It’s true that big fish eat the little fish in most lines of business, especially in the collision repair field. Whether we like it or not, the Wal-Mart-ization of the body shop business is upon us, which can be viewed a number of ways — most of them positive from the standpoint of the insurance industry. The often-cited advantages of the economies of scale are held out as a firm foundation in support of the trend for consolidated shop operations. And based on the rapid growth of consolidated operations in the U.S. market, that business plan seems to have worked. The industry was, in fact, ripe for consolidation and the efficiencies it brings to the process of repairing collision-damaged vehicles.
While the idea of a consolidator shop may conjure images of low cost at any cost among the more rabidly independent body shop owners, collision repair prices don’t appear to be fat enough for substantial cost-cutting to be accomplished at this point. This is particularly true with the existing DRP systems in place.
Jack Gohsler, senior vice president of Conning & Company and author of a study published in 2000, was quoted in the Insurance Journal as saying: “Insurers do not expect to reduce costs anytime soon because it will take some time for consolidators to perfect their business model. But insurers do expect to see improvements in customer service, which is key to their customer-retention initiatives.”
Perhaps Gohsler was correct in that the most valuable thing to come out of the consolidation trend is the idea of consistency in operations. That is, doing it right and doing it right consistently are essential to success in any operation. And the development of standard operating procedures (SOPs) has done more than anything else to ensure process consistency in a body shop.
“[SOPs] are very important … training, online and manual,” says Clark Plucinski, co-founder and vice president of marketing of True2Form Collision Repair Centers, a major consolidator of body shops. “It’s a never-ending battle and very difficult, but must happen to truly add value. We’re not perfect, but trying hard to get there.”
That seems to be the goal of all the consolidators I spoke with — honing their operations to as close to perfect as possible. And love ’em or hate ’em, these consolidators are your competitors. Are you ready to go head to head with them?
ABRA Auto Body and Glass
Founded in 1984; 92 shops in 12 states.
Rollie Benjamin, co-founder and CEO of ABRA Auto Body and Glass admits to a cooling of the acquisition fever.
“We’ve been less active than five years ago,” says Benjamin. “I guess we’re a little more selective. I think when the private capital equity came into the market a while ago, some high multiples were paid for businesses and motivated some owners to sell. Now the multiples are lower and evaluations are lower, so people have to be willing to sell at lower prices than they were in the glory days. The current situation is if someone is willing to sell in today’s market, we’re selectively looking at opportunities.”
Benjamin says that things slowed down a bit “when the private equity investors didn’t get the returns they were looking for.” And because claims frequency and repairable cars have decreased during the last few years, “it’s been more challenging on the revenue side.”
“It’s still a service business, with quality service and quality operations, which is how you survive in the industry,” says Benjamin. “At the end of the day, you have to figure out how to provide a high level of service and a quality product.”
Like many, Benjamin sees a future with fewer collision repair centers. “The numbers of modern repairable cars has been in some contraction in recent years,” he says. “We’re not fixing as many cars due to total losses. And a lot of people have stepped out and acquired bigger facilities. I think the number of bona fide collision repair facilities is going to continue to contract.
“The way to differentiate is to be a leader in the quality of services and the efficiency of operations. We have to continue to figure out ways to take cost out. We have a long-term initiative called ‘process flow’ in which we determine where the waste is. We’re working on it all the time, company-wide. We’ve made some headway and improved our throughput. It’s the way to make a decent return.
“If we have a repair center with 20 employees and we’re doing $3 million in sales, can we do $3.4 million in sales? Or can we do $3 million in sales with 18 employees? Most of it is a function of labor and efficiency in personnel expenses. … It’s been hard to get quantum gains because it’s complicated with various direct-repair programs and different rules to execute those programs. … I think the various programs — and trying to be compatible with them — have slowed down the gains on efficiency. But we continue to work on this.”
So has ABRA determined an “ideal shop size”?
“I think what we’re finding is that it’s hard to get the kind of workflow into a big, big facility — 30 to 40,000 square feet. It seems like the bread and butter is still at 20,000 square feet on the high side and maybe 10,000 square feet on the low side. That seems to be the sweet spot. In a 12, 14, 16, 18,000-square-foot facility, one manager can pretty much keep his arms around it and keep a decent flow of vehicles — and do it efficiently. It takes kind of a superstar to run those bigger boxes, and I think they struggle from time to time to have enough cars in the door.”
