“We’ve been a PRO shop for Allstate for 15 years,” says a New Orleans shop owner who’d just learned Allstate purchased Sterling Collision Centers, a consolidator with 39 shops. Though this shop owner didn’t see it coming, he did know something was up. “Several months ago, [Allstate] reviewed our estimates written for them. After a couple visits, I could tell they had a hidden agenda. They were asking us to cut corners to lower our dollar amount charged to them. Then yesterday they e-mail us a news release [about purchasing Sterling] and advise us there will be little change in our PRO shop network in the ‘near term.’ But I think we can see the handwriting on the wall.”
In this shop owner’s case, the handwriting he sees says: If – and when – a Sterling comes to town, prepare to lose 30 percent of your business.
But other PRO shop owners with a Sterling already nearby have a more immediate concern: How much longer before Allstate starts directing its work to the Sterling down the street?
Not long. A time period made even shorter given the fact that State Farm quickly announced it was severing its DRP relationship with Sterling. If other insurers follow, the question then becomes, “Can Allstate work sustain Sterling?” Regardless of what other insurers do, PRO shops with a Sterling facility nearby should prepare to kiss at least some of that business good-bye.
Even sources at Allstate don’t dispute that, admitting that Sterling will receive preferential treatment. The treatment will work much like Allstate’s Enhanced Pro program used to work: Instead of supplying consumers with a list of five PRO shops, Allstate gave them the name of only one PRO shop. And if they chose that one, that was that.
In markets where Sterling has a presence, Sterling will be that one named repair shop. And only if a consumer doesn’t want to go to Sterling – or if Sterling is filled to capacity at that time – will a non-Sterling PRO shop be recommended.
Allstate’s also aware that if they’ve got a PRO shop in a Sterling market that gets only $500,000 worth of work this year instead of the $1 million it got last year, then their leverage with that shop for a discount isn’t as good. Though Allstate says they’d understand if a shop owner told them he couldn’t afford to give them the discounts he had before, Allstate doesn’t deny that they’re going to use their volume to their advantage. Meaning, if you’re a PRO shop and you decide to decrease their discount, they just might shift all their business somewhere else – and get an even bigger discount from the PRO shop they’ve shifted their business to.
It’ll never work, you say, because collision repair is an art form and insurers don’t have the skills to pull it off. From the sounds of it, Allstate already knows that. “We don’t intend to run Sterling. We run insurance companies well, but we don’t run body shops worth a damn. We’ve already proven that to ourselves,” says an Allstate source, adding that this is the reason they bought Sterling. “What we’ve found is that Sterling is remanufacturing cars. They recreate the repair experience and repeat it over and over so the quality consistency is better and it runs more like a business than a family-owned custom body shop.”
But why buy Sterling then … if they’re not going to run it? To differentiate themselves from other insurers. If Allstate can reduce the complexity of claims handling, reduce the amount of hassle its customers go through and return vehicles back to its policyholders faster (industry-low cycle times is something Sterling’s known for), customer satisfaction will improve – and so will Allstate’s policy renewals and profits. And because, on average, new insurance policies are unprofitable for the first four or five years, policyholder retention is crucial.
Though Allstate may claim it’s not going to “run” Sterling, many still predict that Allstate will have a hand in how vehicles are repaired. For example, will Sterling – which has historically taken an anti-aftermarket crash parts stance in order to focus on reducing cycle time – suddenly reverse that stance? Allstate sources say that as long as the overall cost of doing business with Sterling is where it should be, that’s not going to happen. And if it did happen, it would be up to Sterling on how to reduce those costs. But only time will tell, as this repairer points out: “The proof of success or failure of this endeavor will be the vehicles repaired by this two-headed entity.”
“What’s next?” asks another repairer – being only half facetious as he adds, “Maybe in-house doctors performing minor out-patient surgery at drive-in claims centers? Or better yet, have your car repaired and a broken bone set all at the same time.”
Time will also tell what this purchase means to independents, dealership shops and other consolidators – both DRP and non-DRP. Though some non-DRPers are patting themselves on the back and taunting DRPers with “I told you so,” other repairers are wisely suggesting it’s time all shops focus less on their differences and more on consumer education. “It really depends on who’s first to educate them,” says a Florida shop owner. “Proper education of the unwary, trusting consumer is where the difference will be made.”
Though no one yet knows how this purchase will ultimately affect the industry, one shop owner who, like many of you, is uncertain about his future, says this: “If you can’t change what’s taken place, you need the strength to deal with it, embrace it and make the best of it.” And that, in these uncertain times, is probably the best advice anyone can give.
Editor Georgina Kajganic can be reached at [email protected].
