Roundtable: Shops, associations discuss industry issues, make predictions

For the fifth year in a row, ABRN convened a panel of representatives from shops and shop associations to discuss some of the key issues facing the collision repair industry – and offer some predictions on what may lie ahead.

Here are some of the highlights of this year’s “roundtable” discussion that brought together two independent shops, one dealership shop and two association executives (see sidebar, “Who Was At The Table?”). Some responses were edited for length or clarity.

ABRN: More automakers are coming out with collision shop certification programs. Do you view this as a positive trend? Do the requirements and costs seem reasonable? What impact, if any, do you see these programs having on the dynamics between shops, consumers and insurers?

Aaron: I think the positive for the consumer is that it helps them identify repair facilities that have the equipment, training and capabilities as defined by the automaker. The positive for the shop is it gives them a leg to stand on as the professional with certified expertise. It also becomes a different referral source that’s more concerned about consistent quality and consumer experience rather than a low-cost focus. You are partnering with somebody who can help influence the consumer’s decision to utilize your services but who also gives you the backing to make sure you can do the best, most high-quality repairs – and hold you to that standard.

April: I think any type of certification program that generates more education and training for technicians and our industry in general is a benefit. The only negative I would see is the cost, being able to generate the income to outweigh it. But anything that provides my technicians more specific repair procedures from the vehicle manufacturers is a benefit for me.

Aaron: Yeah, I can’t say if these programs are reasonable in cost, but at the end of the day, the cost should be a pass-along cost. It’s not something the shop should have to absorb. In well-functioning markets, shops with lesser skills, capability and quality would be incentivized to improve because those who perform better receive higher degrees of compensation. That’s simply not the case in our marketplace. Insurers try to commoditize repairs and use practices that reflect prices based on the lowest common denominator rather than highest performers.

Dan: The programs definitely helps raise the bar in the industry, specific to repair quality. I believe they build consumer trust and raises the professionalism of the industry. Is the cost reasonable? It is if that’s the business model you want to employ. But the unreasonable part is there could be, for example, multiple welders you must have, a lot of redundancy of equipment. That makes it less reasonable, I think, depending on which and how many manufacturers you want to be certified by. And as Aaron said, by no stretch of the imagination should a shop make those investments without receiving compensation on the back end. An insurance company shouldn’t expect to pay the same labor rate. The level of repair is different.

Darrell: I agree the certification programs are a big differentiator. It could cause some shops to no longer be able to compete. We talked for years that technology will be the differentiator; that seems to be coming upon us now through these certifications. Because, frankly, the certifications are quite expensive. With some of the programs, it’s very conceivable to spend $250,000 between equipment and training. At LeMettry’s we have lot of OEM certifications. It’s part of our business model. We also struggle with differentiating the compensation. We try to charge a higher labor rate for aluminum structural repairs, and some insurers will reluctantly go along with it and some don’t want to. It becomes difficult to overcome the significant investment that you have. I think we need to get to a point where insurers understand the kind of vehicle a customer has and recommend to them that they have repairs done at an appropriate shop for that vehicle.

ABRN: As the economy improves, more shops seem to again be struggling to find technicians. What one thing are you doing to help address the technician shortage?

Jim: I think teaming up with some of the schools is the best approach., We partner with UTI (Universal Technical Institute), making sure we’re there letting students know what they can look forward to. It’s a great way to make a living and we just need to make sure they’re aware of it. I also see more recruitment of military people leaving the service. I think those are fantastic candidates: great people, great work ethics.  It’s another good source to bring people into our industry.

April: One of the things that we’ve found to be very successful is bringing in apprentices. We basically train them working side-by-side with our higher level techs. They seem to really enjoy the hands-on experience. We also try to keep our benefits package attractive for technicians. I think our family environment and our work hours are more positive than some other industries. And we serve on the board for the local voc-tech school and try to participate in as many activities as we can with that school.

