“What’ll ya give me if I sign on to buy all my materials from you?” is a cry heard around the country the last few years. Body shops discovered that some paint manufacturers and some distributors would provide an “investment” in their shops in exchange for an exclusive contract to purchase paint and materials. Not only is this an industry-altering change in how we do business, it also spells trouble for service levels and smaller shops.
Commonly called an investment, what’s happening in the industry ranges from a couple of free spray guns to a distributor making a shop’s monthly spraybooth payments to outright gifts of cash.
But who will spend what to get your business?
As a small shop, your options may be limited. Paint companies don’t usually court smaller volume shops because those facilities just don’t use enough gallonage. Unfortunately, this is business as usual. The big dogs will typically get most of the attention.
But that doesn’t mean all hope of better service and support is lost. As a small shop, you too can approach your jobber with your desire for them to “invest” in exchange for an exclusive contract to buy all your paint materials from them for a specified length of time. You probably won’t get a free paint booth out of the deal, but you may wind up with a free paint gun.
A Game of Fetch
Typically, the investment process starts when a paint brand and a distributor target a body shop that’s someone else’s customer. “Hey,” they say, “if you become our exclusive customer and leave your present brand and vendor, we’ll give you something in exchange for a signed legal contract to buy it all from us.”
That’s just the beginning. There are probably as many formulas for what vendors will spend as there are vendors. My information – straight from the totally unreliable grapevine – suggests the amount for investment is in some way a function of body shop sales. If your shop billed out $50,000 in total sales per month, your annual volume would be $600,000. If you were the typical shop, your total material purchases would be somewhere between $3,000 and $5,000 per month, or $36,000 to $60,000 per year. And spending it all in one place has value to the chosen vendor.
Typically, a paint company participates in the investment to some degree along with the hungry distributor. The paint company doesn’t care how much you spend for sandpaper or welding pins. They only care about what you’ll buy from them. This number becomes the basis for many investment calculations. On average, a shop spends 65 to 75 percent of its total material purchases for liquid (paint in its many forms). Let’s say our example shop splits the difference and spends 70 percent of its material purchases for “paint.” Each month, it’ll cough up between $2,100 and $3,500 for liquid product. Based on some secret percentage, a vendor will calculate what he’s willing to invest to get that shop’s business.
Neither jobbers nor paint manufacturers have bottomless pits of money. Any upfront funds they invest are typically no longer available to be offered as a monthly discount on purchases. You may have heard of some shop that supposedly got both a big investment check and a substantial monthly “prompt payment” discount. My experience says that’s a rare situation. The money spent upfront often comes out of the training and support services the vendors used to provide.
You can calculate how much paint your shop buys monthly and annually, but what’s the exact formula for investment? Beats me. Is it expressed as a percentage of total sales (2, 3 or 4 percent of total sales multiplied by some number of months)? Is it as simple as total sales for one or two months? How about some percentage of liquid only for the three-, four- or five-year life of the contract? How long is the contract anyway? Does it have minimum monthly purchases to qualify?
Not only is there no uniform standard, the deals are typically subject to strict confidentiality agreements, so neither player is permitted to divulge the exact terms. Just like so many things in life, the bigger players get more. If you find a hungry vendor who’d like to steal you away from your current suppliers but you only spend $1,500 a month on material, it’s unlikely you’ll get a free prep station.
Lead Dogs Have a Better View
Is your shop – small or large – a probable target for some jobber and paint company to invest in? Once again, no hard and fast rules exist about who can play.
Generally, vendors are looking for a very successful shop with a proven track record of collision repair and material purchases. If you’re just starting out and predict you’ll be doing $50,000 worth of work each month next year, it won’t carry the same weight with vendors as if you’ve already been doing $50,000 per month for the last five years. You’ll likely need to have a history of producing truly quality repairs as well. No one is liable to romance you if they’ll inherit a slew of comebacks along with your business. (Can you blame them?) If you aren’t promptly paying your bills every single month, no one is likely to come knocking on your door either.
To be courted by a vendor, it also helps if you’re a “key” shop in your area. New vendors want to be able to say to other shops in your market: “Hey, ABC Collision came over to our side and they’re a smart, successful shop. You should come, too.” If you aren’t recognized as a market leader by your involvement in trade associations and you don’t have great customer retention, you’re a less desirable target. That’s just the way it works in business.
Part of the reason new vendors want your business is because they’re trying to grow their own business. As auto collisions remain almost constant and we have an excess of all parties in the distribution chain, stealing customers is often the only way to grow. By many estimates, our industry has too many players: too many paint companies, too many warehouses, too many jobbers and too many body shops for the size of the national market. Just like you have to be different from the guys down the road who also fix cars for a living, paint companies must also differentiate themselves.
It’s a Dog-Eat-Dog World
Let’s look at a hypothetical investment that could take place in your market and how it affects the players involved – and some players who aren’t.
