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David Lapps has spent more than 35 years with Maaco, using aggressive retail strategies to develop auto painting and body work markets across the U.S. In this Executive Interview, Lapps talks about Maaco’s shift in its marketing message, its process improvement and its aggressive growth strategy in the collision repair market.
David Lapps has spent more than 35 years with Maaco, using aggressive retail strategies to develop auto painting and body work markets across the U.S. He continues to be instrumental in developing the chain’s evolving merchandising, sales and operating systems.
After graduating from Temple University in Philadelphia, Lapps joined nearby Maaco as training director in 1974. He then headed the franchise development team and the inventory sales and service group. He has chaired all national franchise meetings and conventions for more than 30 years.
Lapps was promoted to vice president of operations in 1993, overseeing training, new center development, regional sales management and customer service support. He made sure franchisees were trained and supported in a way that encouraged their implementation of the operating system. In 2009, he was appointed president and COO.
“This business is about generating customer satisfaction,” he says. “Our mission is to be recognized by consumers as North America’s body shop for all of their automotive collision repair, body work and painting needs.”
In this Executive Interview, Lapps talks about Maaco’s shift in its marketing message, its process improvement and its aggressive growth strategy in the collision repair market.
Why does everyone have the perception that Maaco is fast and cheap?
One of the reasons is the marketplace we’ve historically played in. And the perception even extends into my own family. For example, my daughter’s fiance was involved in a car accident and decided to pay out-of-pocket. He took the vehicle back to the dealer, but the price to fix the damage was too high. So my daughter called me and asked, “Dad, do you guys do collision work?” She has been in and out of Maaco shops her whole life and didn’t know that we do collision repairs. So there’s something powerful going on that caused her to ask that question.
It’s the same conversations we’ve had with insurance executives over the last several years who didn’t know about all the things we can do. If you think of Maaco, you think that our shops are filled with 12-year-old Fords. You think that we’re painting older cars and people are spending a couple hundred bucks because we advertise $249 or whatever price. The problem is that over half of our work today is late model spot repair work. Why don’t people know that?
If you look at how we market, we market heavily to that overall paint customer. We compete not with other body shops for that business but with all retailers vying for a piece of the consumer’s discretionary income. There’s no compelling reason for people to paint their car other than they think they’re really going to like it, the price point represents great value and it’s going to be convenient. So this is the message we’ve been overwhelmingly sending out over the last 36 years.
The insurers we’ve talked to haven’t suggested that we stop that message because they understand our objective is to not give up that business. Our objective is to communicate to the world that half of our business is now late model repair.
Our marketing message has been that we are old car painters. But we can paint new cars, too. Following the classic body shop standards in painting a late model car will put the price point at close to $5,000 because you’re going to detrim, strip the paint, repair the metal, replace parts, put really good substrate on it, use a high-end basecoat/clearcoat, color sand and polish, etc. On some cars, this is the process that occurs at Maaco, but it just wouldn’t make sense to do this on a 12-year-old Ford.
What have you done to ensure Maaco shops can handle repairs of newer vehicles?
In 2001, we started a program called “Quantum Leap” to ensure that our processes and standards were up to snuff. We redefined our standards for paint jobs, collision repair and spot repair and ensured that those processes were part of the Maaco system. It included prepping for spot repair, proper color match and blending, denibbing and polishing, etc. We’re checking on those standards and processes, production methods and other variables relating to CSI and net promoter scores.
We’ve also revised our image standards, too. We’re doing regular inspections and are constantly evaluating how our centers are treating our customers. If a problem emerges with a customer, we get involved right away. If need be, we take the vehicle to another shop, pay for the repair and guarantee it.
The problem is that our marketing hasn’t caught up to all the services we do now. So we’re trying to reposition ourselves through marketing so that people understand the scope and breadth of what Maaco has to offer. We want to let people know that whether they want to pay out-of-pocket for a late model job, go through insurance and have the vehicle put back perfectly, squeeze a couple more years out of an older car or get a state-of-the-art paint job, we can do all that.
The collision repair industry is struggling right now, and there are a lot of investors who might take one look at it and run as fast as they could the opposite way. Clearly, Maaco is taking the opposite approach. What does Maaco see that others don’t?
