MSOs are taking another look at fleet work

May 27, 2014
As frequency continues to decline, MSO capacity continues to increase and insurer-paid consumer works becomes increasingly controlled with tighter margins, MSOs are giving fleet work another look.

Mike Quinn said he saw a shift among some fleet managers over the last decade he operated an MSO collision repair business.

Mike Quinn

“In the past, a lot of fleet managers were more about wanted cars slapped together and the cheapest repair,” said Quinn, who sold his 7-shop Arizona-based chain in 2011. “Invariably that hurt them when they’d sell or trade in the vehicles. So I think over time more of them now want the repairs done right.”

Some MSO operators still view fleet work as the lifeblood solely of smaller operations with a single low-visibility location. But as frequency continues to decline, as MSOs’ capacity continues to increase and as insurance-paid consumer work becomes increasingly controlled with tighter margins, some MSOs are giving fleet work another look – and liking what they see.

The pros and cons
Darrell Amberson, vice president of operations for the seven LeMettry’s Collision locations in the Minneapolis-St. Paul area, is the first to admit no fleet work is done at full retail rates. But it can keep technicians working and help an MSO reach its monthly break-even point faster.

“Fleets can be pretty aggressive in terms of a bottom line discount,” Amberson said. “I’ve seen them that expect as much as 10 or even 14 percent bottom line discount. In our industry, our margins aren’t typically that great. So the only way it works is if it’s just filler work. You couldn’t exist with a typical conventional model doing just that kind of work. But to fill in some gaps, it’s okay.”

A fleet, for example, may keep a vehicle in service if it has some cosmetic damage that doesn’t keep it from being used; but if an MSO has a shop having a slow week, they can offer the fleet extra-quick turn-around on these small jobs.

While a bottom line discount on every job may seem more severe than concessions offered to insurers for direct repair work, Amberson said there can be trade-offs that make it more palatable. Some fleets, he said, give shops greater control over parts choice and may put less scrutinyon every judgment time than an insurer might.

Some fleet managers also may understand that quick turn-around times can be worth paying a premium for.

Darrell Amberson

“And one of the real values I see in fleet work is an direct form of marketing,” Amberson said. “The people who have their cars or vans for business use in for repair likely have personal cars as well. Hopefully you can gain them as a customer.”

“If you make that plumber or electrician’s truck look really good, they’ll think, ‘Yeah, I can have them fix my car,’” Quinn agreed.

Quinn said he had little success as an MSO attracting government fleet work that required bidding on every job.

“I lost every time because I couldn’t bit low enough,” he said. “That, for us, was a waste of energy and resources.”

But larger, national fleet management firms proved a better source of work, Quinn said. And contractors or dry-cleaning firms generally don’t have large enough fleets to self-insure, so repairs are often covered by a commercial insurer.

Quinn also noted that some insurer’s DRP “most-favored nation” pricing requirements – most notably, State Farm’s – don’t require shops to take any discounts offered to fleet accounts into account when pricing the insurer’s DRP work.

Other potential downsides to fleet work: It can put a crimp on cashflow, given that some fleets prefer monthly billing and payment. In some cases it can also involve a lot of the headaches involved in non-DRP work, including estimate approvals or onsite vehicle inspections. Some shops say that national fleet don’t always assign one person to a particular claim and so have found themselves on the phone with up to six different people over the course of a repair.

But MSOs who do fleet work also point out that it can be a good way to keep the company from becoming too dependent on any one or two sources of work.

Potential sources of fleet work
If fleet work seems to fit with your business plan, the next step to track it down. Looking for potential fleet work can be as simple as keeping an eye out as you drive around town. Any vehicle on the road with signage indicating that it is a commercial vehicle may be one of a half dozen – or 150 – that company operates.

Some of the common sources of fleet business for collision repair shops include:

