ABRN MSO roundtable looks at current struggles, future predictions

Since 2010, ABRN has convened an annual “Roundtable,” bringing together panel of representatives from shops and other industry organizations to discuss some of the key issues facing collision repairers. Although that “Roundtable” has frequently included MSOs, this year ABRN saw the value in convening a “Roundtable” focused more on MSOs themselves.

Here are some of the highlights of this inaugural “MSO Roundtable” discussion that brought together four MSOs, an insurance company representative and an association executive (see sidebar, “Who Was At The Table?”). Some responses were edited for length or clarity.

ABRN: What would you say is the biggest challenge facing your organization in the next 12-24 months – and how do you foresee addressing it?

Andy: The biggest thing with continuing to try to grow is qualified technicians, being able to get them trained, given the way the industry is moving in terms of vehicle construction and materials. Everything is changing at such a fast pace that I don’t know if the schools are able to keep up. We’re trying to start our own type of mentoring program, which is easier said that done. But I think we have to get people involved and engaged in our company and our culture at an early point in their careers.

Torie: I have to agree with Andy. My biggest concern is recruiting, training and retaining the right people. We try to recognize great people no matter where we are; most of my customer service representatives and receptionists came out of a transaction that happened at a retail establishment or a restaurant or the bank. The last couple of R&I techs we hired have come out of hardware stores or are friends of techs who they thought were mechanically inclined and would be a good teammate. The training portion we’re trying to mitigate by developing teams who can mentor younger guys. But it’s a struggle.

Pat: For me, this business has become intense with transactions. When I look at the administrative process, there are more steps today than there were in 2005 when I spent time creating a process map for workflow in our offices. There are just so many additional steps, documentation, and programs to use. Technology is a great thing but it’s not connected enough. There’s seven or eight icons minimized at the bottom of an estimator’s screen as they’re going through their process. I think we really need to get a handle on that.

Sandee: We’re seeing more MSOs as part of the DRP networks, across all insurance companies. I think we’ll continue to see that growth. So with that growth, how do we ensure that our system works both for the MSOs as well as the single shop? We still value the relationship with single shop owners. So how do we remain flexible to ensure that we can work with both those types of business partners to create fast, fair and easy service for our customers? That’s really our goal. Pat talked about transactions; that’s something we continually look at. How can we make it easier for the shops to do business with us? In an MSO, sometimes we can streamline that activity to reduce those touch points for them. So we continue to look at that.

ABRN: How do you see OEM certifications, or other forms of specialization, impacting your business now or in the near-term?

Torie: I think it depends what the purpose is behind the certification. It can be a great thing for the vehicle owner, the insurance company and the shop if there’s actual meat to it, if there’s substance there. But if it’s a certification for a fee, there’s no value to anyone. With a lot of what I’m seeing right now, there’s no actual requirements behind it. If it actually gives us the training and the seamless access to the repair information we need, then it becomes a different situation. But right now it feels a little shady. You’re certified as long as your check clears.

Jeff: And none of them agree on the same equipment. We probably all already have three estimating systems. We don’t need three different frame machines and three different spot welders. We only have so much floor space.

Andy: I have to agree with what’s been said. If it’s a pay-to-play type of certification, that doesn't have any value other than maybe using it as a marketing platform. I think that’s what every shop has to really look at: How am I going to get an return-on-investment on the training and equipment? It’s a daunting task. We’re going to be ready for the (new all-aluminum Ford) F-150, but I can tell you right now, it’s going to be five years before we start to see any pay-back on that huge investment. If there’s not some sort of increased compensation piece that goes along with the investment a shop makes, I don’t know how most shops could possibly participate.

Aaron: The industry has a responsibility to be proactive and vocal with the OEs to make sure the programs are not pay-to-paly, that there is substance and meaning behind them. Programs that elevate levels of training and being properly equipped are a good thing for the consumer. We’re going to have to figure out the return on investment. But I think we have a responsibility to the consumer to create sustainable business models that support investment in ongoing training and equipment to provide proper, safe repairs.

ABRN: How has getting larger impacted your relationships with insurers?

Torie: We’re in a fairly consolidated market, and we’ve added three Tier 1 relationships so far this year. I have to say we were surprised by how easy all of them were to acquire. They weren’t relationships we had been actively pursuing. I don’t know what to attribute that to, but that part has gotten easier.

Pat: Your past history and commitment to the market or the carrier is really what they look at. They know you’re working to mirror the performance in a new store just as you have in your other locations. If an insurer grows in a market, they’re having hiring, procedural or training challenges, and we do, too, at times. I believe we enjoy a better relationship today as a result of our growth and the fact that they understand those things.

