If you do what you’ve always done, you’ll get what you always got. It works in math and physics. But in business, if you do what you’ve always done long enough, what you get changes – it gets worse.
Eight Signs
Nothing about collision repair is going to get easier. Here are eight signs of heavy weather ahead for the “lone wolf” independent repairer who “does what he has always done”:
- Direct repair penetration continues its steady rise, with some insurers approaching 50 percent.
- Ford Motor Company just announced advanced testing of a self-driving, collision avoidance car.
- The largest insurer maintains full speed ahead with its controversial parts initiative.
- Eleven insurers’ DRP applications now have a question about “independent quality verification.”
- Major insurers are slashing field claims personnel head counts and overhead costs nationally.
- The same insurers spend tens of millions on TV fighting for market share with policy pricing.
- The Carlyle Group, the world’s largest private equity firm, buys collision repairer Service King.
- Month after month, a handful of mega-consolidators gobble up MSOs across the country.
If all that doesn’t jolt you out of a “do what we’ve always done” nap, try on these three scenarios:
The DRP nuclear option. Vehicle owners are entitled to choose their own repairers…but they’re also entitled not to, as when they comply with insurers’ “suggestions” and become a DRP assignment. But they can also make that free choice for an economic benefit. Two major insurers have already experimented with a premium discount option or a lowered deductible in exchange for using their “networks.” No appellate court is going to uphold an insurance commissioner’s interference in a voluntary, lawful civil contract that’s conceptually no different than a health care PPO. Are you ready for that little innovation?
The price earthquake. One (or more) of the mega-consolidators deliberately starts tweaking the average repair order dollar severity downward. I see no reason why these giants won’t start sucking great chunks of volume off the street with aggressive pricing, i.e. severity numbers irresistibly seductive to insurers struggling with claims-side cost pressures. Price cut? Heavens, no! They’ll probably call it a “volume efficiency allowance.”
For the mega-consolidators, if there was ever a moment for that strategy, this is it: starve independents at their already anemic top line, and drown them in their overcapacity-driven, underabsorbed fixed costs.
(Only in our isolated industry would this seem like something new. It has been a basic strategy in the history of every market-dominant private sector entity since World War II. Volume absorbs cost, which funds share acquisition, yielding more volume, etc. In a half-empty factory, there’s a point on that physical volume up-curve where you trade gross margin percentage points for more-than-offsetting real dollars at the operating line. You only get it once per budget, but when the music stops, you’re bigger and your competitors are sicker, usually permanently.
Even if that move isn’t already in their leveraged models, the second the Fed allows rates to start quivering upward, a couple of mega-consolidators will have no choice. Has it already quietly begun? You tell me. Know anybody who has lost a perfectly good DRP for no good reason lately?
My point with these scenarios and the eight recent developments listed earlier is that the pressure on the remaining independents who do not change their operational thinking will ultimately become unendurable. What can they do? In my view, several things. For a start, they need to take a hard look at where they direct their energies.
The Quest
Many of us remember fondly the scrappy heroes who “spoke truth to power” at CIC in the late ‘80s and early ‘90s: Sal Donzella, Franny Monaghan, Mike Porcelli and many others. It was a wonderful time. But I also remember a quieter group: the repairers in the back row, nodding and smiling, who had “figured it out”: get the keys, fix the car, get the money and don’t go home angry. In the fullness of time, working with exactly the same insurers as everyone else, these are the guys who have done very well. Behind each of those smiles was – and still is – a cold and unrelentingly tough competitor defending his own business. Ask the shops around them.
Today, a quarter century later, a vigorous aggregation of repairers are organizing, speechifying and lobbying on how they are to be paid by insurers, just as if it was still 1989. With the exception of the few whose paychecks are perpetuated by keeping the fight (any fight, actually) alive, many of the finest men I’ve ever known are still deeply involved and committed. My heartfelt sympathies are with them.
But I am a realist. I’ve been waiting since 1948 for Cleveland to win another World Series, but I know the difference between what I like and what is likely. “The Quest” is great righteous fun, but I have trouble visualizing a victory scenario. How does any business benefit by joining with its own competitors to make their common revenue sources their common adversaries?
