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A year filled with changes and challenges, some shop owners came out ahead while others dreamed of getting out
The collision repair market was anything but boring in 1997. Large
shops continued to sell out to consolidators, other large shops
became consolidators and still others wished they’d be consolidated.
Many shops struggled to get on DRPs, while other shops struggled
and were on DRPs. Some shop owners were still learning how to
negotiate with insurers, others were determined to rid the world
of insurers, while some insurers bought body shops – determined
to rid the world of independent shop owners.
It was quite a year. The kind of year that, for some, offered
opportunity and, for others, frustration. The kind of year that
could suck the life out of an industry.
But it didn’t.
Most shop owners were surprisingly optimistic about the future,
despite the present chaos. Said one such shop owner: "After
48 years, I still enjoy the business and love working for myself."
Ironically, one discouraged shop owner said nearly the exact opposite:
"I don’t feel self-employed anymore."
About 66.5 percent of our respondents said their businesses are
financially better off today than five years ago (up from 57.5
percent in 1996), while 22.4 percent said they weren’t better
off (down from 31.3 percent in 1996).
When asked to predict the future of their businesses, most shops
owners, again, were optimistic. About 79.5 percent said their
businesses will be more successful in five years (up from 69.8
percent in 1996) – with shops making $125,000 to $249,999 a year
being the most optimistic (90.5 percent expect their businesses
to be more successful), followed by 88.2 percent of shops making
more than $1 million a year. Only 10.6 percent of our respondents
said their businesses would be less successful in five years (down
from 14 percent in 1996).
Why all the optimism? Was it a profitable year?
For many, yes. For others, not particularly. "It seems that
costs increase and profits decrease every year," said one
shop owner, who didn’t have a particularly good year.
The average gross sales volume in 1997 was $480,930, up only 2.6
percent over 1996’s $468,911. Still, 54.1 percent of our respondents
said their 1997 sales had increased over 1996 sales, 33 percent
said sales stayed the same and 12.8 percent said sales decreased.
(About 45.3 percent of gross sales was attributed to parts and
54.7 percent to labor.)
But an increase in sales is meaningless if profit margins fell,
right? And how many times during the past year have we heard that
shops are taking on less profitable work to maintain volume –
and, in the process, destroying their profit margins? While this
is true to a certain extent, most of our respondents weren’t suffering
from the "my profit margins have fallen and can’t get up"
On average, 39 percent of our respondents experienced profit margin
increases over 1996 (down slightly from 44 percent who said their
1996 profit margins increased over 1995), 44 percent said profit
margins stayed the same and 17 percent said they decreased.
The average gross profit margin in 1997 was 30.9 percent – with
26.6 percent coming from parts (holding steady from 1996) and
45.2 percent coming from labor (down from 51.3 percent in 1996)
– while the average net profit margin in 1997 was 17.3 percent
(up from 15.6 percent in 1996).
The average customer base also increased slightly – from a 29-mile
radius in 1996 to a 33.6-mile radius in 1997 – while the ways
shops marketed their services held steady; about 91.9 percent
of respondents relied on word of mouth, 67.8 percent on the Yellow
Pages, 31.3 percent on community sponsorships, 23.7 percent on
radio ads, 12.8 percent on direct marketing, 10 percent on television
ads, 6.2 percent on billboards and 17.1 percent on other (which
included the Internet, newspapers, brochures, etc.)
What do shop owners stress in their advertising? About 81.1 percent
stressed repair quality, 65.5 percent experience, 56.8 percent
services offered, 31.1 percent shop and technician certification,
and 23.3 percent prices.
Once word is out, shops get 52.9 percent of their business from
word-of-mouth/car-dealer referrals (down from 58.2 percent in
1996), 18.9 percent from insurance referral (down slightly from
19.2 percent), 11.5 percent from advertising/direct sales (up
from 7.6 percent), 10.1 percent from direct repair programs (up
from 7.5 percent), 4.1 percent from fleets (up from 3.8 percent)
and 2.5 percent from other (down from 3.8 percent).
Despite the optimism shown earlier by many shop owners regarding
the future, about half of our respondents – 45.3 percent – said
they’d sell out to a consolidator if the price were right (the
larger the shop, the more likely it would be to sell out).
Why would so many sell? Most cited insurance-company "meddling"
as their reasons for wanting out; others just don’t have it in
them anymore. Other reasons cited included:
- "A consolidator is the only one who could afford to buy
- "Thirty years in this business is long enough."
- "It’s too hard to making a living and produce a quality
- "I’m near retirement age."
- "I’m getting tired of arguing with insurance companies
for what’s right."
tired of fighting insurers who have little working knowledge but
control the work."
no longer independents when we’re governed by someone else."
work every day and arguing with insurance companies about wanting
to repair cars correctly."
On the other hand, 54.8 percent said they wouldn’t sell to a consolidator
– no matter what the offer was – with many citing a love of the
business as why they wouldn’t quit. Other reasons given included:
- "My shop has been family owned and operated since the
beginning, and I wouldn’t want it any other way."
- "I’m happy working for myself."
- "I’m not interested in selling. I love this business."
- "Then what would I do?"
- "I like what I’m doing, and my business is sound."
Despite being ready and willing or totally unwilling to sell their
shops, all respondents were in agreement that the next year holds
some major challenges. And most shops had not only identified
these challenges, but were taking steps now to overcome them.
These challenges aren’t anything new – they come as no surprise
to anyone – but what is new is that many shops are now beginning
to accept the challenges – and to do something about them. Gene
Brown, who heads up Louisiana Tech University’s newly created
National Collision Marketing Institute (NCMI) said it best: "[This]
industry has a tendency to sit in a room and tell a bunch of war
stories, and bitch and moan and groan about stuff without any
focus. I understand why you do that. I do the same thing with
my colleagues back at the university. But we have to get focused.
I’m here to tell you that most of the issues I hear raised in
this industry – aftermarket parts, paint caps, reimbursements,
labor rates – there are intellectual answers to those issues and
Shop owners in 1997 began realizing this – and, in doing so, many
also began taking back control of their businesses.
Writer Georgina Kajganic is editor of BodyShopBusiness.
What follows are some problems/challenges shop owners identified,
along with solutions they’re implementing:
|Increased competition||Advertise more.|
|Moving to larger facility; need to increase volume to handle additional overhead||Taking on direct repair with select insurers|
|Getting paid for work performed||Educate insurance adjusters and customers|
|Attracting and keeping qualified employees||Unsure what to do|
|Need to increase sales||More DRPs, advertising and more contact with insurance agents|
|Skilled labor||In-house mentoring program|
|Need to increase employee productivity||Tech training|
|Need to increase customer base||Additional advertising: print, Internet, radio|
|Finding body techs||Contact trade schools and high schools|
|Need to stay profitable during slow periods||Detailing, used car sales (rebuilders), A/C work|
|Educating insurers on proper repair procedures and compensation||Negotiation and explanation|
|Keeping good help||Give employee incentives|
|Need to train employees to not cut corners||Adjust their percentage of commission if jobs aren’t done when promised, bonus paid if final inspection is OK|
|Insurers not willing to pay to properly repair vehicles||Increase customer involvement and education|
|Need to decide whether to go on more DRPs||Weigh cost of being on DRP vs. advertising|