People with no experience in the business came in, making major changes,” says Rick Wood of Wood’s Collision (who bought the M2 San Ramon shop) about M2’s demise. “Funny isn’t it, how a lot of smart, better educated people thought they could do a better job than those of us who have been here for years. Well, look who’s standing at the end of the day.”
A lot of independents like Wood aren’t exactly broken up over consolidator M2’s closure. In fact, some independents are even semi-rejoicing – and attributing M2’s downfall to “those cocky suits who think they can come into our industry and get rich quick.”
And while there is some truth to that statement, I feel as if many independents are missing the big picture here – the moral of the story. And they’re now basking in the false assumption that M2 failed because this industry is too difficult to consolidate.
Schew … crisis averted. Life can continue on as always.
If only it were that simple.
But in this era of courting volume from insurers in exchange for promising them the world, what happened to M2 isn’t just a “consolidator” issue; it’s a “business” issue.
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 a lot harder than it looked: “The big difference I see here is 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.”
Despite M2’s financial difficulties, Caliber Collision Centers announced in March that they planned to acquire 27 of M2’s facilities – and to become a consolidator of consolidators. But GE Capital pulled the plug on M2 before that could happen. (Sources say GE was owed $3.9 million.)
So what happened? Where did M2 go wrong? Says one industry source: “In the old days – price, quality, speed – you could pick only two. Today, shops are forced to do all three [if they want direct-repair programs]. What I saw from M2 wasn’t a commitment to become better, but to cut costs without improving operations.
“But if you aren’t improving operations and becoming more efficient, then there must be enough volume at a price to make the business profitable. You can’t compensate by doing an increasing volume of non-profitable work.”
That’s why what happened with M2 isn’t necessarily a foreshadowing of what’s going to happen to the industry’s remaining consolidators (two of which, ABRA and True2Form, were started not by outsiders, but by shop owners). Consolidation isn’t going away just because M2 did.
“Over time, consolidation will happen,” says a source at another industry consolidator. “The fact is, there are too many shops.”
And many of those shop owners mistakenly believe that volume solves everything. But having lots of work doesn’t mean you’re making money.
If you want to compete for DRPs – if that’s the route you’ve chosen – then you need to focus on price, speed and quality. The “two-out-of-three-ain’t-bad” mentality doesn’t cut it anymore. That’s why M2’s tale is a cautionary one – one that could just as easily happen to you.
Georgina K. Carson, Editor
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