Finding the Profit Potential in Fleet Work

Jan. 1, 2020
While some shops shy away from fleet repairs, others find it a profitable way to enhance their businesses. But in order to successfully pursue this niche, repairers must understand the specific needs of fleet customers.
While some shops shy away from fleet repairs, others find it a profitable way to enhance their businesses. But in order to successfully pursue this niche, repairers must understand the specific needs of fleet customers.Do you find that your business has excess capacity that you would like to fill? Do you have all of the direct repair (DRP) relationships that you want for your business? Have you exhausted all reasonable marketing opportunities? Maybe it's time to consider the self-insured-the vehicle market also referred to as fleet work.Shop owners often avoid fleet work because they've heard negative remarks based on the experiences of others. They also may not want to get into the competitive bidding process, discount their rates and parts, buy special equipment or wait 30 to 45 days to get paid. But all of these factors depend on the type of fleet work a shop chooses, as well as the specific relationships they develop with their fleet customers. Many shops find that adding fleet work to their retail business is profitable and rewarding.What is the Fleet Business?While privately insured vehicles have an accident rate of about 12 percent, the fleet universe-not counting heavy-duty trucks-consists of 10 million vehicles that have an accident rate between 15 percent and 30 percent, says Wayne Smolda, the chief executive officer (CEO) of CEI, a Southampton, Pa. company that provides accident and risk management to self-insured auto fleets and claims management outsourcing to the property and casualty industry.Fleet businesses usually fall into one of five categories: small business, rental car, government, utilities and large commercial. Each of these has specific needs and requirements, as well as different ways of administering claims and returning the vehicle to the road.The small business fleet traditionally consists of 25 vehicles or less for small construction companies, sales-oriented agencies and local service firms, such as pest control businesses. These fleets tend to be insured by property and casualty companies, as opposed to being self-insured, but because the vehicles are often leased, they are considered part of the business fleet universe. Because these vehicles are used in the pursuit of business, the operators are looking for better, more reliable and consistent service experiences. Insurers generally do not offer enhanced solutions for their specific needs, which opens an opportunity for collision repair shops that can offer these solutions.Rental car fleets are referred to by most as deep discount work. A number of body shops report having tried to work with this market, but they found it unrewarding and unprofitable. Because of the service demands and deep discounts on parts and labor-some companies want to supply their own parts-shops that pursued this line of work found that they became contract employees for the rental companies, basically working for wages. The shops that do stay with rental company fleet work often end up devoting most of their business to this type of work. Some don't even try to compete in the consumer market.Government fleets consist of vehicles operated by federal, state, county and local municipal agencies, including law enforcement. The government agencies usually require two or three bids on each job, and these jobs can involve a lot of administrative work. But with some agencies or departments, once you've established yourself price-wise and quality-wise, you can escape the bidding process. It depends on the parties you're dealing with and the policies that are in place.Utility fleets consist of vehicles for gas, electric, telephone and cable companies. There is a different mentality at play here when it comes to repairs. These companies often prefer to patch the vehicles instead of having them completely repaired, and you may end up fixing about half of the items you would fix on a retail customer's car. The garage manager for these fleets might look at a vehicle that was hit in the front end and decide to leave the bumper dented. As a result, the dollar total of your average repair order may be on the low side. Some shops may also be uncomfortable with performing a less-than-complete repair.Large commercial fleets are companies with 25 or more vehicles-they are more likely to have 300 to 10,000 units. They are often spread across a region or even the whole country. These fleets consist of any combination of cars, light trucks, SUVs and cargo vans. Collision repair work is typically managed by the accident management department of the vehicle leasing company, by a company that specializes in claims or accident management or by a third party administrator (TPA). Sometimes, large insurance companies offer these types of services through their claims management divisions.Typically, large commercial fleets are for a company's executives or its sales and service force. The average capitalization costs for the typical fleet vehicle is $16,000 to $18,000, for which the average repair is about $1,500, Smolda says. "If these vehicles are on the books at depreciated, capitalized costs, [the companies] are not going to spend the money to repair a heavy hit," he says. Typically, if repairs exceed 50 percent of the capitalized value on the books, the companies won't repair the vehicles. Instead, they sell them as a rebuildable wreck.Success with FleetsSmolda started in the fleet repair business in 1980 when he and a partner took a 6,000-sq.