Though business was going well at Krug Collision Center, shop manager Chris Diroff knew he needed to give the shop a competitive edge. Competition was growing, but the shop’s customer base wasn’t. The problem was, he didn’t think he could accomplish all this on his own; he needed some help distinguishing his shop from the other body shops in Dearborn, Mich.
So Diroff partnered with a local car rental agency. The result: enhanced customer convenience and increased business.
“Partnerships open doors,” says Diroff. “Right now the customer base isn’t increasing so we need to find other ways to open doors and access a larger percentage of those customers. We’d be foolish not to.”
How does the partnership work? The rental agency has an office in the lobby of the body shop. Its location and obvious convenience for customers whose cars aren’t driveable has helped the shop convert more estimates into jobs. It’s also attracted new clientele the shop didn’t expect.
“The agency sometimes rents vehicles outside our shop’s customer base,” says Diroff. “On a number of occasions, customers coming here to rent vehicles have moved their damaged vehicles from another facility to ours to be repaired.”
For today’s shop owners, the market is changing and partnerships – like the one Diroff is involved in – are becoming increasingly important to future success. It’s estimated that the entire collision repair market could be handled by only 10,000 to 15,000 repair facilities doing $2 million of business per year. Since there are more than 60,000 shops today, quite a few would drop out of the race if the prediction becomes a reality.
In the United Kingdom, there were approximately 24,000 repair facilities in 1991; now there are less than 10,000. The dramatic decrease is due to some very strong partnerships between repair facilities and insurers. Direct-repair programs (DRPs) in the United States can also be considered partnerships. They just haven’t been utilized to the extent of DRPs in the United Kingdom … yet.
What’s the solution? Can partnerships help you take advantage of this changing market? Absolutely. Partnerships with insurers, vendors and other service providers can better position your shop in the marketplace and give you more creditability with customers.
The Power of a Partnership
Though Henry Ford thought bringing all aspects of the manufacturing and assembly process in-house would empower his company, many times it appears partnerships are more powerful than doing everything internally. Why?
First, if you own a collision repair facility, it’s difficult for customers to recognize your business for more than what it is. I realize offering alternative services are often a method of improving your financial picture, and I’ve recommended many related service offerings to many of our clients. But in each case, the new service offering must not distract from the primary focus of the core business, in this case collision repair.
If a partnership is created with a related service provider, customers view it differently than when a shop internalizes a service. This is promotion and marketing through a third-party endorsement, and it’s very powerful.
For example, I bet everyone in your family considers you to be an “expert” regarding automobiles. You probably receive calls all the time from relatives asking, “What transmission shop is good?” or “Where should I get my brakes done?” What would happen if your reply was, “Anywhere but XYZ shop”? More than likely, family members wouldn’t go there.
Also powerful is the experience the customer receives from the recommending party (you or your partner). This becomes a double-edged sword, of course, if the experience is unfavorable.
Suppose a customer at a partnering facility has a bad experience. Unfortunately, before the incident turned sour, he asked for a recommendation for a collision repair facility. As your partner, the shop recommended you. Wanting to wash his hands of all things related to the bad experience, where do you think the customer will go for collision repair? Statistically, not your facility. Third-party endorsements are powerful in many ways — not all of them good. Remember that and consider working together consistently to analyze your CSI.
How do you diminish the potential for negative experiences? First, be selective in who you partner with. Be sure your partners are working toward the same target: satisfied customers. This is why CSI reporting is a must. Also, develop a system for referrals. As soon as the referral is made (verbal or written), provide a “lead” to the facility.
The savings in joint marketing is another advantage to consider. In fact, it can cut marketing costs almost in half. If you take out an ad in the local newspaper and you share the space with a partner, the costs are split 50/50. If you look around, you’ll see individual cable TV ads, billboards, newspaper ads, etc. with multiple companies being advertised.
Service-Related Partnerships
A few years ago, you could pull up to most gas stations and find a generic food mart for junk food and other “essentials.” Today, many of these same gas stations have abandoned their generic food marts and partnered with a variety of other businesses offering name recognition. Instead of being located on the same property as some were years ago, they now often share the same building and frontage.