Paint Brand X has a fine product but poor market penetration in Anytown, USA. Why? Because in Anytown, Brand Y has a great local jobber who services almost all of the A-list shops. As much as the management at Brand X wants to help their local jobber succeed, the jobber may not have a body shop focus, but rather sells paint alongside their hard parts. With nothing much to loose (they don’t have any business there now), the Brand X people go to the parts jobber and suggest that together they could lock in a nice block of paint business if the jobber contributes to the investment. Together, they visit the owner of ABC Collision. “Howdy,” they say. “If you’ll leave Brand Y paint and your current PBE jobber, we’ll make the payments on a new $10,000 prep station.”
The folks at ABC Collision were perfectly happy a minute ago. They liked the results from Brand Y and trusted the great service from their current jobber. Then someone came along who was willing to gift them with a useful piece of equipment. I’ll guess every single jobber and paint company that’s ever orchestrated one of these deals would rather contribute to the purchase of a productive piece of equipment rather than donate cash. After all, if the shop has another place to jamb parts, it can produce more work and buy more paint! The first thing the ABC people do is call their current jobber to see what he’ll give them. (Wouldn’t you?)
This is where it gets complicated.
Much as it looks like your paint jobber is rolling in dough, he runs a tight ship to do well. On average, a paint jobber will net about 2 percent of sales as profit (before tax). My totally unreliable grapevine suggests that many shop investments are a 50/50 split between the paint company and the local jobber.
If ABC’s current jobber must now find funds to buy half a prep station, he’ll likely have to reduce his offerings somewhere else. One common casualty of an investment is the “prompt payment” discount jobbers currently give their customers. Ranging from 2 to 5 percent each month from many jobbers, it amounts to thousands of dollars at the end of each year. If the jobber has to spend the money for a booth to woo a shop, here’s a good chunk of it.
Service levels are another casualty of being forced to match a deal from a competitor. If the current jobber at ABC shows up six times a day with deliveries, that costs money. Under the new deal, maybe they’ll only come once a day.
How about the tech guy the Brand Y people and their jobber send over to do training with ABC’s painter two days each quarter? How about the careful inventory management the Brand Y jobber has set up and maintained over the years? I personally know of many shops that elected to stay with their current brand and supplier when faced with a gift from strangers. You know how your current stuff works and trust the people you buy it from. Will that be the case over the next 60 months? If you only refinished one less car per month with the new brand, at year-end you’d be short $20,000.
One big problem for paint companies are shops that keep bringing the other offer back. Brand X – who’s trying to woo the shop – will give them an air compressor. The shop takes this offer back to their current guy, who says he’ll provide a compressor, too. Back to Brand X who ups the ante to a compressor and two guns. Brand Y matches that deal and throws in a gun washer. Back the shop goes to Brand X … and on and on. No wonder the paint companies want to see this end.
Recently, some major paint brands have announced their intention to cease playing the “what’ll ya give me” game. Most jobbers, too, would like to get back to competing with one another based on product and service attributes. By the time the worst of the bickering is over, you may have a prep station and a contract with new vendors who don’t like you very much. Not exactly the partnership relationship a good vendor can bring to your success.
Rules to Run By
Will someone buy your shop something? Probably. If you start shopping aggressively, no doubt some vendor will offer to invest in your shop to some degree. You’ll likely have to sign a contract to get it though.
What should you keep in mind if a contract comes across your desk?
- Beware of ending up using a poor performing, expensive paint brand for the next five years. It could easily cost you 10 times more in liquid costs or production times than you got as a gift. If you’re stuck dealing with a jobber who doesn’t know paint, seldom delivers and has no one locally to train you, the old days start to look pretty good.
- Any switch in paint brands could cause an initial decrease in production as your painters learn all the nuances of the new stuff. If your production drops by 10 or 15 percent for only three months, you might have been able to buy your own prep station if you’d stayed with your old brand.
- Be cautious of contracts with vendors of any kind. The magic of the free market is that you can spend your money when and how you like. If you sign on the dotted line to buy X amount from a specified vendor for a specified time, you’re legally bound to it. I know several shop owners who signed contracts thinking their lawyers could bail them out when they changed their minds. Guess what? It doesn’t work like it does on TV. Courts think both parties were serious when they signed on.
There may actually be some good news for smaller shops in all of this. If the big players are now locked up in expensive multi-year contracts, the paint companies and jobbers who didn’t get the nod will come looking for mid-size shops to replace the heavy hitter they lost in the bidding war. So be ready.
Part of the Pack
History seems to suggest that success in any business comes most easily when you can partner with your vendors. Rather than an antagonistic relationship where each party tries to hold the other to legal text in a contract, look to form win/win deals. If your local jobber and your current paint brand don’t offer the help and training you need, sit down and discuss it. Banging on their door with a competitive offer in your hand and a threat to leave if they don’t provide something better may not be the best plan. If you bleed them for every last drop of blood, they aren’t going to be able to provide the services you need to succeed.
Look for the paint products that work well for your particular shop. Who cares what they’re doing over at the giant shop on the corner. Look to forge partnering relationships with all your vendors – even the ones not offering free spray guns or air compressors. Good vendors can help you produce more work – and that’s where the money is.
Writer Mark Clark, owner of Professional PBE Systems in Waterloo, Iowa, is a well-known industry speaker and consultant. He’s been a contributing editor to BodyShop Business since 1988.
I Heard It Through the Grapevine: