understand why you do that. I do the same thing with my colleagues back at the university. But we have to get focused. I'm here to tell you that most of the issues I hear raised in this industry - aftermarket parts, paint caps, reimbursements, labor rates - there are intellectual answers to those issues and questions."

Shop owners in 1997 began realizing this - and, in doing so, many also began taking back control of their businesses.

Writer Georgina Kajganic is editor of BodyShopBusiness.

What follows are some problems/challenges shop owners identified, along with solutions they're implementing:

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