That was then …

On Nov. 14, 1896, Britain abolished the Red
Flag Law, a crazy, crazy mandate that forced motorists to drive
behind a person who waved a red flag and walked ahead of the vehicle.
While arguable – and in no way based in fact – this very well
could have been the moment the collision repair industry was born.
How so? With no more people standing in the way – literally –
motorists could freely crash into each other’s vehicles!

This is now …

Some 100 years later, the collision repair
industry is still going strong – in fact, 1996 turned out to be
a pretty good year. Staff sizes were up, more estimates were written,
more estimates were converted to actual jobs, ticket prices were
up and so were gross sales.

This year, though, respondents were a bit
less optimistic about the future – partly because many just aren’t
sure what to expect from the next few years. Is industry consolidation
going to wipe out family-run businesses? Is it necessary to sell
your first born to get a qualified technician? Do shop owners
need to sacrifice quality – and profits – in order to work successfully
with insurance companies? Topics such as these have shop owners
worried and wondering where – or if – they fit into today’s ever-changing
collision repair industry.

The Whos

Independent shops comprised 77.3 percent of
this year’s respondents, followed by new-car dealerships at 19.6
percent, franchised body and paint shops at 2.1 percent, used-car
dealerships at .9 percent and other at .1 percent. For the third
year in a row, the number of independent collision repair shops
decreased – from a high of 89 percent in ’93 to 85.6 percent in
’94 to 80.1 percent in ’95 to 77.3 percent in ’96 – while franchised
body and paint shops rose by nearly a percentage point (from last
year’s 1.2 percent to this year’s 2.1 percent).

Of the respondents, 25.9 percent had shops
earning annually up to $124,999; 10.4 percent $125,000-$249,000;
11.2 percent $250,000-$349,000; 15.4 percent $350,000-$749,000;
20.7 percent $750,000-$1 million; and 16.5 percent more than $1
million.

Shop owners comprised 71.1 percent of the
repondents, shop managers 25.4 percent, shop foremen 1 percent
and other 2.5 percent. The average age of respondents rose by
more than a year, from 45.3 years old in last year’s survey to
46.9 years old in this year’s. On average, respondents had 24.9
years of industry experience (up from 23.7 years), which makes
sense since the average age of respondents increased.

More of this year’s respondents graduated
from high school (36.5 percent compared to last year’s 28.7 percent)
and more attended a vocational school (19.8 percent compared to
last year’s 18.7 percent), but less graduated from college (12.7
percent compared to last year’s 14.6 percent).

The Hows

The 1997 BodyShop Business Industry Profile
was conducted by the MarketScope division of Babcox Publications
and executed via a nationwide mail program to 4,000 body shops
and a telephone program to 103 body shops. The survey consisted
of four two-page questionnaires, while the telephone survey contained
four questions. Each mail questionnaire was sent to a sample of
1,000 BodyShop Business readers, and the telephone survey was
used as a supplement. Readers were chosen through a systematic
sampling procedure in which every "nth" name was selected
from a BodyShop Business subscription roster, which was alphabetized
within zip code from East to West. Geographic representation was
ensured prior to mailing and prior to data tabulation. The initial
mailing date was March 7, 1997, and as of the closing date, MarketScope
achieved a 17.5 percent return rate. Telephone surveys were completed
between April 3 and April 8, 1997.

---

Market Profile

That was then …

When word got around in early 1901 that millionaire
William K. Vanderbilt would pay handsomely for horses his car
hit and killed, local Long Island farmers turned entrepreneurs.
When they spotted Vanderbilt out for a drive, they tipped off
their friends, who then led their old nags into the road. The
farmers discovered that a horse not worth more than $6 as glue
or fertilizer brought anywhere from $60 to $100 when run down
by Vanderbilt’s car!

Not only was this covert operation profitable
for farmers, but also for the shops that repeatedly repaired Vanderbilt’s
collision-damaged vehicle.

This is now …

While not much – if any – collision repair
work is generated by cars mowing down horses (although deer damage
is still quite common!), other types of work keep shops busy these
days.