When asked if any DRPs are too prohibitive for ABRA shops to work with, Benjamin replies: “We haven’t found any that are too prohibitive, but some are more challenging than others. … As the industry moves forward, we can work jointly to take out the inefficiencies. We work with [insurers] to continue to examine the things that they may require of us that slow us down. … I’m optimistic that we can work jointly as business partners.”
The Boyd Group/Gerber
80 shops (46 in U.S.; 34 in Canada); $200 million-plus in estimated annual revenue.
The Boyd Group Inc. is the largest operator of collision repair centers in Canada and among the largest in North America. The company operates 34 locations in the four western Canadian provinces principally under the trade names Boyd Autobody & Glass and Service Collision Repair, as well as 46 stores in six U.S. states, principally under the trade name Gerber Collision & Glass.
Boyd’s COO and Senior Vice President Brock Bulbuck responded to several questions regarding his company’s plans and strategies. When asked how Boyd differentiates itself from other large players in the body shop business, he says: “We have a ‘best in class’ service and operating model focused on delivering above-industry-standard service, quality and value to our customers, including both vehicle owners and insurance company customers. While components of this model can be replicated, it’s our overall execution of this model that is our sustainable differentiating factor. Our operating disciplines of standard operating procedures, quality systems and ISO registration all contribute to our successful execution.”
Considering that the ISO (International Standards Organization) has become the pre-emptive force in the establishment of quality standards on both products and process in the world, the fact that Boyd has been registered with ISO is very significant from the standpoint of a collision repair organization. And it was the first collision repair organization to do so.
“In the mid-1990s, one of our Canadian locations became the first collision repair center in North America to achieve ISO 9002 Registration,” says Bulbuck. “In 2000, our entire Canadian operations achieved North America’s first ISO 9002 Multi-Site Registration. In April 2002, this multi-site registration was extended to our U.S. operations.
“In 2004, following the acquisition of The Gerber Group in Chicago and the integration process that followed, we chose to discontinue our U.S. ISO registration. Now that we have completed the integration process and have all of our U.S. operations operating under a standard operating model, with standard operating procedures and many of the same disciplines as our ISO-registered quality system, we’re positioned to consider re-registration of our U.S. operations either now or in the future. However, since we’re achieving many of the benefits of the discipline of having a Quality System in place, we may determine that we do not need to undergo third-party validation through the registration process.”
In terms of their plans for acquisitions and growth, Bulbuck says: “Over the course of our 15-year history, we have gone through several cycles of rapid and aggressive growth, followed by periods of little or no growth, during which time we focus on integrating past acquisitions as well as organic growth and operating efficiencies. We’re currently in such a period but would expect to resume a ‘growth mode’ at some time during the next five years.”
Caliber Collision Centers
Founded in 1997; 68 shops in California and Texas; $200 million in estimated annual revenue.
In 2001, Caliber was the ninth fastest-growing private company in America according to Inc. Magazine. And they were attracting not only the attention, but the money. In 2000, Caliber secured $20 million dollars from a pair of private venture capital groups to fuel the company’s growth. In the fall of 2001, a new group of investors added another $40 million (among this new group of investors were Zurich Financial Services Group, parent of Farmers Insurance, and the Interinsurance Exchange of the Automobile Club of Southern California).
This turned out to be the beginning of more than two years of turmoil for Caliber as California’s Bureau of Automotive Repair (BAR) and state attorney general made the consolidator (now owned, in part, by insurers) a high-profile target.
The California attorney general filed a consumer fraud lawsuit against Caliber, alleging they violated unfair business practice laws. Whether or not Caliber’s trouble with the BAR and AG was the result of systematic fraud or the California’s political atmosphere is debatable. Regardless, Caliber settled for $5.8 million in August 2004 — paying $3.3 million in civil penalties and an additional $2 million to cover the costs of investigating and prosecuting the case, as well as the monitoring of Caliber’s compliance with the settlement.
Separately, Caliber settled with the BAR for $500,000 to resolve its disciplinary actions against Caliber. Caliber also agreed to provide free repairs to victims identified by BAR (100 customers) and to eligible customers who had their vehicles repaired at Caliber shops between Aug. 1, 2002 and July 31, 2004, thought to be 56,000 customers. In addition, 19 of Caliber’s 38 California shops were suspended from operating for one to five days, and all 38 California Caliber shops were placed on probation for three years. During the probation period, the BAR settlement requires Caliber to allow the BAR to conduct random inspections of vehicles undergoing repairs.
