The State of
Dealership Collision Repair
Shop Business In 2003
Prepared By:
“You cannot change what is happening in
your Dealership collision department until
you decide to change your perspective of
how to deal with it!”
Dealership collision repair business has gone nearly full circle in the last decade. Dealers have
seen both the good the bad and the ugly side of this business during this period.
In the early 90’s GM and Ford dealers experienced a windfall from
manufacturer warranty paintwork for their collision shops. Many
dealers had warranty paint jobs backed up for more than 18
months. Manufacturers were paying dealers from $1500.00 to
$3000.00 for each of these repairs. In addition to the warranty
work, many shop managers were forcing customers to pay for
repairing dents and dings before they would do the warranty
repaints.
This lulled many dealers and shop managers into thinking this
gravy train would last forever. Managers, many whom had never before turned a profit in the
body shop were looking like heroes on the financial statements. Dealers were investing capital in
more paint booths, prep-decks, mixing rooms etc. Everyone was acting like this would never end.
The net result of this was that in the mid 90’s when the warranty work started tapering off, dealers
discovered that they had an excess of paint shop capacity. Plus, they had painters earning over
$125,000.00 per year. These guys and gals were literally running the show! The managers were
so afraid that they would upset the painters they were unable to implement any changes. This
was a time when changes were needed the most.
The net result was that dealers ended up going through several different collision shop managers.
Usually, it took about three managers before they finally lost the painter due to a lack of work.
After the painters left, the dealers were finally able to bring in a manager who could actually
implement changes.
Unfortunately by the time most dealership had gotten their act
together, the bulk of the insurance business had moved to
independents. Independents experienced huge gains in
business during the mid 90’s. At this same time two other things
happened that significantly impacted the collision business.
© Copyright 2003 Edwards & Associates Consulting, Inc.
First, the paint companies (with all of this warranty repaint business) started trying to buy market
share. Paint companies were acting just like the dealers and conducting business as if the
warranty work would never end. The net result is that paint went from being a product based on
service to a commodity based on price. The paint companies responded to this shifting market
by trying even harder to “buy” more business. Some of the deals they made were completely
without any rational business thinking applied.
I have one client who purchases about $350,000.00 in paint each year who
negotiated a $1,000,000.00 cash incentive to buy materials from a paint
supplier. The agreement was spread out over a ten-year period, but still,
that’s a 1-million dollar discount on 3.5-million dollars in purchases. Plus, on top of the
guarantee, they gave my client a guaranteed gross profit of 40%.
Some of these paint company deals went beyond absurd before the paint companies woke up
and said “no-more”. In fact a couple of companies had to fold up their tent and ended up selling
out to larger companies.
Secondly, the insurance companies were experiencing nirvana because the independent shops
had no problem using aftermarket and / or salvage parts. Some areas of the country were using
more than 50% aftermarket and salvage parts for all insurance repairs. This little anomaly caught
the manufacturers completely off guard. They didn’t know what was happening until the
proverbial bus had already run over them! This asleep at the wheel syndrome cost
manufacturers not millions, but billions in lost parts sales. When these sleeping giants finally
woke up it was almost too late.
Thank goodness for them, the Illinois State Legal System saved the manufacturers butts! A
judge in Illinois allowed a local lawsuit alleging use of aftermarket parts without proper notification
to the policyholder to become a national class action suit. And, the rest as they say, is history.
State Farms settlement in this matter changed aftermarket parts usage significantly. Almost
overnight, usage of Original Equipment Parts went up nationwide.
© Copyright 2003 Edwards & Associates Consulting, Inc.
At the same time, dealers were starting to get their act together and began focusing their efforts
on obtaining and / or building on their DRP relationships. Of course, nothing is ever easy. While
dealers were getting their acts together the large independents were getting larger. In fact
several consolidations occurred in the late 90’s and early in 2000 that had and will continue to
have an impact on dealers share of the collision business. So far
consolidation efforts have only gained enough momentum to keep dealers
who want to be in the collision business on their toes. Independent
Consolidation has had a much greater impact in the larger markets than in
the secondary markets. However Independents in secondary markets are
now consolidating and dealers in these markets have to compete with some very successful
independent collision shops if they want to succeed.
What does the future for the collision industry look like?
For Dealers, the wonderful thing about this business is that collision shops are providing a service
for customers who have “already pre-paid” for the service! Every morning, approximately 8% of
the millions of people who drive vehicles will find something to
HIT! And, if the weather changes for the worse, then this
number doubles to approximately 15%.