And busy they were in 1996.

According to our respondents, shop sales increased
12.9 percent from last year – up from $415,168 in 1995 to an average
of $468,911 in 1996 (with 43.1 percent of sales coming from parts
and 56.9 percent from labor).

But did sales truly increase once
inflation is taken into account? Yes. Using the U.S. Bureau of
Labor Statistics Consumer Price Index, a shop that earned $415,168
in 1995 needed to earn $427,623 in 1996 to keep up with the rate
of inflation (see box for details).

Breaking down sales by categories, shops in
the up-to-$124,999-a-year category had it the roughest – only
35.3 percent of these respondents said sales increased in ’96
(but only 5.9 percent said sales decreased). In all other categories,
more than 50 percent of the respondents saw sales increases in
’96 – and more than 88 percent of shops making more than $750,000
a year experienced sales increases (and none experienced sales
decreases)!

Perhaps part of the reason these larger shops
had a better year than the smaller ones is that most of these
"big guys" are located in heavily trafficked urban areas
– conducive environments for collisions. Perhaps, too, it’s partly
because these larger shops have more resources – money – to advertise
their services, to buy the most up-to-date equipment, to train
their techs, etc. Perhaps it’s also because these larger shops
tend to be a bit more progressive and accepting of change – in
general – than the smaller ones. For example, instead of battling
insurance companies (about pay, about quality – all valid issues),
most of the these larger shops take a more proactive approach
by having someone on staff who’s skilled at negotiating with people
– and insurance adjusters. Perhaps it’s 100 other reasons, too!

As for the future, most respondents were optimistic
about where their businesses are headed. When asked if they think
their businesses will be more successful in the next five years,
nearly 70 percent said yes (down from last year’s 75.3 percent).
Respondents with shops earning more than $1 million annually were
the most optimistic – nearly 86 percent expect to be more successful
(exactly the same as last year’s figure) – while shops earning
up to $124,999 were the least optimistic – only 51.5 percent expect
to be more successful (down from last year’s 64 percent). Both
statistics make sense since the biggest shops experienced more
sales increases in ’96 (making them more optimistic for the future),
while the smaller shops experienced less sales increases (making
them more pessimistic about the future). It should be noted that
optimism for future sales decreased this year in every sales range
except for shops earning more than $1 million a year.

Why this general lack of optimism? For some
shop owners, not knowing where the market is headed in the next
few years has affected their confidence. Concerns noted by respondents
include requirements and regulations, lack of qualified personnel,
insurance-company control of repair methods and labor rates, direct
repair programs, and the fate of independent shops. Said one shop
owner about the future of the industry: "Consolidation is
on everyone’s minds. It’s going to happen, but the question is,
what impact will it have on family businesses? Nothing will remain
the same."

Another shop owner said: "Mega shops
are buying smaller shops. I think chain body shops are a thing
of the future."

Regardless of whether consolidation happens
the way doomsayers predict, family-run shops will always have
their place – just maybe a smaller one. For now, though, family-owned
businesses are holding their own in the market – dropping only
a bit from last year’s 80.9 percent to this year’s 80.6 percent.
Family owned or not, 8.5 percent of this year’s respondents own
more than one shop.

Shrinking a bit every year is how far customers
travel to get their cars repaired – not surprising since some
urban areas sport a collision repair shop every other block. For
reasons such as this, the average customer base is down to a 29.1-mile
radius (a 14.2 percent decrease from 1995’s 33.9-mile radius,
and way down from 1994’s 38.4-mile radius).

Because the customer base continues to shrink,
you’d think marketing and finding new sources of business would
be less of an option and more of a necessity. Not necessarily.
When we asked respondents how they market their services, only
television and billboards experienced an increase from last year
– meaning advertising in every other area decreased (word of mouth,
Yellow Pages, community sponsorships, radio and direct marketing).

When asked which marketing mediums are most
effective word of mouth earned first place – "Every satisfied
customer you send out the door sends you five more," said
one shop owner about word of mouth. "I couldn’t even pay
for that kind of advertising." Community sponsorships came
in second on the effectiveness scale, followed by television ads
and then radio ads.

