The mechanics of Ontario’s collision repair

By Julius Suraski of King Insurance Agency and Treasurer of the Independent Auto Repairers Association

There is much talk about future trends within the auto bodyshop repair industry and how to take advantage of them. There is talk of shakeouts and shakeups. However, one thing is for certain — as vehicles become more complex to repair and consumers more educated and demanding about the repair process — it is fair to say that the old model of repair-shop is going to have difficulty maintaining its existing clientele, let alone attracting new customers.

As we approach the new millennium, the collision repair industry is moving quickly to adopt new principles of operation that will be required for business success in the coming years. Those who embrace the new model will enjoy various measures of success, those who don’t will find themselves headed down a rocky path. Some of the changes are subtle, others are more dynamic — but what is becoming obviously clear is that the “old style bodyshop” will have a difficult time competing with the new style “collision centre”.

The new generation of operators refer to their physical plants as “facilities” rather than “shops”. These operators regard the computer as a tool that is equally as important as a frame rack. In a recent survey commissioned by the Independent Auto Repairers Association (IARA), shop-owners were asked what they considered the most significant changes facing the industry — the majority responded that management of information ranked high on the list.

Ontario out the gate

Ontario is moving towards the implementation of self-management and mandatory accreditation that will include the adoption of standardized provincial licensing for all collision repair facilities within the province.

This is a huge step for an industry that has been trapped in a turbulent downward spiral of rising costs and shrinking profits. Within the coming year the provincial government is expected to enact legislation establishing a regulatory body that will oversee mandatory accreditation, standards and a code of ethics. Standards will govern minimum equipment requirements, employee qualifications, environmental considerations and adherence to all federal, provincial and municipal laws. A strict enforcement program, including a range of penalties from warnings to fines and even expulsion, are now being finalized. The program is being promoted with the interest of consumers in mind, who it is estimated are currently being cheated on two out of every three repairs undertaken within the province as a result of the combined current business practices of repairers and third party payers.

When the program is fully implemented, these standards will be mandatory — meaning that a vehicle repaired in Hamilton will have to be repaired to the same standards as in Hearst. This will be of great benefit to the consumer, who will be assured that his/her repair will indeed be a safe repair and that their vehicle will be restored to a reasonable pre-accident condition. This will also benefit the consumer through savings in insurance premiums when fraud within the industry is diminished or ideally eliminated. Should that occur, insurers will not have to invest as heavily in fraud abatement programs.

Today, the cost of fraud programs to insurers in Ontario is estimated to be approaching $100 million annually. A mandatory accreditation program will also ensure a level playing field for collision repairers, so that normalcy will return to an industry where operators can plan capital expenditures with some assurances that those expenditures will generate benefits for them as well.

It is a good news story for all involved, and if managed properly, Ontario should become a model for other jurisdictions, rather than being at the tail-end of the industry as it moves into the year 2000.

Next step — insurance relationships

Much has been made about the relationship of the insurance industry to the collision repair industry. The latest round of “heated debate” between the two parties has focused on the impact of “insurer preferred shops” which recently came into place in Ontario. As such, many repairers have gone so far as to say that the insurance industry is the singular cause for the depressed state of affairs within which the collision industry finds itself — and no doubt, some of the accusations have merit.

However, as much as collision repairers would like to minimize the influence of third party payers in their market — one thing is certain — this is merely wishful thinking. The insurance link will always be there as an influence on the collision repair market. This is the natural progression of the service model that will define business success in the future. Those that recognize this have turned their anger into managing the insurance relationship rather than fighting it.

Consolidation impact

Most auto body repair operators agree that their businesses are not profitable — regardless of the annual volume achieved. Despair over lack of profitability, has led many towards consolidation, franchising and other innovative “cost-sharing” concepts. Despite the consolidator’s claim that high volume, low overhead, “mega-shop” facilities will be the only successful model in the future, that too, may be no more than wishful thinking supported by “mega-marketing budgets”.

There are various schools of thought regarding future trends within the collision repair industry and whether survival depends on being big, being small or being somewhere in between. The answer to the question of size has a lot do with one’s own perspective. If you look at it from an insurer’s point of view — their philosophy is that larger is better, and that massive is best. The reasoning behind this is reasonably simple — insurers equate size with efficiency and efficiency with cost control. What is interesting to many professional industry observers, however, is that the insurance community seems intent on imposing regulation and economic conditions without having fully adopted such disciplines from within.