Collision repair always has been and always will be an excellent
business to be involved in. You just have to remember that just like any other business however,
collision customers will continue to go where they are wanted and
they will stay where they are appreciated. Dealers who want to be
successful have got to take the collision shop off of their back
burner and make it a part of their overall operating strategy. To be
successful, facilities must be upgraded. Reception areas have to
look like a Doctors office. Outside areas have to look like an office
park. And shop areas must be upgraded with new “dust free”
equipment. Measuring and pulling equipment has to be state of the art and technicians have to
know how to use this equipment.
© Copyright 2003 Edwards & Associates Consulting, Inc.
Insurance companies have to be treated as “partners” with the common goal of successfully
taking care of customers needs. Management has to be taught how to think strategically and
manage tactically. Estimators have to be trained to act as professional sales representatives for
the dealership.
Insurance companies will continue to look for ways to reduce their costs. This is at the heart of
the capitalistic system and quite simply, it is a prerequisite for success in any business. In order
to be truly successful, a business must constantly strive to reduce costs so that those reduced
costs can be passed along to customers in exchange for greater market share.
For some reason, too many Collision Shop Managers seem to think that
the insurance companies are not supposed to do this. They think and act
as if the insurance companies should give them anything they ask for,
without question, in order to repair a customer’s vehicle. This mentality will
have to go! Managers will have to learn to please both customer, the one
driving the vehicle, and the one paying the bill.
Insurance Direct Repair Programs have proven to be an excellent method for reducing insurance
company costs. They have allowed the insurers to reduce staff and equipment while giving the
shops greater decision authority. These programs have also been effective in reducing cycle
times, which in turn reduces the insurance companies rental vehicle expense.
Insurance companies will continue to look for ways to further reduce their costs. The rental
programs that they are running with Enterprise rental and others has improved (reduced) their
costs and provided the insurance companies with better control over this part of the process.
As for direct ownership of collision shops most insurance companies are taking
a “wait and see” approach to Allstate’s investment in Sterling Collision Centers.
So far, it appears that Sterling has a distinct dis-advantage in that other
insurance companies are reluctant to send their customers to a Sterling Shop
for fear that they will discover that in fact, an Allstate owned shop is repairing
their Farmers Insured Vehicle. This scenario gets real messy for the insurance companies and
for Sterling it presents a unique challenge of “How do we stay busy when Allstate customers are
not wrecking their vehicles”. So far, they have solved this issue by only locating in areas where
they have a high concentration of customers. But even this is risky. Only time will tell whether or
not this venture actually reduced Allstate’s costs.
© Copyright 2003 Edwards & Associates Consulting, Inc.
My guess is that this will not work out over the long haul for two reasons. Number 1, this industry
operates on an average net profit of 8%. While 8% net is great for a gigantic company with
millions in annual sales, it is not much for a company that sells only hundreds of thousands! The
return is barely sufficient to cover the replacement costs for buildings and fixtures over the long
haul.
Second, auto manufacturers have proven time and time again that they cannot run retail
establishments and I feel strongly that insurance companies will discover sooner or later that they
are better suited to selling insurance than they are at repairing damaged vehicles.
Paint companies also have a stake in this deal as well. I have to mention
that I have never really understood why a supplier who supplies
approximately 5% to 8% of the items needed to repair a damaged vehicle
can exert so much influence on the industry. I honestly believe that the
paint companies miss-read what was happening in the 90’s with all of the
manufacturer repaints being done under warranty and began managing their business like this
would never end.
Now, they are like the “drug addict” trying to get themselves off the drugs. They forgot how to sell
products based on Features, Advantages and Benefits and as a result, are having to re-learn
what they once knew. They are trying to stop but they just can’t! Dupont was one of the first to
learn how to “just say no” and their bottom line results are showing it. Other paint companies are
still struggling with the need to actually sell their products.
In my opinion, if you have been procrastinating about building a new shop or upgrading your
current facilities and you “thought” your paint supplier would help offset the cost for you. You
have procrastinated too long!
The right paint supplier can still be an excellent partner.
They can help you reduce your paint usage cost, train
entry level painters to become full-fledged painters (at half
of what you’re paying super-painter today) and they can
relieve you of the burden of maintaining a huge inventory
of paint supplies and materials. Just do not expect them to provide all of the inventory and paint
mixing help and give you a million dollars too!
© Copyright 2003 Edwards & Associates Consulting, Inc.
Success Paradigms for “MOMENTUM” in the collision repair business
1. Upgrade your reception areas; they need to look like a doctor’s office or
a hotel lobby.
2. Upgrade your office areas; they need to look as clean, neat and
organized as your main dealership offices.
3. Upgrade your managers skills, they need to know how this business
works from everyone involved perspective. Managers need to understand the value of
systems management that utilizes tracking and monitoring to ensure that goals and
objectives are being met.