-ft. building, set it up for collision repair and began pursuing local and regional fleet companies. Smolda served as the outside sales rep, and his partner managed the shop. Within three years, they built East Coast Fleet Services into a $1.5 million business. In 1984, CEI was founded. In addition to its claims management business, CEI owns nine collision repair facilities under the name of CollisonMax AutoBody Repair Centers."If shops want to develop a program to service the fleet universe," Smolda says, "they have to be very dedicated to this. It should be treated as a separate business segment from the retail business because fleets have special needs. For example, turnaround time is very important to fleets. Each day that vehicle isn't in service, it costs the company or agency money. They're paying for a leased vehicle, and they don't need to go out and pay for a rental car, which may not be suited for the unique needs involved. With service vehicles, they usually don't have another one to use."Christopher Ferrante, president of Gilbert Collision Center Inc. in Gilbert, Ariz., made the business decision long ago not to participate in DRPs. Instead, in 1995, he began doing fleet work at Metro Auto Body, a shop he had previously owned in Mesa, Ariz. Today, fleet work makes up 23 percent of his business.For Ferrante, who is also president of the Central Chapter of the Arizona Collision Craftsmen's Association, fleet work has been beneficial in more ways than just financially. "I find that establishing a successful relationship with a fleet operator, learning what their needs are and being able to deliver exactly that type of service is very rewarding," he says.It has been so rewarding that when Ferrante opened his 12,000-sq.-ft. shop on June 1, 1999, the setup reflected the needs of a fleet repair business-wide doors and driveways, special equipment, a 40-ft. paint booth and frame equipment that accommodates up to medium-duty trucks. Although the shop can repair and paint heavy-duty trucks, it sublets frame work. The shop is also equipped to provide onsite, mobile estimating services for fleet accounts, enabling fleet managers to expeditiously process claims and release the vehicles for repair.Gilbert Collision's fleet business includes private fleets; municipal and government fleets; large commercial operators, such as towing companies, plumbers and construction companies; and commercial fleets, such as leasing companies and automobile businesses.A large part of Ferrante's success has come as a result of identifying, understanding and fulfilling the specific needs of each client. A former federal agent and police officer, Ferrante started first with law enforcement fleets. "For me, this is a natural market," he says. "I understand their needs because I've been there. They need very fast turnaround and a very high quality repair on their patrol cars, which may be driven at high speeds and in high-stress situations."The shop also repairs undercover vehicles for several agencies, which presents an additional challenge. "They need to be able to bring in these vehicles and not have them identified as such," Ferrante explains. "All of the paperwork must be handled discreetly. They don't want to broadcast what type of car it is."As an added benefit for the agencies, the shop does all of the specialized repairs on the vehicle. "They don't have to take it to us for the body repair and then to a radio shop to fix the lights and radio or to someone else to do the custom interior work," he says. "We do it all."Gradually, Ferrante added other types of fleets to the shop's customer base, continuing to pay attention to the specific needs of the clients. "Commercial fleet operators, such as leasing companies, have a need to get their vehicles repaired to absolute pre-accident condition so that when they sell the car at the end of its lease, they can get as much value as possible," he explains. "Service fleet operators need to get their vehicles back on the road right away. Some of the things we will do for them are stock the company colors, make the decals for their company logos and provide other services they need in order to prevent delays and to keep from re-inventing the wheel each time a vehicle is repaired."Should You Do It?There are a number of things to consider before taking on fleet work. No. 1 on the list should be capacity. Look at it on an annual basis, not month to month. If your shop is busy all year round, you may not want to consider fleet work.You also need to determine if you are willing to meet the needs of the fleet operator. "One of the mistakes a shop owner will make is to give priority to regular retail business when they get real busy because the retail pays full list and pays when the car is delivered," Smolda says. "Not all fleet business is discounted or paid on term, but when most body shop owners get busy, they look at the discount work or work where they might not get their money right away and change the expected level of service required. You can't change your service