Aaron: SCRS works with the Skills USA competition to help provide resources for both the students competing as well as the advisors who mentor these kids. We also work with organizations like the Collision Repair Education Foundation to help the schools and help connect our membership to those schools. Not just to help shops find technicians, but so the technicians can find the right shops. I think we need to get good techs coming out of the schools into shops that will support their career and foster their development.

ABRN: Aside from the technician shortage, is there a specific industry issue that you would most like to see addressed?

April: It’s not rare for us to see prior vehicle damage that wasn’t repaired or repaired well. So I think some type of certification process, some sort of requirement that repair facilities repair cars based on OEM recommendations, is absolutely necessary. You have to have a license to cut hair but (in our state) there is no licensing or any type of regulation as far as opening a repair facility, or for technician certification or anything of that nature.

Jim: Like April, I think correct and safe repairs are the biggest challenge our industry has. The trend that I’m seeing that I think has the most potential to help our industry is the post-repair inspection. That is the one thing that will keep shops accountable for making proper repairs. People are out there doing that now. From what I’ve seen, it’s fairly successful. I think the free market is going to have the answer before government does.

Dan: We’re working on one big issue and that is most-favored nation clauses. In my opinion that is probably the biggest issue we have in the industry. It has an impact not just on those shops that are direct repair shops; it negatively impacts non-DRP shops, consumers and even other insurance companies. We’ve begun the process of trying to eradicate those from our business. It’s going to take us some time, but it’s an issue we’re not willing to let go of because of all the various people who are being negatively impacted by it.

Aaron: At the end of last year, the United Kingdom Competition Commission came out with its preliminary findings of its review of the insurance industry in the U.K, and there was one sentence that I think succinctly sums up the biggest industry issue we have: “Competition between repairers to obtain business from insurers is focused on low cost rather than high quality of repair. That is, repairers are insufficiently rewarded for offering a high quality of repair.” I think if the consumer market were to demand (an end to) the practice of indemnifying losses based on low-cost principles rather than high-quality of repair, the market would provide the necessary incentive for more of the industry to focus on quality adherence and consumer experience.

ABRN: We always end the ABRN Roundtable with your predictions, something that you think will have happened in the industry five years from now, by mid-2019.

Dan: I have several predictions. MFN clauses will be banned from the property-casualty market under their current structure. A corporation not currently doing business in the United States will purchase one of the large MSOs here, and at least two MSOs in the U.S. will expand beyond North America. Certified collision repair faculties participating in direct repair programs will be charging a higher labor rate than other shops in the program in the same markets; basically, the system as we know it today, with labor rates being defined by insurance carriers for a given market, will be a thing of the past. And State Farm will allow Select Service shops to choose a parts procurement tool that’s good for their business based upon (the shops’) needs.

Jim: I will say that 50 percent of all collision repairs will have post-repair inspections of some sort. It will be the norm, not the exception.

April: I think there’s going to be a growing trend in the number of repair facilities that are more manufacturer-specific. It kind of goes along with the certification programs we discussed. You may have MSOs that have one facility designated to each manufacturer’s vehicles.

Aaron: I think April is spot on. I think the percentage of OEM certified repair facilities in the U.S. will have more than doubled, if not tripled.

Darrell: Shops will be in a stronger position in terms of their relationships with insurers. Insurers have already cut their own claims staff so much that we are in that position now, but within five years our industry will come to that realization. I’m going to say there will be 20 percent fewer shops, but also we’ll have to be more careful in the future in terms of how we identify that number: Is it rooftops or businesses? Consolidation is going to have a lot to do with that. The Big 4 consolidators  will become the Big Three, and two of them will be publicly-traded companies. I’m also going to predict that a shop certifications plan is developed within five year.

ABRN: A national shop certification program, independent of the automaker programs?

Darrell: Yes. And hopefully it won’t be with government involvement. It will probably more likely involve to a large extent I-CAR and some other entities.

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