  • Law enforcement agencies. One MSO owner swears that for whatever reason having a police or sheriff’s department vehicle in his shop is a great confidence-builder for other potential customers.
  • Utilities. The largest oil, natural gas, phone, cable and electric companies tend to have their own repair shops, but plenty of others need work on their cars, trucks and vans of all types.
  • Delivery and courier services. You might not want to work on larger UPS or FedEx trucks, but a quick check of your local phone book will help you find plenty of other companies with fleets of cars and small trucks making deliveries around town.
  • Rental car companies. Many shops have found this to be some of the least profitable work available; others says it’s a reliable source of fill-in work, and that MSOs have more leverage than single-location collision repairer to get some of this work. Some of the largest rental car companies source their own parts for repairs, making margins on this work even tighter.
  • Corporate fleet management companies (see sidebar).
  • Contractors. Plumbing, electrical and remodeling contractors tend to rack up a fair amount of on-the-road and job-site damage needed repairs. Shops say these fleets may look to save money by asking for partial repairs that will get the vehicle back into service even if not always looking first-class.
  • Taxi and limousine companies. As with rental car firms, taxi companies are generally experienced at negotiating the best deal they can on vehicle repairs. But if that’s not the type of work you’re looking for, don’t rule out the towncar and higher-end market that invest in (and have customers who expect) nicer, professional-looking vehicles.
  • Any organization with a mobile sales force. If a company puts employees out on the road conducting sales calls, the odds are good they’re doing so in company-owned cars. Pharmaceutical companies, for example, have fleets of cars for employees calling on doctors and pharmacies. Ask other business owners outside the collision repair industry what kind of companies call on them – and what kind of vehicles those sales agents are driving.
  • Municipalities. Some cities, counties and states often have their own repair shops, but if not, it can be attractive work. You may enjoy preferred status for getting the work if your business is woman- or minority-owned.
  • Schools and hospitals. Universities and medical centers are among those most looking to maintain the resale value of their fleets through quality repairs, Quinn said.

Attracting the work
Once you’ve identified potential fleets, it’s time to start thinking like a fleet manager: What will compel them to choose you to do their collision repair work?

Competitive pricing. Discounts are often expected, particularly when working with large national fleet management companies. Some expect a set percentage discount on the entire job – and then may or may not also pick apart each estimate line by line. But smaller fleets – and particularly those that need vehicles fixed quickly – may be willing to pay closer to full retail pricing.

Faster repairs. Every day that vehicle is in a shop is another day it’s not making any money for the company that owns it. So turn-around time is critical. Having extended hours that help improve your cycle time can be an especially good selling point for fleets.

Transportation services. Being able to offer pick-up and delivery of fleet vehicles can be another added-value service an MSO can offer for a fee or free. Some fleets also need replacement cars, so convenient in-shop access to rental or loaner cars can give your company an edge.

Additional vehicle services. Being able to provide glass repair and replacement, paintless dent repair or mechanical services for vehicles can also help you compete for fleet business. Amberson said LeMettry’s is adding mechanical departments to more of its shops; it’s a good added service to bring customers to their shops more often, he said, and also helps attract fleet work as well. Quinn recommends also being able to handle replacement of lettering and graphics on commercial vehicles as well.

“The fact that the paint looks good doesn’t help a contractor if half his phone number is gone from the side of the vehicle,” Quinn said. “The shop should take that responsibility to make sure the vehicle is complete.”

Ability to handle larger vehicles. Even if you don’t have the capability to take on the largest trucks and vans, you’ll likely need to be able to take on full-size pick-ups at a minimum. Amberson said LeMettry’s is outfitting its mechanical departments and shops to handle 1-ton and other large vehicles.

Business exchange. Companies like to do business with those who buy from them. Right after a contractor does some work at one of your shops may be a good time to ask who repairs their vehicles. One MSO that regularly sends past customers a gift card redeemable at a florist in the community now repairs that florist’s fleet of delivery vans.

Location. As with insurer DRPs, fleet managers usually look for shops in strategic locations. Your proximity or easy access to the fleet can be a big selling point. A well-placed satellite location – even if it’s just for drop-off and pick-up of vehicles – also could help you land more fleet work.

Persistence pays off
Adding fleet work is much like any other shop marketing: It requires patience and persistence. You may hear “no” today, but if you regularly keep your name in front of fleet managers in a positive way, you’ll be in the running when something changes. Quinn said most of the smaller fleet relationships his MSO developed were based on his involvement in Chambers of Commerce and local community groups.

He said he also foresees an increasing interest among MSOs for seeking out fleet work.

“I think they will have to as frequency continues to go down and the machines they have to feed grow larger,” he said. “They’ll need to look at alternative channels of business.”

Corporate fleet management firms
In addition to the local and regional fleets, a number of companies offer fleet management for Fortune 500 and other large companies on a national and even international basis.

The CEI Group, for example, maintains a network of shops to which it directs work from the various national fleets that hire the company to manage their vehicles. Requirements for joining the network include providing a minimum of a 3-year workmanship guarantee, and waiving all vehicle storage charges even on total loss vehicles.

Applying for the network entails sending CEI information about your shop, including a description of your equipment and capabilities, photos of the interior and exterior of your building, and a copy of your garage-keeper’s liability insurance. The company said it chooses shops based on such factors as location, estimate cycle time, average severity and customer communications.

More details are available on CEI’s website (www.ceinetwork.com).

Other large fleet management companies (and where to find out more information about working with them) include:

            • Drivers Shield (www.driversshieldautoclub.com)

            • PHH Corporation (www.phharval.com)

            • Wheels, Inc. (www.wheels.com).

            • GE Fleet Services (www.GEfleet.com)

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