With all that finally behind them, Caliber announced in October 2004 that Dan Pettigrew would take over as its president and CEO, assuming the responsibilities of Matt Ohrnstein, who remained as chairman of the company. In November 2005, John Hovis replaced Pettigrew as president and CEO. Because Hovis wasn’t available for interviews while I was writing this article, I spoke with John Walcher, vice president of Corporate Development & Government Affairs.
When asked what makes Caliber different than the other collision repair consolidators, Walcher says: “We won’t assume we know enough about others to make those comparisons. We know that Caliber has gone through some significant challenges in the past, and we’ve proven our resiliency. In the process, we’ve learned a lot about ourselves and believe that knowledge can benefit our company and the industry. Looking forward, we share the same goals of high-quality repairs and customer-focused service as our peers, and we take pride in our responsiveness to the demands of our markets.”
When asked if Caliber remains committed to insurance partnerships as a major source of income, Walcher says: “Caliber is committed to providing high-quality repairs and superior customer service to all customers, regardless of who pays the bill. It’s a fact that every repairer faces: Insurers are a major income source. We will continue to maintain and nurture relationships with insurers who share our commitment to quality. We also will continue to grow our dealer relationships and to maintain our strong reputation to attract self-paying customers.”
So what’s next for Caliber?
“Like our consolidator friends, our initial focus was on fast expansion and growth in the early years,” says Walcher. “With the benefit of experience, we look to the next five years as being focused on strategic growth and continuous improvement of our process and services. We’re constantly evaluating our business and looking for opportunities that will ensure that we’re well-positioned to efficiently and effectively run our business and serve our customers and clients.”
Cars Collision Group
Founded in 1998; 30 shops — 8 in Colorado, 14 in Illinois and 8 in Indiana.
The Cars Collision Group opened their first collision repair facility in 1998
with the purchase of Northwest Auto Body in Chicago, Ill. Auto Magicians LLC (as it was then known) purchased two other locations before the end of 1998 — North Rand Auto Body in Palatine, Ill., and Amwood Auto Body in South Holland, Ill. Since then, their name has changed to The Cars Collision Group, and growth continues in the Metropolitan Chicago, Colorado and Northwest Indiana markets.
CARS Collision Centers’ CEO Don Mikrut spoke with me about what differentiates his organization from other consolidators. “One is systems and technology that increased efficiency,” says Mikrut. “We built our own management system that’s a fully integrated piece that does scheduling, HR, accounting and increased overall efficiencies for us. We have a full integrated call center … that acts as a hub for assignments and a lot of internal measurement we use to police our facilities. I think that sets us apart because we can manage our entire company from one point. I think a lot of large groups struggle with that type of management.”
Mikrut also spoke of key performance indicators (KPIs) in terms of how CARS performs in the eyes of insurance companies.
“Every company measures KPIs differently,” he says. “Some look at CSI, some look at cycle time, some look at severity, hours produced per day, alternative parts usage, repair vs. replacement. … Every company takes those same measurements and figures out which are the hot ones. … We built our own systems, and we produce our own KPI reports. We drive our business the way [insurers] are driving us.”
When asked whether the tech shortage that plagues many shops today affects CARS, Mikrut says no: “We have a competitive benefit package, our facilities are all air conditioned and we have amenities and working conditions inside our facilities that we feel are very high in the industry. We don’t have a huge struggle finding technicians. In fact, the average age of our technicians is relatively low — in the mid-30s.”
Mikrut says the company’s five-year plan is to continue to improve their standard operating procedures under their business relationships, continue to fill out in marketplaces where they already exist and look for opportunities in markets that present themselves.
As for his take on consolidation in general, Mikrut says: “I think overall consolidation has come to a stalemate because we’ve seen groups like M2 and CTA fall apart. They struggled with the large, multiple shop organizations. In the beginning, a premium was being paid for a successful business. Today that premium doesn’t exist. … There’s a blue sky that people once paid for that isn’t there today.”
Became Collision Revision in 1995; 33 shops in Illinois, Indiana and Florida.