level no matter how busy you are, and it's unfair to expect a fleet customer to be put through those changes of inconsistency."Can You Afford It?If you decide to pursue fleet work, you must make sure you price your services properly. Be careful not to undercharge or overcharge. Some fleet customers pay full retail, while others expect some discount. Don't agree to terms you can't afford. Also, if you are working with a TPA or accident management company, expect to pay administrative or sourcing fees. Some shops try to charge the fees back, instead of allocating them appropriately under advertising or marketing expenditures. These fees should be viewed the same as a Yellow Page bill, not as a cost of sales or as a reduction in the repair order price.Just as fleets have different needs, they have different ways of billing and submitting payment. Some fleet customers pay on delivery or with credit cards, but shops have to bill most of them, in which cases they receive payment in 10, 30 or 45 days from when they submit the invoice. "The shop owner has to be realistic," Ferrante says. "If he can't afford to float the cost of parts and labor for 30 to 45 days, then he shouldn't sign a contract agreeing to be paid in 45 days." Smolda, however, warns that "if a client cannot pay your bills in 30 to 45 days religiously, then you have a poor customer and you shouldn't consider working for them."Another problem body shops have is failing to be administratively competent at following agreed-to procedures. This is not unlike problems some shops encounter when they have several DRPs. If shops don't receive a regular stream of work from a fleet management company, it is easy to forget administrative procedures. But if you are on someone's list, it's important for staff to stay on top of the details.Are You Equipped and Trained?Don't take on fleet business unless you are equipped to do so. If you're going to approach a fleet that has a mix of vehicles, from cars to medium- and heavy-duty trucks, you can't say, "I just want your little cars." You have to be able to handle most of the vehicles they have in their fleet. "It does no good to go out and solicit fleet work if you can't meet their needs," Ferrante stresses. "You have to be prepared to make the investment in the equipment and materials that you need to do the jobs."Training is very important, too. Gilbert Collision is an I-CAR Gold Class shop. In addition, most paint system manufacturers have fleet-specific refinish product lines and may offer specific training and certification programs for fleet refinishers.Getting the WorkIf you plan to seriously pursue fleet accounts, you need someone-such as a marketing manager-devoted to these efforts. This person should be responsible for bringing in the work, setting up the accounts and acting as a communicator/ insulator between the customer and the shop. Fleet operators aren't interested in the day-to-day problems of running a shop, and likewise, the people in the shop shouldn't have to deal with anxious fleet operators."You really need someone to focus on the needs of the fleet customer," Smolda says. "Make sure that their interests are always protected, regardless of what's happening in the body shop. They will often put more pressure on the body shop owner to deliver the car because they need that vehicle back on the road. One or two local accounts aren't going to make a difference to a body shop in terms of volume, but if you want a lot of them, you will want someone to manage the weekly trials and tribulations that can be distracting."Ferrante chose to act in this capacity himself. "This way, I control exactly what is said and what is promised and what is offered to the customer," he explains. "When I make a presentation to the fleet company, they're dealing with the principal owner of the company. I am very strict on giving the consumer the absolute truth. I believe strongly in complete disclosure to the customers during all facets of the repair. If there's a problem, I am totally available at any time to my fleet customers."Making contact with fleet operators begins with identifying the fleets and contacting the appropriate person. In terms of smaller fleets, look at tradespeople around town who aren't part of a larger chain-plumbers, construction companies, pest control, etc. Larger fleets might have a fleet or risk manager who could then tell you who manages their collision repair claims and who to contact. Government fleets and utilities are often "depoted" fleets, where the depot includes a garage. The garage superintendent may be the one who outsources the fleet repair business.Fleet work has proven to be a profitable and satisfying line of work for Ferrante and Smolda, but their success has come by giving special attention to the needs of their clients. "I can't stress heavily enough that you shouldn't bite off more than you can chew," Ferrante says. "You cannot satisfy the demands of a fleet customer with untrained, unprofessional personnel. You have to be extremely professional. Any lapse in professionalism will be immediately apparent to them, and you will lose the business. You have to be absolutely truthful and deliver the absolute best quality at all times, or you will embarrass yourself and you will embarrass the industry. It's not something to be taken lightly."

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