Those were some of the views shared by an international panel during the third annual MSO Symposium held recently in Las Vegas, during the International Autobody Congress and Exposition (NACE).
About 275 attendees at the daylong conference also heard from Sidney Finkelstein, a professor and associate dean for executive education at Dartmouth College, who said growing businesses sometimes get tripped up when company leaders make decisions based purely on their experience.
Finkelstein is the author of a number of business books, including Think Again: Why Good Leaders make Bad Decisions. He said one sign of the downside of relying on experience is that after a successful acquisition, the odds that the next one will be as successful are less than 50 percent. That’s because that second acquisition is probably very different from the first, yet company leaders are likely to handle it based on what worked and what didn’t with the first. It’s like betting on “27” on a roulette wheel because the ball landed on “27” the last spin, Finkelstein said.
“You know it’s ridiculous in that example, but when you do it in business, we don’t think of it as so ridiculous,” Finkelstein said. “But it’s equally ridiculous. We’re making generalization and assumptions on the basis of a tiny sample size.”
Although organizers of the MSO Symposium did not allow the trade press to attend the segments of the meeting at which U.S. MSOs spoke, one panel discussion featured some international perspectives on MSOs and the industry. Facilitator David Lingham is a long-time organizer of the International Bodyshop Industry Symposium (IBIS), which has held conferences through Europe, Australia, South Africa, and most recently Russia and Dubai. Lingham said he’d spent the previous two days talking with shop operators in Nevada.
“I have to say that from my experience of going around the world, I could have been anywhere,” he said. “Everything they talked about is happening all around the world.”
Lingham said MSO models vary somewhat country to country. The U.S., he said, leads the world in terms of outside equity being invested in the industry. OEM and dealer networks are stronger than they are in the United States — in some cases, such as in Russia, dominating the market. And elsewhere, more loose-knit networks of independently owned shops, without some of the elements of the more formal franchise model, are more common. They pool some funds for such things as group marketing, for example, Lingham said.
One thing that doesn’t seem to vary as much by country is the expectations of the insurers, Lingham said. They almost universally are looking for predictable and consistent outcomes in terms of service, cycle time and average repair costs; and the flexibility to meet customers’ needs.
Lingham said he believes collision repairers — and MSOs in particular — are likely to move away from fixing all types of cars with all types of damages at a single shop to a more specialized model.
“Effectively, what you’re doing is acting like a car manufacturer that’s making a Nissan on the same production line as a Rolls-Royce,” Lingham said. “You and I both know that’s not how manufacturers can make their cars. They streamline the same type of vehicle in the same production line.”
Lingham said on average, about 35 percent of wrecked vehicles require structural repair and another 15 percent are total losses — which leaves about 50 percent that require non-structural or cosmetic repairs.
In Australia, he said, an insurer has set up a network of 30 shops that do nothing but these cosmetic, non-structural repairs, those with fewer than eight labor hours. These shops, Lingham said, have recruited front-office staffs from the retail industry, people who focus on customer service. With the exception of painters, the production jobs have been largely deskilled as well, he said, with teams of employees descending on a vehicle and sticking with it until the job is complete.
He said he also believes, based on his research worldwide, that auto manufacturers will take a greater interest in collision repair than ever before — both because of the increased complexity of their vehicles and their interest in selling parts.
Technology either built into the vehicles or through such things as “smart watches,” Lingham said, will be able to notify a central hub whenever a vehicle has been in an accident. That could give automakers immediate notification of (and greater control over) what happens to that vehicle after the accident, Lingham said.
“MSOs need to link in with this, just as they do with their insurance partners,” he said.
Lingham’s panel included Bob Kirstuik of Advantage Parts Marketing, which has operations in North America and the U.K. Kirstuik said most MSOs in the U.K. have low single-digit profit margins. This is in part because of the necessity of more non-production employees at each shop, he said, as well as network mandates that result in shops having two or three different paint lines.
Michael Macalusco, the COO of Carstar Canada, agreed that any parts procurement mandates here in the United States pale in comparison to those in the U.K. — and even to Canada, where some paint companies conduct audits in shops for insurers.
He said shop consolidation in Canada is also several years ahead of the United States, with five organizations controlling about 60 percent of the market, compared to the largest U.S. chains holding a combined 20 percent market share. Those five are also more involved in collaborations, Macalusco said.
“It’s not rare for those five players to get in a room with an insurer and work through processes,” he said. “There’s intense competition and that’s great. But there’s also a lot of collaboration driving solutions.”
Andrew Peet’s observations on the “fat margins” enjoyed by U.S. repairers comes from his perspective working for the U.K.-based Innovation Group, which manages 700,000 vehicle repairs in 13 international insurance markets through a global network of 6,000 shops.
“In my view, the margins (here in the U.S.) are going to come under pressure, just as they have in the U.K.,” Peet said. He said he doesn’t necessarily agree with Lingham’s belief in the need for specialization by shop if work is just scheduled appropriately. But, he said, the concentration of facilities some MSOs have in certain markets would make specialization easier.