Roger D’Orazio, founder and owner of Collision Revision, opened his first shop in 1976 in Rockdale, Ill., and now has 33 locations under the Collision Revision name. So what makes Collision Revision different from other industry consolidators? “We’re probably more standardized than most,” says D’Orazio. “Eighteen of our locations are greenfields [built from the ground up]. The smallest is 8,000, then 12,000 and 22,000 square feet. I do have a couple of 50,000-square-foot boxes.”
Collision Revision is also focused on customer satisfaction. “Every car has an in date and an out date,” says D’Orazio. “Those dates are based on original estimated labor hours on the job. … Every morning at every location, we discuss every single car’s target date. All the men stop work and go over every single car. We desperately try to make the original date.”
Collision Revision monitors quality through an ongoing system. Says D’Orazio: “Every car goes through a 38-point checklist that’s checked off by the repairing technician, then an 8-point checklist that’s done by the production manager. Then the detailer runs another 12-point checklist.”
Collision Revision had its own training department for 10 years, but then three years ago, partnered with Universal Technical Institute out of Houston, Texas. “We hire mainly from their graduates,” says D’Orazio. “We offer a trip program and an intern program.” As far as advancement in an employee’s career, D’Orazio says: “Anybody who shows any promise moves up.”
To what does D’Orazio credit his company’s success? Economies of scale. The biggest advantage: health insurance. They’re partially self-insured, which D’Orazio says, has been a huge savings and “allows us to give our people better rates. Our retirement plan and our paint purchases and our computer purchases are also consolidated. We have yet to consolidate our OEM and LKQ parts purchases.”
So what does the consolidation of the industry mean to the independent player? “I think it’s sad, particularly where I come from, because I was an independent shop,” says D’Orazio. “I don’t know how they’ll be able to compete from a pricing standpoint, or even from a cost standpoint. I don’t see how they’ll be able to afford insurance and all the other things the economies of scale bring to us. The day of the independent shop is like the old hardware store — within 10 years, it’ll be like the Home Depots.”
Sterling Auto Body: a Horse of a Different Color
Founded in 1997; 64 shops in 15 states.
Sterling Auto Body is a wholly owned subsidiary of All-
state Insurance Company non-insurance holdings, but is nonetheless a consolidator of body shops in the United States. They currently operate 64 shops in 15 states — they recently opened their 64th store in San Jose, Calif. — and, according to Mike Siemienas, a spokesperson for Allstate Insurance Co., they’ll open their 65th store in April in Ontario, Calif.
When asked which markets Sterling was focused on, Siemienas says: “Sterling is constantly evaluating the store locations based on [our] customer location, and this can lead to both the opening and closing of the stores.”
When asked if Sterling shops will offer deeper discounts to other insurance companies than what’s commonly found in the collision repair marketplace, Siemienas says: “Sterling has not entered into direct-repair agreements with other insurers. We select our locations based on a heavy concentration of Allstate customers in the vicinity.” That said, Siemienas adds that even though Sterling’s primary customers are Allstate insureds, they welcome customers from other insurance companies, referrals and walk-in customers.
What sets Sterling apart from other consolidated repair centers? “We feel that we have several different factors that differ from the typical collision repair facility,” says Siemienas. “We have the team that brings together individuals with specialized skills and that helps move the vehicles through a multi-step process, and we have quality-control systems in place throughout the process. We also do a comprehensive damage analysis and parts procurement before the repairs begin to help prevent bottlenecks.
“Customers and claimants receive timely communication about the progress of their vehicle and a guaranteed completion date. Sterling’s work has a lifetime guarantee that includes all parts and parts installation.”
According to Siemienas, 94% of Sterling customers indicate that they would refer family and friends to Sterling.
Founded in 1996; 35 shops in Ohio, Pennsylvania, Maryland and North Carolina.
True2Form was formed in 1996, when four shop owners — Dan Hall, Rex Dunn, Chris Getz and Clark Plucinski — joined forces. A decade later, Dunn serves as True2Form’s president and CEO while Plucinski serves as vice president of marketing (Getz and Hall are no longer part of the company).
So what does True2Form have going for it? According to Plucinski, True2Form’s consolidated operations offer a number of advantages for an insurance carrier. “We offer a larger investment in technology, we’re working on avenues to build consistency, manage repair cost, invest in equipment and training and turn the vehicle in a far more reasonable time than in days past,” says Plucinski. “We’re averaging 3.5 to 4 hours per car, which isn’t great but improving due to focus on blueprinting — getting it right the first time.”