Recent years have seen the insurance industry operate on the basis of cost-shifting and cost-recovery, paying little attention to efficiency and cost-control. It would appear that only severe competition and government scrutiny will bring the industry spotlight to focus on basic business practices.

Auto shop consolidators support a similar philosophy because they view third party payers as the customer (rather than the vehicle owner), and the “larger the better” approach works well for them, as a result. In the view of many, this concept flies in the face of reality, and the consolidated/franchise approach occurring is regarded by many experts as merely a cyclical model similar to that when so-called “department stores” gave way to “boutique shops”. In the current retail economy, we are witnessing the latest re-cycling of the concept — now known as “big box retailing”. For those who endured more than one business cycle, this concept is not new. Boutique-style shopping gives way to big box and vice versa — so the wheel turns.

Does size count?

In Ontario the majority of collision industry facilities can be classified as small to medium in size, typically employing five to seven employees, and operate from a physical plant averaging 6,500 square feet.

It has yet to be shown that the 25,000 square foot plus type facilities referred to in the “mega-shop” concept can survive over the longer run. Indeed, Thompson’s World News reported in March this year that Britain’s leading auto insurer, Direct Line, was abandoning its 6 unit “mega-shop” operation that was repairing between 100-200 cars per week.

What is clear from market analysis is that size is not the key-determining factor for success within the collision repair industry. Neither is partnering with third-party payers, nor is franchising. The collision repair playing field is littered with the bleached bones of insurance-aligned “preferred shops”, or “dealer-affiliated” shops and even failed franchises. Wh at determines success over the long term is proactive management that understands the many forces that drive the market and the flexibility required to withstand the evolution of change. Success comes from good financial management and good working knowledge of the costs of doing business. Success comes from access to information and reaction to information. Information and success bear the same relationship as wood to fire. Wood is merely a fuel that requires a catalyst to release its energy. What you do with the information represents a striking of the match that ignites the wood and creates the fire.

Communication & technology:

The latest generation of facility owners recognize that the computer is as important a tool as a frame rack or a spray booth. Without it, the chances of growth and ultimately survival itself are restricted. Those who embrace information technology will have a better chance of survival in the fast-paced, competitive market.

Many characterize the collision repair-insurance relationship as a love/ hate, David-versus-Goliath type relationship. However, it is a symbiotic relationship that must be respected. Where collision repairers have traditionally fallen down, it is in the field of communication and their ability to effectively communicate with information or technology driven entities. What agitates insurers most, is their inability to communicate quickly and effectively throughout the repair process for the benefit of the consumer. Insurers become frustrated when they use their technologically advanced fax computers to try to communicate information to a receiver where the phone has to be physically answered and a fax machine manually turned on. It’s like trying to connect a fax to a telex.

Where insurers have fallen down, however, is that they have failed to assist collision repairers in embracing, acquiring and using the same information technology that they employ. This failure has come as a result of shortsighted business practices and the inadvertent suppression of profit within the repair industry.

The New Model

The collision repair industry in Ontario is moving in an unprecedented direction that bodes well for the serious business operator. What has plagued the industry for generations is now being addressed through the proposed implementation of regulation and standards. These are the fundamental building blocks required for any industry to achieve stability and maturity. Without rules, there can be no plans — without plans, there will be no success. So then — what is the new model for the collision industry? It includes but is not limited to the following:

Know the rules and obey them;

Adhere to concepts of honesty and integrity, and bill only for work that you’ve done. “Write it right” and expect full payment for everything;

Develop trade knowledge to avoid being manipulated by the untrained throngs masquerading as professionals;

Educate yourself and keep abreast of the climate of the industry by reading everything you can;

Join trade associations dealing with emerging industry issues and become actively involved;

Become computer literate and employ modern tools of communication;

Familiarize yourself with fundamental accounting practices and practice good record keeping;

Develop a basic marketing plan for your business;

Define your customer, and then retain your customer with good service;

Develop a communication program to maintain contact with your customer and develop scheduled activities that will bring them back to your store, including value-added services distinguishing you from the competition;

And finally, the three most important rules for guaranteed success are — job-cost, job-cost and job-cost. The tools to do this are available and they are inexpensive to acquire.