In past years, the message conveyed to CARSTAR franchisees at the annual CARSTAR conference was business-focused but fun and lighthearted. This year’s message, however, was delivered with a bit more urgency and seriousness.
With 4,000 to 5,000 collision repair facilities closing within the last year, including some CARSTAR shops, CARSTAR CEO Dick Cross felt the need to strike a different tone at this year’s annual gathering of franchisees and insurance partners in Hot Springs, Va.
“We have some important business to attend to,” Cross told the audience.
That important business includes, among other things, rolling out new software in all stores in 2011 that will allow for the daily tracking of data on every single vehicle being repaired in CARSTAR shops.
“That’s the big piece we see that needs to be done to allow us to produce predictable outcomes and have a competitive advantage,” said CARSTAR President and COO Dan Bailey. “With the way insurers do business today, we know we outperform our competition, but it’s not good enough to just say it. We have to prove it.”
CARSTAR has been working on the proprietary system with Mitchell International for over a year. It will beta test the system and then begin installing in stores in the first quarter of 2011.
“We’re moving into a new era where the stores that get the majority of the work are stores that not only have extraordinary performance but document and demonstrate that performance,” said Cross.
Cross predicted that over the next two to three years, more shops will continue to close, and the concentration of revenue among the stores remaining will be much tighter.
“We see a very small number of stores controlling north of 70 percent of relevant revenues coming from insurers in a short period of time,” he said.
The CARSTAR leaders admitted that some of their stores have also fallen victim to the tough economy. Cross said the closings sent a “sobering but inspiring” message. He says the stores that had the most trouble participated the least in the “CARSTAR system,” but those that “drank our Kool-Aid to the last drop” doubled their revenues. Also, the stores that closed were driven out by issues with their balance sheets.
“We have now become much more involved in the debt structures of our franchised businesses,” Cross said.
Bailey said that CARSTAR addressed this crisis over a year ago by putting together a “store trouble program” that offered assistance to those stores that either CARSTAR identified as being in trouble or ones that asked for help on their own. Some of the stores graduated from this program with flying colors, while others ended up closing. Bailey recalled eight specifically over the last few months that didn’t make it. In some cases, Bailey said CARSTAR was able to facilitate the purchase of some of the closed shops by stores that were thriving and looking to add a third or fourth location.
Despite the closings, Cross said that CARSTAR is excited about the opportunities that consolidation has brought, calling the next 18 to 24 months “the best business opportunity we’ve ever experienced.”
“When you look at the history of any industry, the truth is when it starts to consolidate, effective scale wins,” said Cross. “We think we’re ahead of the curve.
“The new thing on everyone’s mind is fear fear of not making it and not having scale. The best owners who have been reading that handwriting on the wall that was in 8-point Times New Roman are now seeing it in 36-point bold and are saying, ‘I need help to get through this thing, and I don’t want to be the last independent hamburger stand in town.’ We know we’re in a position to help those people, and that feels good for us.”
The recent concern over the quality of aftermarket parts vs. OEM parts has not been ignored by CARSTAR. In fact, Cross said his company is still not happy with the questions this controversy has raised.
“We’re absolutely ready, willing and able to use aftermarket parts as long as they don’t disrupt the repair process or result in dangerous vehicles on the road,” Cross said. “We’re doing everything we can to ensure that the parts delivered to our stores meet certain standards. And I know we’ve squared off with some of our suppliers, and that’s a position we’ll take on behalf of consumers and our industry.”
Cross said CARSTAR has also communicated with insurers “the devastation that receiving inappropriate parts causes to cycle time and the quality of our performance.”
Bailey said CARSTAR has been actively working with the Automotive Service Association and the Society of Collision Repair Specialists to find a solution to the parts dilemma.
“I don’t care if Betty Crocker makes the part as long as it’s like, kind and quality,” he said. “There needs to be a certification process in place to protect our store owners, vehicle owners and insurers. I’m not happy that thousands of aftermarket safety parts have been put on vehicles and there is no recall process to take them out of the market.”
All Cross would say about the industry’s No. 1 problem is that CARSTAR is on the “sidelines,” having not taken a position.
“Every consumer has the right to choose, and we hope our stores are making that appeal every day,” he said. “We’re continuing to simply keep our head down; drive our stores to deliver industry-leading performance; improve the granularity, quality and timeliness of the data we have at every store and roll it up so we can present it to the people who want to hear about it; understand where there are opportunities to improve our system; and drive into our stores an ethic of extraordinary customer experience.”
CARSTAR is currently in the process of getting its stores to minimize their environmental impact by going "green," with 12 stores nearly finished with CARSTAR’s green certification program and 35 stores out of 265 converted to waterborne/low-VOC basecoats.
"The first step in going green would be to go waterborne, then look at recycling bumpers, tires, metal and cardboard, changing light fixtures that burn less energy, going paperless, etc.," said Bailey. "We’re moving in that direction and feel it’s the right thing to do."
Added Cross, "We’re beginning to prove to ourselves that green makes economic sense. The enthusiasm is there from owners, employees and consumers."
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