Wanted: Bigger Phone Booth - BodyShop Business

Wanted: Bigger Phone Booth

Look, above the shop, it’s a franchiser ... it’s a consolidator ... no, it’s something in between. It’s a ... what exactly is that thing?

Are you having trouble keeping up with the players in the big business of collision repair? Are you wondering whether you should buy into a franchise or sell out to a consolidator? You’re not alone. The industry is no longer just made up of shop owners, customers and insurance companies — as if that weren’t enough. Now there are consolidators to contend with and franchisers to fret about — two entities I’m sure you’ve heard a lot about.

Like many others, you’re probably wondering exactly what the difference is between a consolidator and a franchiser. Back in the days of 20-cent McDonald’s hamburgers, that question was a lot easier to answer. Today, the lines are a bit blurred.

Typically, consolidators differ from a franchise in that they own the body shop outright. (Remember, I said typically.) Today, however, several franchisers also own body shops. Franchisers CARSTAR and ABRA Auto Body & Glass both own some shops outright in addition to their affiliation with franchised member’s shops, and many other new players are also busy buying existing shops, as well as building new locations.

What’s On the Agenda
It’s easy to get confused. Several years ago, there were only three or four consolidators trying to run multiple locations under their own flags. Today, as many as 15 different organizations are looking to acquire and operate multiple collision repair locations — and some of these organizations are also franchisers. Though each has its own agenda and business plan to make its business a success, they do have some things in common. Most of the buyers I spoke with are only looking to buy or build shops in larger markets. Some people mentioned a population of 500,000 as their minimum target market size. Others are only acquiring in markets with 1 million or more people. (If your shop is located in a large city, you’ve passed the first test. I did, however, have one consolidator tell me he thinks profitable, well-equipped body shops in smaller cities may be part of the company’s future expansion.)

Not surprisingly, none of the consolidators are looking to acquire marginally profitable body shops. What they want to buy are very successful shops with good customer-service indexing and great insurance company relations. In these A+ shops, the owner is already making good money and the technicians are well-paid and well-trained.

As in any body shop buy-out, the present owner may want to stay on and let the administration burden shift to the buyer. Some consolidators want to make the really successful shop owners officers in their corporations to help grow their chain of body shops, such as Caliber Collision Centers, which has kept most former owners on in a more senior capacity to ensure continuity. On the other hand, other consolidators want the present owner to take the money and get out of the way. (The more successful your present shop is, the more likely someone wants to buy it and keep you on to help.)

If your shop is located in a smaller market and you need some help running your business, becoming part of a franchise — as opposed to selling to a consolidator — is a more likely option. Franchisers recognize they don’t have too much to offer an already successful shop owner. Why cough up thousands of dollars to buy into a franchise if your shop is already running smoothly and returning a tidy profit?

For that reason, several groups see new-car dealers as likely candidates for franchises. New-car dealers often have trouble finding and keeping good body shop managers — partly because they don’t understand our business and partly because the systems that make a service department run smoothly aren’t the same systems needed in a body shop. A new-car dealer buying into a franchise can open an off-site body shop under the franchiser’s sign and then use its operating model to smooth out production and increase revenue. At such an off-site body shop, the new-car dealer could perform warranty work for new-car customers while also doing work on other vehicle nameplates.

Shades of Gray
All that, however, still doesn’t answer the question of why some franchisers have turned consolidators or vice versa. To answer that, consider Randy McPherson, who was an original partner in the ABRA franchising operation. More recently, he started CARA Collision and Glass, a consolidator that owns body shops outright. His reasons for crossing the line: If everyone answers to one boss, it’s easier to keep consistency in the distant shops and to change to accommodate the market faster. (Franchisees have the benefit of a franchiser’s advice and counsel but don’t have to accept it.)

McPherson also thinks there’s less cost in the company-owned store model. A franchisee still has to make money for its corporate entity, but owning your own locations enables the consolidator to dictate all the parameters, possibly for less cost.

CARA is currently in the process of developing a new model for all its operating systems and procedures. In 21 months, the consolidator has acquired or built 25 shops and has inherited many different, yet successful, repair procedures as a result. "The key is to simplify, not complicate the systems," says McPherson.

An Unclear Future
Many people predict that consolidators and franchisers/consolidators will have trouble squeezing even more profit from the already successful shops they’re acquiring — no matter what operating model is in place. But those predictions aren’t stopping consolidators from trying.

One necessary ingredient for more profits is an infrastructure that will help develop, train and educate their employees. After all, the investment capitalists don’t know how to fix cars; they just see an industry in consolidation. They made money by investing in funeral-home or trash-hauling chains and see no reason they can’t do just as well with our shrinking industry. (As we all know, it isn’t quite that simple.)

Also, there are certain economies of scale when you have multiple locations. The accounting and payroll functions need only be done once at the home office, and there are probably extra discounts available from a variety of vendors if you’re negotiating for 15 body shops instead of one.

But collision repair is still done one vehicle at a time, and problems do pop up regularly. A bad Friday in your shop is no fun; a bad Friday in 14 others at the same time is cause for frenzy.

Some people think the hectic nature of collision repair is likely to discourage some of the current consolidators in the future. If they find they can’t squeeze another double-digit growth year out of an already successful shop, their return on investment will fall and the big money boys may want out.

The consolidators who continue to be successful will probably buy the ones who aren’t in years to come. If you can run a 50-shop operation with a Wall Street-acceptable return on investment, the money folks will find even more capital to acquire the other guy who can’t make his 20 shops grow appropriately.

Predictions aside, everyone I talked with had grand plans for their operations. The franchisers and consolidators I spoke with would like to have a cumulative 600 franchisees and 300 company-owned stores within five years. And they see that the combination will offer some franchisees an exit strategy. When the successful franchisee wants out, the likely buyer is the franchiser.

Let’s Get One Thing Straight
In an arena crowded with independent shop owners, insurers, franchisers, consolidators and franchisers turned consolidators, there’s bound to be a little confusion about who’s who. Be prepared for even more confusion — as the collision repair industry continues to change, even more new players will enter the game.

Whether you decide to by into a franchise, sell to a consolidator or forget them all and accelerate away as an independent is up to you. But, whatever you decide, it’s important to understand how each player will affect the big business of the collision repair industry and, ultimately, the business of your shop.

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.

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