Some shop owners agree that marketing seems
to be getting kicked under the carpet – and, maybe, for the wrong
reasons: "I see that a lot of shops deep into direct repair
have essentially stopped marketing because they think they have
enough business," said one concerned shop owner. "But,
if we stop marketing to our customers, we’re doing ourselves in."

Who’s Winning? You or Inflation?

Did you know that it took $2.60 in 1996 to match the purchasing
power of $1 in 1977? With that in mind, do you know if your business
is really making money when you consider the rising rate of inflation?

To determine whether reoccurring business expenditures and revenues
have been increasing by more or less than the cumulative rate
of inflation, multiply your expense or revenue by the figure to
the right of the year. Compare the result with your 1996 expense
or revenue to determine whether that figure has increased or decreased
relative to inflation measured by the U.S. Bureau of Labor Statistics
Consumer Price Index.

For example, if your shop earned $378,000 in 1995, multiply that
figure by 1.03 (as shown on the chart) to determine that you needed
to earn $389,340 in 1996 just to break even.

Warning: Sit down before calculating these figures. Passing
out while standing is much more painful than losing consciousness
in a chair.

YEAR	INDEX
1977	2.60
1978	2.42
1979	2.17
1980	1.91
1981	1.73
1982	1.63
1983	1.58
1984	1.52
1985	1.46
1986	1.43
1987	1.38
1988	1.33
1989	1.27
1990	1.21
1991	1.16
1992	1.12
1993	1.09
1994	1.06
1995	1.03
1996	1.00
1997	.97*

*This is assuming the inflation rate for 1997 will be 3 percent.

---

Operations Profile

That was then …

In the year 1906, Baltimore County Commissioners
came up with a sure-fire way to stop speeders: They gave police
officer Noah Walker permission to shoot at cars when drivers violated
the speed limit.

"Slow down, or I’ll shoot!"

When Walker fired at Yates Pennington’s car,
Pennington filed charges against him – but the commissioners didn’t
see the problem. They cleared Walker of all charges and told him
to keep up the good work.

While shooting at speeders seemed like a good
idea for a while, authorities later decided police officers should
stop firing and start writing – tickets, that is. Someone, somewhere
probably reasoned: Why should Baltimore body shops profit from
repairing all those nicked-up vehicles when the city could profit
from ticket fines instead.

This is now …

These days, while our city police officers
and state troopers are busy writing tickets, shops, too, are busy
writing – estimates.

And write estimates shops did in 1996. On
average, our survey respondents wrote 21 estimates per week (up
from last year’s 18.9), and they closed the deal more often in
’96, too; on average, respondents converted 61.9 percent of estimates
into actual jobs (up from last year’s 57.3 percent) – a bit of
an accomplishment considering that consumers are harder to please
and more mistrusting than ever.

In a recent survey conducted by NAPA, consumers
rated technicians almost equally with lawyers and only slightly
higher than politicians regarding trust. Consumers also consider
car repair a major hassle – in fact, those surveyed said taking
their cars to the shop is a bigger hassle than filing their taxes.

For reasons such as this, shop owners tried
in 1996 – and are still trying – to make the repair process more
understandable and less daunting. One way of doing this: Shop
owners are taking more time with their estimates and final bills
so customers understand how they’re being charged (hours, dollars
or units), what repairs are being made and how much the repairs
will cost. Many shop owners also have customers authorize the
repairs by initialing the work order. This process eliminates
confusion as to how the final bill was determined, helps avoid
the perception of fraud and also helps foster trust.

This added effort seems to be paying off.
On average, shops performed 16.7 jobs per week in 1996, up substantially
from last year’s 11.9 (only 11.8 percent of our respondents experienced
a decrease in the average number of jobs performed weekly). The
average ticket price continues to rise as well: On average, it
was $1,551.27 in 1996, a 16.2 percent increase of last year’s
average of $1,335.34. (It should be noted that this increase doesn’t
necessarily translate into more profit for owners because, each
year, the cost of replacement parts, components and materials
also increases.)