People point to what happened to Fox Collision Centers a few years ago to illustrate how difficult it is to eke out a profit these days. But with any business, the key is to have a diversified product service mix. If we put all our eggs in the one basket of doing all DRP work, we would find ourselves in a similar situation as Fox was. We’re not interested in being the nation’s DRP provider. We believe there’s a mix of work at every Maaco center that looks a certain way: a certain mix of insurer pay, customer pay, later model minor scratch and dent repair, and overall car painting.
The standard mix of work we ideally work toward is 15 to 20 percent late model insurer-pay work and 80 to 85 percent customer-pay. We would like to expand insurer pay so it’s more like 30 to 35 percent. But the real objective is to grow the total number of units produced in a store. If the average is 25 to 30 vehicles per store, we want to increase that to 40 to 45 units. If we’re doing 12 to 15 spot repairs per store, we want to boost that to 20 to 22.
The market is shrinking and a lot of shops are going out of business. Maaco is looking at what’s happening as an opportunity to gain market share and leverage the number of shops it has to establish business relationships with insurers as one part of its strategy. But what are you doing most aggressively to grow?
We’re pushing people to convert their body shops to Maaco shops. We’re talking to people whose business has been cut in half due to being cut out of DRPs. These people are looking for a company that has the ability to create activity at the door and has a marketing program because all they had was an aggressive DRP effort and a Yellow Pages ad.
But there’s a bigger issue going on here. What these people are really looking for is an exit strategy. By converting to Maaco, their shops become significantly more sellable than they were when they were declining due to the loss of DRP relationships.
Our system is predicated on the ability to provide more value to customers by doing more work. Therefore, we need to drive more prospects to the door and convert more of those prospects into customers, and that’s why we spend a lot of time on lead generation another benefit of being a Maaco shop.
How long after a person converts his or her shop to a Maaco shop can he or she sell it?
Some people want to make it simultaneous with the conversion, but we’re concerned with that because the conversion program is predicated on the customer base they bring to us. I think the owner needs to stay on at least a year. If they have someone in mind to sell it to and they believe they can sell it for more as a Maaco, I think that’s great. But the bulk of those people aren’t at the stage where they’re ready to get out right now. It’s something that concerns them for the future.
This doesn’t mean we’re talking to people who aren’t looking for a more immediate exit and to sell to someone as part of the Maaco conversion. There are significant discounts on franchising costs to those people who bring a customer base to us. But therein lies the rub. Let’s say they bring us $600,000 to $700,000 worth of business, based on the fact that they had been a $2 million business but had dropped to $1 million due to the loss of DRPs. But it’s not really $1 million because it’s safe to assume that some customers won’t come along immediately due to the shop being converted to a Maaco. I don’t take that personally, but that’s just the reality of the situation! So we estimate that three-fourths of the customer base will stay. Then, we grow the Maaco business on top of that. In a very short period of time, you have a very strong business making very good money.
If you partner with Maaco, your shop will be worth more and you can sell it more easily. If you sell your collision business on its own, the universe you’re selling to is small. If you sell it as a Maaco, that universe expands dramatically, because rather than just having people from the body shop business being the only ones interested in it, you also have interest from regular businesspeople who are looking to buy a profitable franchise business.
It comes down to where you are currently with your business. If you have a profitable business and your only consideration is to get out, then you’re in the catbird seat. I was talking to one shop owner who used to do $2.5 million, but because of losing some DRPs, he went down to $1.3 million. So his selling position isn’t as strong as it was two years ago. Therefore, it may be more advantageous for him to build that business back up by having a marketing program that can do that. The guy who has a successful business doesn’t need us.
How much is it to buy a Maaco franchise?
The standard licensing fee is $40,000, and we’re finding that is not prohibitive. Where buyers get a break is having the ongoing franchise fees significantly reduced for the first four years. Some of the typical things a shop has to do are convert to our shop management system and change its exterior and point-of-purchase signage.
There are obviously other companies that you’re competing against in the quest for more market share CARSTAR, for instance. What’s your strategy for competing against them?
I wish them luck, but the difference between us and them is that our product mix is significantly broader. They may see that as a disadvantage, but I see it as an advantage. The other difference between us and CARSTAR is that we spend $23 million a year in advertising, with another $5 million to $10 million spent locally by franchisees. That’s Maaco’s strength the ability to create activity at the door. To be honest, we don’t really view CARSTAR as a competitor because we’re really concentrating on our customer-pay business. It’s only now that we’re aggressively moving into the insurer-pay business.
One of insurers’ primary objectives is cost containment. How does Maaco intend on doing quality repairs at insurer-controlled prices?