For the collision industry, there are many service-related partnerships to benefit you. Top facilities worldwide have created partnerships with car rental agencies, car washes, light mechanical repair shops, tire shops, wheel-alignment service providers, brake specialists and paintless dent repair companies to name a few. These service offerings can provide a great benefit not only to the customer but to the bottom line of each partner, creating a win/win/win situation for everyone involved.
As a shop owner, how can you capitalize on these partnerships? When any business moves into a new building, expands a current facility or attempts to maximize current location space, it’s necessary to analyze the dollars produced per square foot. During building and expansion, overall cost of the space is also a concern. Having a partnership that shares the space and costs makes the pill much easier to swallow. You both can win by shared fixed overhead costs, which may have been difficult for either partner individually. And this might allow both operations to be in better retail properties if zoning were appropriate.
Service-related partnerships can also enhance your power over competitors. Once a partnership is formed between two businesses, the same relationship isn’t normally taken on with another business serving the same market. This gives you an edge over your competition. But that door can swing both ways: If you do it, they can’t. If you don’t do it — or wait to long to do so — someone else will. Forming a partnership is a huge step in protecting your market and a proven step in increasing your market share.
Service-related partnerships can also benefit both parties in product pricing, supply availability, priority and convenience. Wouldn’t it be great to write an estimate and offer the customer a rental car immediately (within a few minutes) so you can start on the repair? When Diroff set up the rental car partnership at Krug Collision Center, he expanded on an idea he got from other shops. To set the shop apart from those already offering rental services, Diroff has allowed the agency to accept outside customers. “It’s allowed us to capture customers we may not have had,” he says.
Not every type of partnership will work for every shop, however. You have to understand your market and your customers’ needs. For example, if repairs in your shop often need alignment work done but you’re not sure about investing in the equipment or the staff training, a partnership with a business offering this service could be your answer.
If you don’t have the staff size or capability to do mechanical work, partner with someone who does. It’s the next best thing. Basic mechanical services are performed more frequently than collision repair: Mechanical services need performed every 3,000 miles, but most drivers only need collision work every five to seven years.
As a busy collision center, you may easily become a mechanical partner’s best customer. In addition, you’ll avoid the hassle of transporting vehicles to and from various mechanical shops around town. As a partner, that mechanical service shop will suggest customers visit your shop if they need cosmetic repairs.
How do you go about forming such a partnership? Your first step is to determine which related businesses in your area are considered “quality” service providers. These prospects could include rental car agencies, car washes, oil change providers, shops offering quick mechanical services or even full-service mechanical shops. Contact the owner or manager of the businesses you’d consider partnering with and discuss how you can work together in the future.
You may already be informally providing sublet work to these prospective partners either directly or by referrals. By actually forming a partnership, the referrals will come from both parties.
Vendor Partnerships
Paint and parts vendors are consolidating quickly at many levels and appear to be looking to gain market share at great costs, so before you choose a vendor, look at your options.
For paint and parts vendors, discount pricing has reached an incredible level. But you also need to identify vendors that supply the service and support necessary to manage your shop’s fast-paced parts processing needs with just-in-time inventory management. This includes processes that streamline the entire parts procurement process, delivery, returns and invoicing.
When choosing a supply vendor, look for simple things such as including your repair order numbers on each part, invoices for separate vehicles and materials invoiced by account codes (paint and materials invoiced on a separate invoice from body shop supplies or equipment, etc.). These simple things provide an incredible time savings for you, which means the partnership is working to improve a process.
Once you’ve made the decision, develop a close partnership with that vendor. Utilize their education and training programs, marketing support and other related services. Use their strengths to supply your organization with the most state-of-the-art processes to improve your bottom line.
Wholesale Partnerships
Increasing volume by reducing sales may sound like a reversal of what you learned in management programs in the 1980s – and in many ways it is. The key when contemplating wholesale partnerships is to consider how many gross profit dollars per hour the relationship will produce and whether it can be channeled into the production flow to maximize production.
A wholesale partnership may include used-car work for resale, new car warranty work if the dealer doesn’t have a body shop, rental car repairs, fleet work or work on other large company vehicles. But before jumping head first into a wholesale partnership with a car dealer, realize they offer a number of good opportunities as well as some dangerous pitfalls. One such pitfall to analyze is how much discounting you’re really doing and what other strings are attached. (I’m only going to discuss true discounting options. When items on the estimate are going to be “shifted” and not performed to offset the given discount or when labor hours are inflated to offset the given discount, your shop is committing fraud.)
How can you truly discount? If the partnership has reduced your related costs (advertising, administrative, etc.) compared to what it would take to capture and/or process the same work in the retail market, you can discount your pricing. Likewise, if the added work volume doesn’t interfere or cause a bottleneck or breakdown in production, then the discounted jobs are maximizing the production system.
One fallacy to dispel is that volume offerings always warrant a discount. I’m sure you’d ask for – and probably expect – an additional price break if you were to buy hundreds (a one-year supply) of a specific part, such as headlights, at one time vs. one at a time? In this case, many see volume as the key consideration, but the consolidation of the order is truly the key consideration. Your consolidated order allows the vendor to reduce costs compared to the individual processing and delivery of multiple orders. However, unless there were some incentive gains being offered to the salesman on strictly gross sales numbers, the vendor would probably sell you the same number of headlights over the one-year period. In this case, a single order ensures they – not another company – got the year’s order and may reduce their costs of supplying you the parts in the long run.
But what if the order didn’t save them any money? Why would they discount? The same is true about your wholesale partnerships. If they don’t reduce your costs in another area, fulfill your production volume potentials, increase your market share or lock out a competitor, it may not be a good partnership to form and you certainly don’t want to offer a discount if you choose to enter it.
If you consider entering into wholesale partnerships with car dealers, you’ll need to look out for another pitfall. If your partnership agreement includes purchasing vehicle parts from the dealer at a lower-than-market discount, it may be hurting your profitability too much. If your agreement with them is for a 10 percent discount but you can get 30 percent elsewhere, you’ve lost 20 percent. This arrangement is used very often when small shops start out. I’ve seen many variations of this partnership – from requiring all the parts for a vehicle type to be ordered from the vendor, to specifically just the vehicle parts being repaired of theirs. Most often, the partnership favors the providing dealer. It’s critical to understand that profit is obtained by a combination of all departments. Increased costs in any department may be the factor that makes the partnership unprofitable.
It’s also important to consider the accounts receivable turnover – how long from the time the vehicle is ready to the time you get paid. If the job is less profitable and payment is slow, avoid accepting it. These principles should be considered for any fleet or large volume account. You can be very busy and still lose money.
Direct-Repair Partnerships
Today, DRPs can be found just about everywhere (except for some areas in the Northeast) and provide an interesting case study on pricing and discounting.
Since, in theory, the post-repair inspectors on the insurer’s staff ensure that cost shifting and over-pricing don’t take place, this would be a perfect example of a volume pricing partnership. The benefits for the shop are a streamlined process that allows for less production stoppages; a quicker cycle time, which means the customer receives his vehicle back sooner; and quicker claims payments.
As shown, DRPs – in theory – offer some reduced costs for acquiring more work. They also, many times, mean no supplement stoppages and quicker payment terms. This can be a very “refreshing” partnership for many repair facilities.
But there are additional costs to consider. Added administration duties and purchases of specific equipment to provide the electronic communication, along with discounted terms and allowable charges, must all be considered and negotiated carefully.
With so much to analyze, why do so many repairers fight to participate in DRPs? Because they can offer many advantages to the shop. DRPs can increase market share and eliminate competition. They can also allow production to move smoothly through the system or provide a core volume of dollars each month.
If you’re not sure today’s DRPs are right for your shop, don’t give up entirely on insurer partnerships. Insurers are always looking for ways to reduce their costs by providing additional monetary incentives for repair facilities to reduce their cycle times and achieve other benchmarks. The formation of a true partnership can begin when the two primary partners – insurers and repairers – work together to improve each other’s profitability and focus on the customer’s need to get his vehicle repaired correctly, as quickly as possible and with the least hassle. This is a very important step for these future partnerships. Again, a true partnership is a win/win/win situation for everyone involved.
How Do I Partner?
After all this talk about the benefits of partnering with related service providers, vendors and even insurers, you’re hopefully wondering how to go about doing it. Well, it’s simpler than you may think: Prepare for it, pursue it, ask for it and have patience.
If you’re going to pursue any partnership, you’ll need to be able to provide a snapshot of your company – an informational write-up similar to a personal résumé about your business. In fact, we like to call it a company résumé. Keep in mind equipment and other toys in your possession aren’t to be the focal point of this document. Instead, you’ll need to consider and understand the needs of each prospective partner carefully and tailor the document for them. For example, your shop’s current cycle time figures, customer satisfaction indexes (CSI), towing/storage availability and terms, special services offered and warranties available may be the most important considerations for an insurer DRP – not the three new frame racks and special downdraft paint booth.
Once you have a résumé developed, use it as a tool to promote the relationship you’re attempting to enter into. The keys here are having patience and planning the best approach. Many clients I’ve worked with hate to play the politics, but this can either make or break the possibility of the partnership. Knowing the right people who know the right people is a power advantage. Believe that your competition will utilize their contacts too, so timing is important – the first to act usually gets the partnership.
If you don’t get the partnership initially, be patient. There will always be other opportunities in the future. With that in mind, never burn bridges, and continue to pursue the relationship. This is especially true for DRP partnerships, since serving the customer is an insurer’s key consideration; they want their clients to renew their insurance policies. If the experience with existing repair partners is poor, the opportunity for your shop to partner with the insurer may become available in the future.
At first, you may be considered an additional service provider partner, but your partnership may quickly include the majority of the claim volume if the partnership is validated through a few claims. If you’d decided to “burn the bridges” between this insurer because you felt the original decision was unjust, then the opportunity probably wouldn’t surface again (at least not in your lifetime).
Also keep in mind that if any new partnership includes sharing a new building or property, make sure to document the relationship’s expectations, terms and of course “out clauses.” Many partnerships begin as a honeymoon dream and end up in court with all friendly ties severed.
Partnership Potential
The partnerships we’ve examined have been on a local level. Why? For many reasons: For an insurer, it would require a demonstration for replication of services on a large scale to develop partnerships in more than local or small regional areas. In addition, a larger relationship area would encompass different regions in most insurance companies. Likewise, a successful formula in one area of the country may not be the same in all areas of the country. Even McDonald’s modifies some products according to region.
In the near future, however, competitors from anywhere in the country may surface when replication of services has been proven – then you’ll see the speed of consolidation increase.
Another interesting addition to the partnering concept is a national organization partnering with another national organization that has related but different services. What would happen if someone approached a national chain, such as PEP Boys, with a quick collision repair strategy for small damages and paintless dent repair? Could it be the beginning of a new concept? If you stop to think about it, the partnership possibilities are endless.
“To be successful, any partnership has to be a win/win situation for both partners,” says Diroff. “Our rental car partnership has worked well because we’re both a customer of and a vendor for the agency and they’re the same for us. As long as both parties keep that mindset, the relationship will have positive effects on your business.”
Today, many opportunities exist to develop a profitable partnership in this industry. The most common road blocks shops must overcome are not having the courage to pursue them — and greed. The first never allows the possibility and the other kills it. But if you have the courage to think outside the box and realize others can help your shop reach its full potential, you’re on your way to creating a relationship with the best partner: success.
Contributing Editor Tony Passwater is president of AEII, a consulting, training and system-development company. He’s been in the industry for more than 27 years; has been a collision repair facility owner, vocational educator and I-CAR international Instructor; and has taught seminars across North America, Korea and China. He can be contacted at (317) 290-0611, ext. 101, or at ([email protected]). Visit his Web site at www.aeii.net for more information.
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Partnerships to Consider
1. Service-related partnerships. Service-related partnerships can benefit shop owners, such as those with car rental agencies, car washes, light mechanical repair shops, tire shops, wheel-alignment service providers, brake specialists and paintless dent repair companies to name a few. 2. Vendor partnerships. Paint and parts vendors are consolidating quickly at many levels and appear to be looking to gain market share at great costs, so before choosing a vendor, look at your options. 3. Wholesale partnerships. A wholesale partnership may include used car work for resale, new car warranty work if the dealer doesn’t have a body shop, rental car repairs, fleet work or work on other large company vehicles. 4. Insurer partnerships. In theory, DRPs offer some reduced costs for acquiring more work. They also, many times, mean no supplement stoppages and quicker payment terms. But there are additional costs to consider. Added administration duties and purchases of specific equipment to provide the electronic communication, along with discounted terms and allowable charges, must all be considered and negotiated carefully. |
