Automotive News Canada - October 2019 - v2 - F19

FIXED OPS JOURNAL

COLLISION
continued from previous page

2011 to 2018, the share of new-vehicle dealerships that operate body shops hovered steadily
between 35 and 40 percent, according to the
National Automobile Dealers Association.
"The total number of stores isn't dramatically different than it was 10 years ago," says
NADA senior economist Patrick Manzi.
"There's no explosion of new body shops."
Whether a dealership runs its own body shop
depends greatly on local market conditions,
Manzi says. Rural dealerships are more likely to
operate body shops than urban ones, he adds.
Another dealership group in western Pennsylvania, Stuckey Automotive, also is all in on
collision repair. The three-dealership group is
consolidating its two on-site body shops in a
170,000-square-foot former factory building.
The facility is scheduled to open early next
year. Total capital outlay: north of $2 million,
says Matt Stuckey, the group's owner.
The new shop will include roughly 30 repair
bays and four paint booths, and it
also will handle used-vehicle reconditioning and commercial
truck repair. It's a far cry from six
years ago, when Stuckey was
thinking about getting out of the
body shop business because it
wasn't making enough money.

ready owned. Today, the company says it operates 83 collision centers nationwide.
AutoNation did not respond to requests for
comment for this report. But Brad Mewes, a
consultant who specializes in analyzing the
collision repair industry, says the group has
"been a pioneer in this strategy to diversify
away from simply used- and new-car sales
and provide ongoing service and repair across
the entire life cycle of vehicles."

Smallest slice

Collision repair is a $36.2 billion-a-year
business in the U.S., consulting firm
Supplement Advisory estimates. In the first
quarter of 2019, body shops operated by
dealerships trailed both chain and
franchised repair centers and independent
shops in their share of the U.S. collision
market.

Why do it?

Moving into collision repair can be a sound
strategic move for franchised dealerships,
says Mewes, a principal at Supplement Advisory. Gross profit margins for collision repair
centers typically average 40 to 45 percent, he
estimates.
New-vehicle dealerships maintain an advantage over independent body shops because of automaker brand awareness among
consumers, Mewes says.
They also can spread the fixed costs of their
body shops across multiple departments,
such as sales, marketing and information technology, he adds.
More broadly, Mewes says, collision work boosts cash flow because consumers and insurers
pay quickly, typically when the
job is done.
That limits accounts receivable.
And collision repair parts tend to
get used right away, so there's no
Second thought
inventory to finance, reducing
"We weren't firing on all cylincarrying costs.
ders," he says. "But we decided it's
In their body shops, dealerships
a good business and have invest"get paid for repairs before they
ed pretty strongly in it since then." Mewes: Body shops
make dealers market
have to pay employees or vendors,"
Stuckey notes that collision-releaders.
Mewes says. "Traditionally, dealerpair work generates 25 to 30 perships are used to the opposite. As a result, this
cent of the group's fixed ops revenue. "Cash
flip-flop in cash-flow dynamics makes collision
flow is good because every car that comes in
repairs quite attractive."
effectively has a check on it" from insurers, he
says.
Stuckey concedes he'd have a "hard time
Running risks
pulling the trigger" on developing a standBut there are potential drawbacks. Unlike
alone collision center if he were starting from
recurring, scheduled vehicle maintenance,
scratch. But he says collision repair "gives us
collision work is unpredictable. No two reone more touch point with customers - one
pairs are alike.
more opportunity to prove to them that we're
"The average person gets in an accident every
the place they should be doing business for
seven years, so it's difficult to invest in and build
anything automotive."
a business model around that," Mewes says.
Bigger retailers also are expanding their body
Collision repair requires a specific skill set
shop operations. Two years ago, AutoNation
for technicians, as well as specialized tools.
Inc., the largest U.S. dealership group, emAutomakers are mandating tougher stanbarked on a $500 million campaign to win back
dards for dealerships that do body work,
customers who had defected to independent
Mewes says.
parts and service competitors. The initiative inAs vehicles become increasingly complex
cluded plans to open or acquire free-standing
and technologically advanced, he adds, capicollision centers on top of the 70 the group altal and training expenses for repair work are

19.3%

Dealership
body shops

54.1%

Independent
stores

26.6%

Chain and
franchised
shops

Source: 2019 Collision Repair Market Study, Supplement Advisory

growing, even as innovations such as advanced driver-assistance systems - and ultimately, self-driving vehicles - are expected
to reduce the number of collisions.
Dealerships also must manage relationships with a variety of insurers, which work off
different software platforms. Mewes says.
Liability is a big risk. In a commonly cited
case, a collision center operated by John Eagle
Auto Group in Dallas replaced the roof of a
Honda Fit damaged by hail, but - allegedly
under insurer pressure to cut costs - attached
the new roof with an adhesive instead of welding it, as prescribed by Honda specifications.
Later, a couple bought the car and were involved in a collision in 2013; the roof collapsed, and they suffered severe injuries. In
2017, a jury awarded the couple a $42 million
judgment, with the collision center liable for
$31.5 million of it.
Despite such risks, Mewes says collision repair remains a good line of business for dealerships.
"It further positions them as leaders in the
marketplace," he says, "as the dealer of choice
when a consumer wants to buy a car."
Dealer Diehl agrees, saying her first standalone collision center is "definitely going to be
a model for future growth."
"I've already secured land near another
store of mine," she adds, "and will be ready to
move forward when the time is right." 

OCTOBER 2019

PAGE 19

Automotive News Canada - October 2019 - v2

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