It’s safe to say that 2009 will not be looked at as a banner year for most businesses. Even though most economists agreed that the recent stretch of financial misery wasn’t as bad as the Great Depression, they did say it was the worst since the Depression with some calling it the Great Recession.
If you talked to friends and associates across all industries, it seemed the standard drop in business they were reporting was 30 percent. According to a recent poll conducted by BodyShop Business, the drop in the collision repair industry wasn’t quite that bad, but it certainly wasn’t stellar.
Approximately 63 percent of respondents reported some sort of decline in sales, while only 23 percent reported a gain. The breakdown is as follows:
19% down 1-10%
17% down 20-30%
15% down 10-20%
14% no change
12% down over 30%
11% up 10-20%
7% up 20-30%
4% up 1-10%
1% up over 30%
It seemed that repairers were trying to be optimistic when BodyShop Business asked them in 2008 how they expected business to go in 2009, with 42.9 percent predicting that they would increase gross sales by 5 percent. Then again, 5 percent is a safe, conservative estimate and more realistic than a higher gain.
Precision Collision Repair in Beaverton, Ore., a $7.5 million shop with 53 employees, would have loved a 5 percent gain, but instead it ended its fiscal year in September down 4 percent from the previous year.
“But we were grateful for that,” says director of finance Charles Dillard. “We kind of got a jumpstart in October 2008 because that month was better than October 2007. But October and November of this year is in the tank. Right now, compared to last year through November, we’re down 12.5 percent. And I don’t see December looking a heck of a lot better.”
Dillard says based on how dismal October and November have been for the start of his fiscal year, he believes his “shipping out the door” level in 2010 will be down 7 to 8 percent like it was in 2006. In 2007, Precision was up 18 percent, but the following three years have eroded those gains.
“It’s kind of discouraging,” Dillard says. “We’re working our behinds off and we’re right back where we were three to four years ago.”
Dillard chalks up his drop in business in 2009 to a variety of factors, namely fewer repairs due to steering and more total losses. He heard a news report that there were 20 million fewer cars on the road for Thanksgiving.
“It’s not to say shops around us are busy,” he says. “But when there are fewer jobs, each one they get from you hurts you even more.”
Another factor is more people willing to drive damaged cars and not get repairs, especially over the last 12 months.
“Until people feel comfortable that they won’t lose theirs job and they’ll make it, they won’t let loose of their money,” Dillard says.
Further complicating things, says Dillard, is a still very high unemployment rate and insurance companies that are clamping down even harder on cost-control measures due to taking such a beating in the stock market.
Precision is currently reducing the hours of its office staff in response to the dearth of repairs, with Dillard scratching his head and wondering if the current slowdown is just an anomaly.
“We’re approaching the holidays and we have no work-in-progress like we typically do,” he says.
John D. James, owner of James Body Shop & Wrecker Service in Loudon, Tenn., says business is off slightly too, but like Dillard he finds it hard to gripe because the drop wasn’t that bad considering the economy.
“I wouldn’t complain with a mouth full,” says James, whose gross sales are in the $750,000 to $1 million neighborhood. “I haven’t had that bad of a year. The last quarter of last year, we were off 30 to 50 percent. We were seeing $70,000 a month two years ago. Now, sales are off 10 to 15 percent.”
James says he has seen more instances of people who get in wrecks and can’t afford the deductible and bring in the insurance check asking, “Can you sign this and let me have it?”
Like Dillard, James believes the economy’s troubles won’t end until more people get jobs: “The key is when people get jobs. So many people are out of work. When the employment rate is 10 to 15 percent, it affects everybody. When one particular industry loses jobs, they say, ‘Well, that industry only employs 200 people.’ But it all spins off and there’s a domino effect.”
“I’ve never seen a recession affect a body shop until now,” James adds. “A lot of people can’t afford liability insurance collision insurance has escalated since 10 years ago when the first slowdown occurred.”
While it’s safe to say that most repairers have felt the hurt, one was able to experience strong growth in ’09 thanks to two new shop locations. Ron Nagy of Nagy’s Collision Centers says sales for the four stores were up 23.3 percent to a combined $4.1 million, a figure he admits is inflated due to the two new store openings. Despite these glowing figures, Nagy says his business went through hardships like everybody else.
“Like every other business, it was an extremely difficult year,” Nagy says. “Cash flow was harder than ever before. Vendors would mark their statement 10 days net, but were calling us the day we received their statements asking for their money. In the meantime, we were waiting to be paid by the insurance company.”
Nagy attributes his business’ growth to careful planning and forward thinking. He says he and his business partner and brother, Dan, instituted stricter cost control measures several years ago so that they would be in a good position to capture market share when tough times came. Then, as predicted, several shop owners in his area either retired or just closed shop, and Nagy’s was able to take advantage. Their formula has also been to stick to rural areas with 6,000 to 8,000-square-foot facilities run at capacity.
Looking ahead to 2010, Nagy believes his stores’ sales can grow 10 percent given what they were able to accomplish in 2009. His predictions aren’t so optimistic for the rest of the industry.
“Unfortunately, it will be a tougher year than ever for small shop owners who cannot afford the equipment needed to repair today’s cars,” he says. “I also feel it will be a very difficult year for mega shops that have high overhead.”
Gary Wano of GW & Son Auto Body in Oklahoma City also saw growth this year, although at 6.8 percent, it was the smallest increase in sales the shop has ever recorded. The $3.3-million facility that specializes in Mercedes, Jaguar, Volvo and Corvette Z06 repairs, was on track for 18-percent growth after the first quarter, but that decreased to a 10-percent forecast in the second quarter before a woeful third quarter kicked in. According to Wano, the fourth quarter was only slightly better.
GW & Son also saw an 11.4-percent decline in traffic to the door and a 9-percent decline in new sales. However, it did notch a 3.5-percent increase in actual dollars sold at the door.
“If we had just stopped most of our business relations with insurers this year, I could see that kind of drop in traffic,” Wano says. “But we’re in our fourth year of only working with State Farm, so that tells me that the estimates we’re getting are higher. We’re not seeing lower estimates and a huge amount of traffic. We’re not existing on the $1,000 to $1,500 jobs that many shops do.”
Wano believes this year was marked by more fierce competition and shops willing to give away more just to get cars in the door.
“Whereas in the past there was more work available and shops just said, ‘It’s going to cost you X dollars,’ there were probably more guys who decided they needed to give this or that away to get jobs in the door,” he says. “I would imagine the average repair order dropped not due to severity but the impact of the economy.”
Wano is forecasting the same or better increase in sales in 2010, focusing on better estimating and easing the administrative burden of balancing insurer estimates.
“If we just added one more to each claim, it would amount to $140,000,” Wano says. “The focus will be trying to make it where our people will take the initiative to get everything on the job.”