An Alternative View
It’s not just that it won’t work; it’s a false substitute for calm, critical, small-business strategic clarity. You picked a profession where most of the money comes from fewer than 30 companies and there are more than 30,000 of you. The American market will never need even a third of that to fix all auto claims. Ever.
There will be no growth in auto claims, and probably a steady contraction. Do you think the mega-consolidators will compete for that business ruthlessly, or do you think they’ll announce a list of demands on insurers? There are situations where passionate convictions are not a substitute for knowing what you’re doing.
If you own an independent body shop, or two or three, it’s my respectful opinion that you have some serious thinking to do right now. It’s not your job or in your interest to save every person who ever picked up a tool to work on a car. It seems to me your first obligation is to protect and strengthen a secure future for your family and your employees’ families. I don’t see how that gets done by going to meetings and suing the people who write the checks.
A Modest Proposal
Please give some serious consideration to how to deal with the profound changes affecting your business environment and your future.
First, if you’re not up for what’s coming, get out while you still have something left of your money, your mind and your marriage. In about 15 minutes, you’ll be 70 – that’s how fast it will seem to happen. Take what you can get now and live a happy, sensible life in the time you have left. If you don’t have the energy and the discipline for the battle to come, staying in will be like being forced to eat $100 bills at gunpoint until all your money is gone. That said, if you’re staying in, here are four things to think about:
1. You’re not a defense contractor. Unless you’re deliberately liquidating your business, stop incentivizing employees for finding ways to increase the invoice. It just makes you more vulnerable to a competitor’s productivity and/or willingness to buy share.
Instead, spend bonuses on employees who reduce cost. Crawl over that P&L like a fly. Take a hard, serious look at lean manufacturing. As an on-site owner, you actually have a temporary tactical advantage over the consolidator. You can attack cost in real time to fund any price edge you may need. They have to reach out and execute among dozens – even hundreds – of still widely dissimilar and as-yet undigested acquisitions. Use some of what you find to ring up a detectable value difference for your most indispensable DRP. You will be training for the big game.
2. If your shop is half empty, your costs are out of control. You will not survive what’s coming while renting, lighting and insuring dormant square feet and a second paint booth that some days doesn’t see a car. Either move to a smaller shop or fill your machine with cars with aggressive pricing based on productivity and incremental operating dollars. If the whole price idea makes you a little queasy, please consider that your natural geographic market almost certainly contains triple the nominal collision repair capacity that it will ever need.
Concentrating the claims among much fewer locations isn’t just an experiment for the insurers; sheer economics is forcing it on them. If you’re unwilling or afraid to become a tough, formidable competitor to protect your family’s future and your employees’ jobs, no one can help you preserve your business. Put on your jammies and I’ll read you a story. No one will be able to help you preserve your business.
3. Lone wolves die young. Create an alliance or join one. Make sure it’s with other repairers who are determined to inherit the auto claims on sheer business merit: providing value. Become part of what the insurers have to have, and will obtain somewhere from someone.
4. No one I know believes we have even half the equipment, training and space-age quality controls needed to fix – correctly and safely – a million 21st century unibodies a month. The major insurers are acutely aware of this, but if you wait for them to say it aloud, you’ll wait forever. Risk aversion is their business. Clean restrooms won’t cut it anymore. They’re going to select (and unselect) DRPs on the basis of rigorously documented equipment and training to fix cars properly. They have nothing to lose and everything to gain. Get yourself in that position.
Have the Future You Earned
Virtually without exception, the shop owners I have met and worked with over the past 24 years in 40 American states are the hardest-working, most honest, modest, bravest people I’ve ever been associated with. I just want you to have the future you have earned.
Dale Delmege served as senior VP, sales, marketing and R&D, and executive VP, operations, at Mitchell International. Prior to its sale, he was also a principal in AutocheX. He was CIC chairman from 2000-2001, founder, director and past chairman of CIECA, founder and past director of the National Auto Body Council, and an elected member of the Hall of Eagles. In 2001, he was appointed Lifetime Member of the Society of Collision Repair Specialists.