Before overhead expenses, the average gross
profit margin on parts and labor increased, too – up to 26.5 percent
on parts from last year’s 24.9 percent and up to 51.3 percent
on labor from last year’s 42.9 percent. The average gross profit
margin was 33.7 percent in 1996, while the average net profit
margin was 15.6 percent.

When performing repairs, about 43.5 percent
of labor hours is spent on body work, 31.5 percent on painting,
15.3 percent on measuring and straightening, and 9.7 percent on
mechanical repairs. To make repairs, respondents replace with
new parts 49.7 percent of the time, repair damaged parts 24.9
percent of the time, replace with used (salvage) parts 13.4 percent
of the time and repair with aftermarket parts 12 percent of the
time.

Respondents who prefer used parts to aftermarket
parts cited these reasons:

• better fit;
• quality;
• durability;
• accessibility;
• no choice – "I don’t like used parts," said one
  shop owner, "but I’m forced by insurance companies [to use
  them]."

Respondents who prefer aftermarket parts to used parts cited these
reasons:

• easier and faster to obtain;
• less damage, less rust, less preparation time;
• price;
• misrepresentation by salvage yards about the condition of
  used parts;

• better fit – "quality and fit are getting much better,"
  said one respondent.

Shops had more jobs in 1996, and they also had a bit more room
in which to perform them. On average, respondents had 13.4 bays
(up from last year’s 12.2) and 5,431 square feet of production
space (which doesn’t include office, showroom, parking lot, etc.)

When asked if they increased their production areas in the past
year, 83.3 percent of respondents had not, while 16.7 had. Breaking
that down by sales volume, 94.4 percent of respondents in the
up-to-$124,999-a-year category

didn’t increase production space – the most of any group – while
29.6 percent of respondents in the $125,000-$249,000-a-year category
did increase production areas – the most of any group.

Besides production-area increases in 1996, many shop owners mentioned
that stress levels also increased in 1996. It’s hard to find qualified
personnel; it’s hard to deal with insurance companies; it’s hard
to please customers … Another major stress causer: being sucked
into the insurance-company negotiation process. While shops have
a duty to provide consumers advice concerning the repair options
available under their insurance policies, there’s a big difference
– as many shop owners pointed out – between offering an expert
opinion on repairs and negotiating on behalf of insurers or consumers.

---

Personnel Profile

That was then …

An unthinkable thing happened on Jan. 14,
1914: Henry Ford had the audacity to raise Ford Motor Company’s
minimum wage to $5 a day – and then, as if that weren’t enough,
he allocated $10 million of the $25 million in company profits
for his workers. This will ruin the industry, critics wailed.
Workers will demand more and more until there’s nothing left!
But Ford wasn’t swayed.

"I like to see folks who work hard get
their share," he said in response. "I would rather give
our boys a part of the profits."

There were, however, stipulations. To qualify
for Ford’s $5 a day, workers had to have a comfortable home and
were forbidden to crowd every room with borders. In fact, Ford
had the audacity (no sarcasm this time) to send company men to
investigate their living conditions! Workers also had to prove
they were saving and had to report where they were spending their
money.

No kidding.

These rules were taken so seriously that Ford
employees who didn’t measure up were fired.

This is now …

While more and more business people today
are offering benefits and a piece of company profits – like Ford
did – today’s shop owners are just happy to find employees. It
takes a lot more to get fired these days – in part, because it
takes a lot more to find a replacement! For that reason, most
owners are searching for more effective ways to retain employees.
How? Some, by offering more benefits.

When looking at the U.S. Bureau of Labor statistics
on health and retirement benefits for full-time workers, collision
repair businesses, in general, offer fewer benefits than most
businesses. Statistics also show a significant technician turnover
rate in the collision repair industry (22 percent annually), and
it’s even higher for shops that don’t offer benefits – a whopping
45 percent annually according to the I-CAR Education Foundation,
almost twice the rate of those that offer one to two benefits.

