A roundtable discussion

For the fourth year in a row, ABRN convened a panel of representatives from a variety of backgrounds in the industry 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 “roundtable” discussion that brought together seven representatives from shops and associations – and even an insurer.

Who Was At The Table?

• George Avery is a claims consultant with State Farm at the company’s headquarters in Bloomington, Ill., part of a team that oversees the company’s auto claims practices and procedures.
• Paul Gange is the president and chief operating officer for Fix Auto USA, a network of shop across the country including more than 50 branded franchise shops.
• Christy Jones is a “collision repair concierge” (and future second-generation owner) of R. Jones Collision 1 in Des Moines, Iowa, and is board secretary of the Iowa Collision Repair Association.
• Ron Nagy is a second-generation co-owner (along with his brother Dan) of Nagy’s Collision Specialists, which operates eight shops in Ohio, and is the immediate past chairman of the Automotive Service Association (ASA) board of directors.
• Dan Risley is the executive director of the ASA.
• Aaron Schulenburg is the executive director of the Society of Collision Repair Specialists (SCRS).
• Kye Yeung is the owner of European Motor Car Works in Santa Ana, Calif., and board secretary of SCRS.

ABRN: There’s been a lot of discussion about “industry standards.” How would you feel about some sort of certification criteria for shops, including requirements for equipment and training, with third-party inspections to ensure ongoing compliance?

Yeung: We currently participate in five OEM certification programs, and each have a different criteria. The positive end of it is that when you deal with an OEM certification, you can assess the cost of participating and then calculate what type of rate of return is likely on your investment. With a general shop certification, that might not be the case. And if the insurers aren’t on board, then we have issues. If you put in a 4-wheel alignment machine and only get paid for a 2-wheel alignment, it doesn’t make sense. Everybody has to be on board if the certification is going to work.

Schulenburg: Kye hits it on the head with the ROI element. I think there are insurers in the market today looking for and requesting top-tier training, yet they are only willing to remunerate shops for untrained level work. There needs to be an understanding that as we advance and hold ourselves to higher standards that an ROI is necessary if that is to continue.

Gange: It’s hard to argue with the fundamental desire for standards and the hope that they will create some comfort level that vehicles are being repaired properly. I think we should look at markets where standards have been implemented to try to understand the pros and the cons. Our organization has a sister group in the United Kingdom, and I spent a fair amount of time evaluating the standard in place there. There are certainly a lot of benefits to that, but there are a lot of drawbacks. It’s excruciatingly expensive. Just to give you a perspective, to implement (the standard) in the U.K. costs between $40,000 to $75,000 initially, and probably between $7,500 and $10,000 a year to maintain.

Schulenberg: And the shame of it is that I think U.K. repairers face almost as much friction, if not more, over being paid for necessary documented operations as we do here in the U.S., despite the fact that the standard exists there.

Risley: The person who needs shop certification the most is the person not represented in this conversation: the consumer. We’re far behind the curve as an industry in terms of being able to provide some assurance that where they’ve having their car repaired is a place that is qualified to do so. Just having a certification doesn’t necessarily mean you are going to do a good repair, but at least it says you have everything in place to do so.

Nagy: I have to agree with Dan. It comes

down to the consumer. Certification isn’t the cure all, but it’s a step in the right direction.

ABRN: George, what’s your take on shop certification from an insurer’s perspective?

Avery: We certainly have an interest in making sure cars are fixed right. But I think it’s a repairer-driven issue. Insurers need to be supportive; as Kye says; everybody’s got to be in. You just can’t have part of the stakeholders in and part out. I know that State Farm, for example, is very supportive and interested in seeing this move forward.

ABRN: Turning to another issue, what are some of your thoughts and concerns about the electronic parts procurement systems some insurers are mandating shops use?

Nagy: We order everything electronically now. We are paperless. I have no problem implementing (the systems), but I think my biggest hang up is if I’m being told I have to use a particular product.

Yeung: My feeling is if these procurement programs were to stand out on their own, in the open market, they wouldn’t succeed. And they don’t address the issues of getting wrong parts, getting damaged parts, payment of multiple vendors, the relationships you build with your parts vendors.

Jones: I agree with Kye. It’s not fixing the other end of the problem. I’m all for technology. I’m all for efficiency. But if it’s not benefiting me as a business owner, if it’s not benefiting my customer, then I don’t know if it’s something that’s going to be good or that’s usable. And it doesn’t solve the problem of wrong parts, or the salvage yard telling me it’s a good part when it’s not.

Risley: Insurance company mandates don’t work. We went through a similar thing many years ago with the estimating systems, and we had shops paying for three different estimating platforms that all did the same thing. And whose to say that a product won’t come out tomorrow that’s three times better than one being mandated? So now I have to use an inferior product because of a mandate from an insurer? And when you sign these insurer agreements, there is a clause that says if there’s a change in the program, you have to immediately adopt that change to continue on the program. I think that is unfair. I would like insurance carriers to consider what I’ll call a grandfather clause where shops have six months to adopt the change in the program. At least then you have six months to start building a business model moving away from that program so that dropping it doesn’t have such an immediate negative impact on your business.

ABRN: George, your company is one that is rolling out mandated use of a particular parts procurement system.

