• app sep/oct 2016
    app sep/oct 2016
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The growth and popularity of multi-site organisations (MSOs) continues to be the most significant trend and story in the US collision repair market.

Anecdotal evidence suggests a growing number of shop owners believe that operating multiple sites is the key to survival. MSOs bring in greater revenues, which shops need to purchase the tools, equipment, training and other significant investments required to compete and survive in the US market. Their size and ability to dominate regional markets allows them to offset labour rates that continue to stagnate, with greater productivity.

Moreover, MSOs often provide needed innovation to the industry. Repairers that create efficient, money-making operations often look to expand their repair models to other sites, either creating all-new locations that grab marketshare from less successful shops or they buy up existing businesses and convert them to their model. The largest and most successful MSOs continue to command growing sections of the collision industry and often, the most lucrative areas.

According to statistics from The Romans Group, in 2014 81 MSOs that each generate over $20 million in annual revenues processed 19.2% of the industry’s workload for insurance and customer pay collision repairs (shared amongst a total of circa 17,200 designated collision repair shops). Together, they accounted for $6.2 billion in annual revenue – a significant increase of $1.3 billion over 2013. On average, these MSOs process $3.3 million annually per location, over three times the average of $964,179 for all US repairers.

Notably, the largest US consolidators have been concentrating on buying up MSOs instead of single location shops. In 2014 and 2015, Boyd Group, Caliber and Service King concentrated heavily on purchasing large MSOs – those with 10 or more shops – to grow its businesses. When combined with the MSOs generating more than $20 million annually, the largest four consolidators and these MSOs represent nearly $7.4 billion or 22.6% of the collision repair market.

Since MSOs also represent a concentration of market and buying power, these businesses also have the potential to successfully pressure insurers to raise labour rates and change other practices unpopular with repairers. They too have the potential to impose other changes and direct new trends in repair technology. However, these changes have yet to materialise or become widely apparent.

This may have to do with the fact that, regardless of their potential impact, large consolidators and MSOs still comprise less than a quarter of the industry, leaving plenty of available market to standalone shops and small MSOs. Further, repairers remain reluctant to work together or pool resources to push back against insurer influence. This means insurers still largely determine the source of most repair parts and which management/estimating systems shops must invest in. They also heavily influence repair procedures.

Auto manufacturers are stepping in to exert influence in key areas such as training and part sourcing. Many manufacturers have begun creating OEM repair certification programs for their latest models. In order to repair these vehicles, shops must take this training and invest in equipment and tools to gain entry into these programmes (manufacturers will not sell parts for specific vehicles to shops that aren’t certified.) For example, repairing the aluminum structure on the latest Ford F-150, the most popular selling vehicle in the US for more than a decade, requires shops to become Ford aluminum certified.

OEM training has become the most highly prized training in the market. Training organisations like I-CAR now offer OEM repair courses, giving manufacturers even more contact with shops. Manufacturers also have become more aggressive in marketing their parts to shops in place of the lower-priced aftermarket versions many insurers and cost-conscious customers prefer. GM, for example, has begun updating part costs daily and now has specially priced hundreds of popular replacement parts at rates comparable to aftermarket versions.

QUALITY

While many repairers say OEM training and access to manufacturer parts allows them to raise the quality of their work, shops still struggle in areas such as cycle times and in scheduling work. Information providers are hoping their investment in telematics will aid them in building products that help get vehicles scheduled for work and on track for repairs sooner. The great challenge here is dealing with what appears to be greater numbers of vehicles needing repairs. Vehicle manufacturers have invested heavily in active safety systems that help motorists avoid collisions.

However, US drivers are often distracted by mobile technology that result in more accidents.

As the collision market workforce has aged, younger workers are showing some reluctance in joining or staying in the industry. Due to the complicated nature of modern collision repairs, owners report that few young techs leave vocational programs properly trained to handle much of this work or to operate modern repair equipment. According to many repairers, fewer still have a grasp on how shops function. Many young workers eventually decide the work is either too physically demanding or dirty and move over to mechanical repairs where they have greater opportunity to use computer-based repair solutions they may be more drawn to.

These issues have left many shops continually competing with one another to hold onto their employees or attract workers from other shops. Some shops have begun apprentice or mentoring programs to train new workers (many of them leaving military service or coming from unrelated industries) with little or no experience. To date, this problem has not reached a crisis level, but many repairers express concerns over what the future holds.

CHALLENGES

Despite these challenges, the US market remains healthy overall. The reduction in the number of shops over the past 15 years and increase in accidents translates into plenty of work for shops capable of creating a business model that generates substantial revenue even with ‘low’ insurance labour rates. Some analysts predict the consolidator and large MSO ‘bubble’ could eventually burst if these operations grow too large and unwieldy. For now, and in the next several years, MSOs look to remain strong and carry with them the potential to remake the US market as they respond to the ever-changing industry landscape.

This article appeared in Paint and Panel Sep/Oct 2016

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