Benefits commonly offered by collision repair
shops include paid vacations, health insurance, life insurance,
tuition reimbursement, retirement and profit sharing.

But benefits alone aren’t enough. There’s
still that little thing called salary that’s often the determining
factor in luring – and keeping – technicians. The majority of
respondents pay their techs hourly (41.3 percent, down from last
year’s 46.5 percent), followed by those who pay them a percentage
of the flat rate (21.4 percent), a percentage of the labor rate
(15.5 percent), salary (13.1 percent), an hourly wage and commission
(12.6 percent), a salary plus commission (8.3 percent) and other
(6.8 percent).

According to I-CAR Education Foundation statistics,
the national annual income in 1995 of a collision-repair technician
(a journeyman or production technician) was a respectable $32,300
(35 percent higher than the national average) – compared to a
carpenter ($30,900), an electronics technician ($30,300) and a
medical lab technician ($25,800). (There’s money to be made in
this industry, but people – parents, high schoolers, guidance
counselors, the general public – don’t know what they don’t know.
It’s up to the industry to tell them!)

Respondents do, however, expect to pay entry-level
technicians less than half of a journeyman’s wages. And this is
getting easier to do considering that experience levels dropped
again this year: 19.2 percent of respondents’ employees have less
than one year of industry experience (as opposed to 16.6 percent
last year), while only 6.2 percent of employees have more than
20 years experience, which isn’t shocking considering that as
many technicians approach age 40, many either leave the industry
or move into nontechnical jobs. Note: Currently, women represent
only about 1 percent of the technician work force. Statistics
also show that only 1 percent of technicians work as technicians
until they retire.

For reasons such as this, many shop owners
say they feel like they’re constantly searching for employees
– and to no avail. Said one shop owner in the Midwest: "It’s
tough to find employees because the only things we really have
to offer are clean air and a low crime rate."

And when employees are found, they’re often
inexperienced – one of the reasons training is becoming more prevalent.
While most companies budget about 10 percent of their revenues
for employee training, past surveys have shown the collision repair
industry, on average, spends less than 1 percent. But that seems
to be changing.

Of our respondents, 81.8 percent said they’ve
sent at least one employee to a training session in the past year.
When asked for the number of days the shop has collectively spent
in training in the past year, 46.5 percent said one to five days,
23.8 percent six to 10 days, 7.6 percent 11 to 15 days and 22.1
percent (up from 18.7 percent) more than 15 days.

Almost 58 percent of our respondents had at
least one ASE-certified employee, and of this 58 percent, on average,
3.79 techs are ASE-certified – interesting because shops now have
an average of 7.8 employees (up from last year’s 7.3). Minus the
statistical jargon, this means that of the shops that do have
ASE-certified techs, half of them are certified.

But inexperience isn’t the only reason for
increased training. Another reason: Company productivity increases
as the education level of its workforce increases. A 10 percent
increase in education level jumps a company’s productivity by
8.6 percent, and a 10 percent increase in employee training raises
overall productivity by 2 percent.

Training benefits the employees as well. As
mentioned earlier, the average collision repair technician earns
an annual salary of $32,300 – and an educated technician makes
47 percent more than a technician who has received no training.

Why such a pay increase for educated techs?
Because the industry is becoming much more complex. It’s been
estimated that technicians must be able to interpret 500,000 pages
of technical text to be able to repair any car on the road, and
new information is being produced at a rate of 100,000 pages per
year.

Besides being good with their hands, technicians
these days also must possess good cognitive skills and have a
solid understanding of math, science and electronics. These skills
are necessary because nearly 80 percent of a vehicle’s functions
are now controlled by a computer – compared to about 18 percent
five years ago. In fact, there’s more computer power on today’s
vehicles than on the Apollo lunar lander that put the first man
on the moon.

Because body shops in the ’90s more closely
resemble a computer lab than a garage, technicians of today –
and tomorrow – as noted by our respondents, need more training
and schooling than ever before to keep up.