4. Upgrade your equipment, you must have laser-measuring systems, a frame rack that
works, down draft paint booths that are properly heated and serviced regularly.
5. Change your pay plans to reward sales growth, customer satisfaction, reduced cycle
times, increased sales and net profits.
6. Get involved with your manager in meeting with your major insurance company “partners”
and agents in your market area regularly.
7. Begin reviewing the monthly reports that your insurance DRP partners send to your
manager.
8. Begin attending the insurance DRP program meetings that are held
monthly and quarterly in your market.
9. Begin monitoring key performance indicators from your collision shop
manager, daily.
10. Implement Edwards & Associates performance guidelines / standards for your shop.
© Copyright 2003 Edwards & Associates Consulting, Inc.
Edwards & Associates
Body Shop Performance Targets
Item
Goal
Labor Gross Profit
65%
Parts Gross Profit
36%
Materials Gross Profit
45%
Materials Net Profit
30%
Sublet Gross Profit
10%
Total Gross Profit
48%
Technician Proficiency
170%
Open Repair Orders Less Than 50% of Average Months Repair Orders Written
50%
Receivables Less Than 50% of Average Months Total Shop Sales
50%
DRP Ranking in Top Ten Percent of DRP Shops in Your Market Area
10%
Walk In Estimate Closing Ratio 70% or Better
70% +
DRP Estimate Closing Ratio 90% of Assignments
90% +
Dollar Value of Estimates Written Should Be Within $300 + or - Estimates Sold
Average Repair Cycle Time
$300
4.5 Days
CSI Survey Results
95% +
Total Sales Annual Growth
10% +
Support Salaries as % of Gross
40%
Semi Fixed as % of Gross
20%
Fixed as % of Gross
15%
Net as % of Gross
25%
If you would like a Free Profit Potential Analysis of your dealerships Collision Center, please fill
out the attached input form and fax it to our office. You will receive your free report in
approximately 5 working days.
© Copyright 2003 Edwards & Associates Consulting, Inc.
Dealer Collision Shop
Profit Potential Analysis
Collision Shop Name
Street Address
City
Phone Number
Completed By
State
Zip
Fax Number
Date
Financial Information
Month of Statement
Y.T.D.
Total Collision Shop Labor Sales
Y.T.D.
Total Collision Shop Labor Gross
Y.T.D.
Collision Shop Retail Parts Sales
Y.T.D.
Collision Shop Retail Parts Gross
Y.T.D.
Sublet Sales
Y.T.D.
Sublet Gross
Y.T.D.
Paint & Materials Sales
Y.T.D.
Paint & Materials Gross
Y.T.D.
Total Collision Shop Non-Production Personnel
Expense
Y.T.D.
Total Collision Shop Semi-Fixed Expense
Y.T.D.
Total Collision Shop Fixed Expense
Y.T.D.
Retail Labor Rate
Number of Repair Orders Closed
Number of Paint Stalls
Number of Metal Stalls
Number of Paint Craftsmen
Number of Metal Craftsmen
Daily Clock Hours Worked by Each Craftsmen
Number of Estimators
Fax: 704-454-5213
© Copyright 2003 Edwards & Associates Consulting, Inc.
Y.T.D.
Edwards & Associates Collision Shop Management Tools /
Programs Available to Automobile Dealers
Advanced Collision Shop Management Course
o Length 3-days covers how to obtain and grow DRP business, how
to increase Cycle times, and how to structure your shop for a profit.
o Cost $995.00
Estimator Selling Skills Enhancement course
o Length 2-days covers estimating for profit, managing DRP’s for
more assignments, convincing the customer to let your shop handle
their repair from A to Z.
o Cost $450.00
Master Mind Groups for Collision Shop Managers
o Similar to a 20-group program, comprised of managers from like
size shops. Meetings are held twice each year in the spring and
fall.
o Cost $1,800.00 per year
Collision Shop Management Training Program and Operating System
o This program is conducted on-site in your dealership by and E&A
consultant. Includes up to 8 days on on-site consulting and up to
one year of coaching and counseling by and E&A Consultants
o Cost $11,200.00 Plus Travel Expenses
Work Flow Management System to manage the flow of work going
through your shop while helping increase business.
o One years supply of forms with instructions for use
o Cost $75.00 per pad of 50
© Copyright 2003 Edwards & Associates Consulting, Inc.
If you would like more information please contact us at:
Edwards & Associates Consulting, Inc.
5615 Harrisburg Industrial Park Drive
Harrisburg, NC 28075
Phone: 1-800-979-9904
Fax: 704-454-5213
© Copyright 2003 Edwards & Associates Consulting, Inc.