Our system has always been predicated on volume being a significant driver of the bottom line. One of our advantages is that we don’t have a limited number of units trying to carry an entire fixed cost structure. Second, our system has always been heavily focused on waste management and cost containment. We have specific standards for managing the various labor, materials and parts costs. So if insurers are looking for discounts, our model certainly allows for that. The problem is when you put all your eggs in one basket, and you don’t have the volume to support yourself and don’t have the proper mix of work and you’re giving a tremendous amount of margin away on the work you’re doing.
Aside from severity and cost containment, I’ve also found that one of the most important things to insurers is those metrics that indicate they’ll retain their customers after the claims/repair experience: CSI, cycle time, etc. And I think that’s one of the places where we have the opportunity to shine. We can create an extremely positive customer experience for insurers, and we have the administrative processes to not only handle that at the center level but at the national level.
We currently have over 20 shops that are fully certified DRP shops and probably another 40 that are fully qualified and working to get on DRPs, and 300 stores that have been certified for late model repair but are still working through some issues. But it is a struggle right now given the consolidation going on with DRPs.
So you’re finding it difficult to get on DRPs?
Absolutely. But where there’s going to be opportunity, there’s going to be opportunity. In certain areas, insurers have all the DRP shops they need, but in some markets, they don’t. When a need exists and the demographics are right for the insurer, all we’re saying is consider us. We’ve had tremendous growth in the Denver, New England and Florida markets. If an insurer has plenty of DRPs in one area, we’re not going to get any unless that insurer becomes unhappy. But again, it’s not our only marketing strategy.
Do you think that a shop owner has a better chance of getting on a DRP if he or she converts to a Maaco?
Possibly, but that may not be his or her only strategy. He or she may also want to increase the amount of customer pay work or add fleet work. We have a $32 million national fleet program to tap into. Or he or she may also want to enjoy some of the overall paint business.
How does Maaco intend to combat steering?
To the issue of steering, all we want is for people to know the full story of who we are so they might consider Maaco. We don’t want insurance agents or claims reps to think that Maaco “doesn’t do that kind of work.” Again, that’s our marketing problem. With our new advertising, we’re not only trying to make an impact with the retail public but also those players in the insurance industry who will hopefully say, “Oh yeah, Maaco can do that.”
All we want is our fair shot. We believe we have a big enough footprint and marketing capability that if we get the right message out there, there’s still plenty of work for everybody. The industry is shrinking but it’s as much a function of what insurers are doing as it is what consolidators are doing.
Regarding your “lean” process, do you subscribe to the “Toyota Way,” or is it Maaco’s own way?
Our system has always had similar processes to Six Sigma, continuous improvement, etc. We’re constantly evaluating where we stand. As we moved through the process of late-model repair, making sure we were delivering to the standards necessary, we discovered certain problems in our production system and started working with our franchises to fix them.
One of the major issues we encountered concerned our contamination control because the standard for late-model repair is “no speck of dust.” Therefore, we had to start using a faster-drying clearcoat. In order for us to finish vehicles in a production-friendly timeframe, we had to reconfigure our production process at the shop level. It was a little bit of a cultural shift for us, since our system had been a five-station production line that was unique in the industry designed to increase efficiency and manage cost. Managing cost does two things: it increases profitability and allows you to give more value to customers. The more efficient you are, the more value you can give.
A lot of people would like to know how rapidly the industry is shrinking. To give us a sense of how many repairers are looking for an exit strategy, can you tell us how many inquiries you get a month?
In a typical month, we get 400 inquiries. About 10 percent of those are collision repairers who are interested in converting their shops to Maacos. The rest are simply businesspeople who like our business model and want to open a new business.
Many shop owners want to know how much their business is worth. How does Maaco determine the value of a collision shop?
The single most important aspect to determine the value of a shop is the way anybody values a business: EBITDA, or Earnings Before Interest, Taxes, Debt and Amortization.
What profit is the shop making? Typically, it’s somewhere between two or three times earnings. So a shop that’s netting $300,000 a year could be worth $1 million. If you’re interested in selling your business, you must do everything in your power to make sure your business is profitable.
Another factor that may increase your business’s value is if you’re in a good location where it’s hard to get a lease. That multiple of two to three times earnings may go up to three or four. Or, in a lot of cases, what increases the value is the seller also selling the property along with the business. That makes it significantly more fundable because the bank can then look at an asset that’s more bankable than just the business.