The 3.5 to 4 hours per car he’s referring to is the actual time a tech has his hands on a car. According to Plucinski, the industry average is 1.5 to 2 hours per day — due to parts delays, poor scheduling, supplements, etc. He attributes the 3.5 to 4 hours to their lean production model.
In addition, says Plucinski, “The added resources in the market allow for larger volume through a single point, coordination of services, centralization of services. We have the ability to fix hundreds of cars per month versus 10 per month. … Most carriers like the idea that we have capacity and a proven record of reducing cycle time — improving overall customer satisfaction for us and the carrier, thus improving policyholder retention and helping manage cost, without sacrificing quality.”
Is True2Form still actively pursuing acquisitions? Yes and no.
“We only consider acquisitions where the economics really make sense,” says Plucinski. “Our focus on growth has been in our existing markets. We find it far less pricy to build new greenfield or remodel existing brownfields rather than to acquire. That said, we always look for winning combinations — location, personnel, those who may see the benefit of joining our team. In short, we leave the door open for those who want to talk.”
The Demise of M2
As of April 17th, 2005, M2’s doors were bolted shut. More than 700 people were not only out of work, but out their last paycheck (it bounced). Photo courtesy of BSB Contributing Editor Toby Chess.
On the other side of the consolidator coin is the case of M2 Collision Centers, which went belly up last year after creditors got spooked and pulled the plug (even though Caliber Collision Centers had planned to purchase M2 — which included 27 shops in California).
So what caused M2’s demise? Let’s take a quick look: M2 was founded by D. Hunt Ramsbottom, who once owned Thompson, a paint supply business he eventually sold to FinishMaster. He had experience consolidating paint jobbers and, rumor was, started M2 in 1996 with the goal of creating an Initial Public Offering (“going public” to get rich quick). Ramsbottom later admitted that running a collision repair business was harder than it looked: “When I was selling paint, we had 3,000 to 4,000 customers around the country. Here, I’ve got five or six major customers [insurers] that decide our fate from one day to the next. … I thought it was an easier model than it really is.”
So where did M2 go wrong? In the old days, you could only pick two — price, quality, speed. Today, shops need to provide all three. But what insiders saw from M2 wasn’t a commitment to become better, but to cut costs without improving operations. And if you aren’t improving operations and becoming more efficient, then there has to be enough volume at a price to make the business profitable. You can’t compensate by doing an increasing volume of non-profitable work.
Here to Stay
If you’re reading this and hoping that a consolidator will be making you an offer on your business some time soon, don’t hold your breath. The fast pace of the consolidators’ rate of acquisitions appears to have slowed on an industry-wide basis.
As for the future of the industry, Collision Revision’s D’Orazio gave his forecast: “The industry is going to continually get more difficult to operate in as consolidation continues to take place. We haven’t seen the end of the insurance industry’s pressure to reduce severity, cycle time and costs.”
The controversies with respect to the demise of the independent body shop aside, consolidator shops appear to be here for the long term. Based on the industrialized business model with multiple DRP contracts, the idea seems to have gained sufficient traction in the market to endure. While the heyday of consolidator acquisitions appears to be behind us, the biggest players are still growing steadily in their selected
Consolidators offer increased buying power for their participants, which yields higher potential for profits in a game in which the revenue stream is, by and large, maintained by third-party payers. A consolidated operation also provides name recognition for consumers, as well as, in some cases, national warranty coverage under their brand, which is a considerable plus in these days of consumers holding onto their cars for longer periods of time.
Five years ago, some analysts were predicting that consolidators would own as much as 30% of the body shops in the United States, a prediction that turned out to be off the mark. They also said that by 2005, 80% of the work would be done by consolidated shops, which was another example of over-exuberant thinking.
That said, the consolidated shop model has proven itself over the last six years in terms of staying power and sustainability. Consolidators give their participants consistency in process, cost containment and cycle time reduction, all of which make one a tougher competitor. Chances are good that if you’re in a major U.S. metro market, you’ll be competing with them for customers in the years to come, if not already.
Writer Charlie Barone has been working in and around the body shop business for the last 35 years, having owned and managed several collision repair shops. He’s an ASE Master Certified technician, a licensed damage appraiser and has been writing technical, management and opinion pieces since 1993. Barone can be reached via e-mail at [email protected].