---

Purchasing Profile

That was then …

The wood vs. steel battle continues. In June
1926, the National Lumber Manufacturers Association charged steel
makers with "disseminating propaganda against the use of
wooden automobile bodies." "It’s an insidious attack
on lumber," they declared.

The reason for the association’s angst? An
ad, which stated: Automobile Industry Heeds Trend of Progress.
Wood Forced Out by Steel in the March of Progress.

This is now …

Woodies (as they’re now called) lost the material
battle long ago – but are still in demand for nostalgia collectors.
It’s estimated that 7,000 woodies are still on the streets, and
maybe another 2,000 are being restored or rotting away in garages.
There’s even a company in California that builds faux woodies
for clients who want the look but not an old car. The cost for
this customized wooden-bodied vehicle: $150,000.

The switch from wood to steel in vehicle manufacturing
not only created a market for collectors, but also an all-new
ballgame for the collision repair industry. New repair procedures
were needed – and new equipment needed to be purchased to do the
repairs.

Even now, purchasing new tools and equipment
is a constant – mainly because the industry is constantly changing.

To find out about new equipment and products,
respondents rely on jobbers, trade magazines, manufacturers reps,
other shop owners and trade shows – in that order. When asked
what factors influence their overall buying decisions, quality
ranked first, followed by ease of application, price, reputation
of product and their painters recommendations.

Per month, respondents spend:

• $1,955 on paint (FYI: From 1989 to 1996, the cost of paint
  increased about 54 percent),

• $379 on primers,
• $316 on masking products,
• $270 on abrasives,
• $195 on surface prep products,
• $122 on cleaning chemicals,
• $104 on buffing products,
• $91 on fillers,
• $64 on detail cloths and
• $55 on waxes.

Mechanical-parts buying dollars are spent, in this order, at car
dealers, jobbers, salvage yards, warehouse distributors and others;
while crash-parts buying dollars are spent at new car dealers
(70 percent), salvage yards (16.5 percent), import/distributors
(10.1 percent) and others (3.3 percent).

A little more than 68 percent of our respondents purchase crash
parts, and the 25.6 percent that don’t cited these reasons: poor
fit, poor quality, buy only OEM, no profit and no supplier.

On average, respondents use only one brand of measuring/straightening
equipment, but when broken down by sales volume, shops making
$350,000 a year or more typically use at least two brands, and
30.8 percent of shops making more than $1 million a year use three
brands.

More than 65 percent of respondents use only one brand of paint,
while 31.3 percent use two brands, 1.9 percent use three and 1.3
percent use four or more. Shop owners typically make the final
decision on which paint brand to purchase, and factors influencing
paint-buying decisions, in order of importance, are quality, price,
ease of application, reputation of product and painters recommendations.

When we asked respondents what purchases would be most important
to their businesses in the next year:

• 17.6 percent said straightening and pulling equipment. Reasons
  cited: to get more insurance-company business, to keep more work
  in house and to get rid of obsolete equipment.

• 16.7 percent – paint booths. Reasons: to upgrade old equipment,
  to keep up with a backlog of work and to solve dust-related paint
  problems.

• 13.7 percent – computer systems. Reasons: to keep up with
  the industry, to qualify for insurance-company work and to get
  information for paint codes and mixing.

• 9.8 percent – hand tools. Reasons: to keep up with changes
  and to replace lost tools.

• 7.8 percent – measuring equipment. Reasons: to be more efficient
  and more accurate.

• 5.9 percent – lifts and jacks. Reasons: to make repairs faster
  and easier. "[I’m] getting too old to bend down," said
  one respondent. "I’m tall and tired of bending over,"
  said another. "Don’t like bending over. Getting too old for
  that," declared yet another shop owner.
• 9.8 percent said other equipment would be their most important
  purchase in the next year. Other equipment includes air filtration
  and vacuum systems, bake units for spraybooths, exhaust fans for
  spraybooths, prep stations, welders and wreckers.

Overall, planned purchases were down from last year – indicating
that respondents are spending more conservatively these days.
Although 1996 turned out to be a fairly profitable year for most,
respondents weren’t as willing to part with their hard-earned
cash as in past years.