Avery: Dan has a good point. Business men and women need to have time to make decisions. As far as the other problems with parts, my sense is that a level of transparency may help get some of those fixed. There’s a vendor rating system with PartsTrader, for example. And what PartsTrader does do is introduce competition to the parts arena that frankly I don’t believe has been there. Also, I don’t think State Farm is the first one to mandate something. There’s a lot of mandates that have been going on for a lot of years that are not getting the attention that State Farm is getting. These are agreements that people signed. We are not forcing this on everybody, only on those who choose to be on our Select Service program.

ABRN: Shop acquisitions are in the news nearly every day. What do you think the growth of MSOs will mean for the independent single-location shop?

Jones: Being a repair facility under $2 million a year, we may not be the shop that MSOs are looking to purchase, but MSOs do offer an opportunity to sell our business. But something that concerns me is saturating the market with companies that may not be known in our community; we as independents may lose our identity and may lose business.

Yeung: I’ve been in the business for 38 years. We know the consumer wants choices. A lot of the MSOs have a business model that caters to insurers. I feel that’s not what every consumer wants. I think you can have a specialty store to cater to those people who may be a little more finicky, or who have a specialty vehicle that some of the MSOs don’t want to touch. An independent store can survive by offering things that don’t fall into the MSOs’ business model.

Risley: I would tell the independent shop owner that they need to own the customer. Often at larger shops, because the sole proprietor isn’t there, it become more transaction-based as opposed to owning that customer and having a relationship with them to get that repeat business. Most sole proprietors are good at that, but it’s becoming even more critical for them to be experts at it. It’s a completive advantage that the MSOs have difficulty replicating. And insurance companies can’t be the only people you market to.

Gange: When you think of who has been successful in business, whether a Fortune 500 company or a street cart vendor, it’s those companies who have differentiated themselves. They’re created an offering that is irresistible to their customer. I think repairers have a great opportunity to do that. I really don’t think it has to do with how big you are. I think even the biggest can and will fail.

Schulenberg: I think there will always be a place for independent businesses. It just may mean they do need to change their strategies. It can’t be business as usual. Define yourself differently within your market to your customer. I think shops have gotten away from grassroots community marketing. I also think OEM certifications can really differentiate your business.

ABRN: George, you’ve said in the past that State Farm evaluates each location of an MSO as a individual shop. Still true?

Avery: This could change, but at this point we have found value in evaluating each store on its own merits. That serves us well. The single store operator can be very competitive. Having said that, the independent operator, compared to the MSOs, may not have the buying power or some of the benefits of a bigger number that an MSO has. But at the same time, an independent repairer may have some benefit in how they do business. At large MSOs, there is a lot of management involved who don’t fix cars. That’s a necessary load, but it is a load on the enterprise.

ABRN: Ron, with eight shops in one state, what’s your strategy as an MSO?

Nagy: We have been pretty aggressive. We go after the towns with populations of 25,000 to 50,000 people and try to stake it and say “this is ours” and hit it with all we have. We’re not going to slow down. We’re excited about it. I think other MSOs might struggle in some of the small towns we’re in. But there’s opportunity for anyone out there.

ABRN: We always end the Roundtable by asking you to look to the future, say five years from now, 2018. What do you think will look different at your business or for the industry?

Gange: It will surprise me if in the next 5-10 years we don’t see large groups of shops specifically focused on non-structural repair, repairs under $1,500. They may even set up shop in strip malls. On the insurance side, I think we’ll see more consolidation among insurers, and I think we’ll see some foreign insures land in the U.S. We already have Mapfre, a very large Spanish insurer; I think we will see others from Canada or Europe.

Jones: I think you will see more shops that are OEM-specific, doing just GM work or just Toyota work.

Risley: I agree. I would expect in about five years that you’re going to have 10 to 15 percent of the industry that is very (OEM) network specific. And I think five years out we’ll have 3,000 to 5,000 fewer shops overall.

Schulenberg: I think for at least the past decade there’s been predictions of massive consolidation of the market, and it’s happening, bur it’s not happening as quickly as it was predicted. I really don’t think our industry will shrink below 28,000 to 30,000 shops. Will that happen within the next five years? Probably not. I do think in the next five years we’ll start to see some consolidation of the consolidators, some of the bigger groups purchasing others. We’re seeing some of that already.

Participants bullish on collision repair as career

If you had a 18-year-old relative thinking about a career as an autobody technician, what would you tell him or her? ABRN Roundtable participants were asked to choose one of six responses, ranging from “It’s a good trade with good career options,” to “Don’t do it.”

All seven said they would respond positively to the relative. Five of the seven chose the “It’s a good trade,” response.

“Though I’d say it a little differently. I’d say ‘it’s a great time to be a part of the collision repair industry’,” Paul Gange, of Fix Auto USA, said.

Two of the multiple choice answers had the same wording (“That’s why I did and look where I am today”), but participants had to indicate whether that would be said with “genuine enthusiasm” or “heavy sarcasm.” The two participants who chose this wording said they would say it enthusiastically.

“I recently spoke to a graduating class of the Top 16 students out of 50 high school in Arizona, and I basically told them it’s a great career with endless opportunities,” Dan Risley, of the Automotive Service Association, said.