Andy: I don’t know that anything has really changed as we have gotten larger. We haven’t added any direct repair programs. We’ve only got one or two at each of our shops. I’d be lying if I said an increase in insurance referral business isn’t somewhat tantalizing.  But we still heavily rely on the organic growth that we receive from customer referrals. That’s how we started in business, and we continue to grow at a relatively good pace. Right now we aren’t actively seeking out direct repair relationships.

ABRN: In the past, many of the larger insurers said they still evaluated an MSOs performance on a location-by-location basis. Is that still the case?

Jeff: I think it’s a mixed bag. I think you have some that are deep in the weeds, line by line on the estimate, and others give you the autonomy to beat to a drum of KPIs and metrics put in front of you. But I believe more carriers are really moving in that direction, looking at the aggregate.

ABRN: Aaron, what are you seeing in terms of MSO and insurer relationships?

Aaron: I think sometimes smaller, single-locations believe that MSOs don’t face the same hurdles as a single-location shop. But at a core level, there are a lot of similarities in the issues faced. How they address it is often a little different, but the pressure points are sometimes applied to the same places. While smaller businesses may not always have an insurer’s ear in the same way as MSOs, the larger businesses may not be able to use their voice in the same way. So it’s striking a balance between the two.

ABRN: Let’s end the ABRN MSO Roundtable with your predictions, something that you think will have happened in the industry three years from now, by late-2017.

Aaron: I think you have very large MSO competitors all vying for the same business acquisitions. If you look at the industry, there’s a limited pool of $10+ million businesses out there left to acquire. I think in that time period valuations (of collision repair business) will reach a tipping point, and as MSOs look at growth, greenfields will actually become as prolific in their growth development plans as acquisition is now. I also think in that period of time it’s likely you will see the “Top 4” MSOs move to a “Top 3.”

Jeff: There’s still a lot of opportunity, if you consider the Big 4 really only have 8 percent of the total collision space. That’s a lot of runway. I don’t believe it’s going to run out in the next two or three years. I think there is a lot of open space, especially if you have a very diversified strategy on how you grow. I think you will continue to see the investment community very involved.

Sandee: I agree that we’ll continue to see consolidation, not just in the number of shops, but in other (segments) that touch the repair industry. I agree the Top 4 MSOs may become the Top 3. I think predictive analytics will play a larger role in the repair process than it does today. The way we use data today and the way we will use it three years from now is going to be drastically different. We could be using data or telematics in order to give us, from the first-notice-of-loss, a better description of the damages that a vehicle has sustained. That can play a role in trying to expedite repairs for our customers. The demand for training also is going to continue to grow. We may see some newcomers come into that space, for training.

Pat: I’m hoping there will be some technology out there that gives us back what it’s taken away from us. As I said earlier, there’s so much technology out there is good but it’s not connected to anything. Someone is going to come along and have applications that bundle and talk to one another and connect the information, so the processes will be simpler.

Before the “MSO Roundtable” convened, ABRN asked each of the participants to independently take a guess at when a single MSO would grow to have more than 1,000 shops.

Three ABRN MSO Roundtable participants made similar predictions; Mahnke, Lindorfer and McFadden all guessed that an MSO would likely reach the 1,000-shop mark in 2018.

Beavers hedged his bet a bit, predicting a 1,000-shop MSO by late 2017 if one of the current Top 4 MSO merged with or acquired one of the other Top 4; without such a merger, Beavers said, it will be two years after that, late 2019, before there’s a 1,000-shop MSO.

Dingman said he doesn’t think it will ever happen. And Schulenburg declined to venture a guess.

“It would be pure speculation to make that call, and suppositions of that nature don’t really benefit the industry,” Schulenburg said. “It would also require a further assumption that one brand will exceed a thousand locations; while that is a possibility, it is not a given. There are a lot of factors that could play into both expedited or halted growth in that area.”

The question came up during the Roundtable discussion, and McFadden pointed out that Service King is more focused on “building a great company” than on being the first to some level of revenue or shop count.

“Taking care of your teammates, taking care of your insurance partners, taking care of the customer…That’s what makes it successful,” McFadden said.

But Mahnke said she envisions a key shift for insurers once an MSO reaches the 1,000-shop mark.

“At that point, it may become competitive for repair space in attractive and well-equipped top performing shops,” Mahnke said. “You may see some of the Tier 1 and Tier 2 insurance companies changing their programs. Those programs have become so hard to manage that those insurers may find they have to be more competitive in order to get the repair space that they need.”

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