Running a Shop

Analysis: The ROI on Aluminum Certifications

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Accomplished industry veterans like Mike Anderson share their thoughts on the future of aluminum repair certifications.

The “Who Pays for What” survey conducted in the fourth quarter of 2018 by Collision Advice and the CRASH Network put aluminum repair under the spotlight.  

Back in 2015, the “Who Pays for What?” aluminum-related survey asked shops how much money they spent on tooling, training, fees and facility upgrades to become OEM certified in aluminum repair. Every year since, the survey has asked how satisfied shops are with that investment. Given that the median amount spent by shops in 2015 to become certified was more than $84,000, their views on what return they are seeing seems significant.

Although the percentage of body shops that view their investment in OEM aluminum certification as a “great” business decision has fallen slightly over the past three years, the percentage of shops that say they are already seeing a return on their investment has risen, according to the survey.

The percentage of shops that believe they will eventually see a return on their investment also has grown.

After falling for a couple years, the percentage of shops charging a higher rate for refinishing aluminum has remained steady since last year. The percentage of shops charging a higher rate for structural work has remained in the low 90 percent range, according to the survey.

Tim Ronak, senior services consultant for AkzoNobel, says that investing in business requires a return greater than what is available in alternative secure investments. The increasing rate of technological innovation and implementation in the auto industry requires higher specialized environments, equipment and training than any time in the past.

 “I believe being certified by an OEM will be the key to remaining viable as a collision repairer in the future as the sophistication of vehicle structures and technology increases,” Ronak says.  “Aluminum certification, along with high-strength steel and carbon fiber, will be areas that shops will need to decide whether they wish to be capable of safely performing repairs.”

 Ronak says that with the increasing number of vehicles using aluminum as part of lightweighting, he envisions more aluminum being used, not less.

 While it is difficult to define, a typical investment for aluminum repair certifications could cost anywhere from $80,000 to as much as $300,000, according to Mike Anderson, the founder of Collision Advice. So, a high ROI means that gains compare favorably to costs.

 Anderson says that it’s not only important for shops to invest in aluminum OEM certification repairs, but also in all OEM certification repairs.

Potential for Investment.

“OEM certifications are really where the trends are at,” Anderson says.

 Many OEMs started out offering aluminum-specific certification programs but now, Anderson says, those same OEMS have morphed the programs to include more repairs than just aluminum repair.

 “I do believe there is an increase in shops receiving OEM certifications and a lot more shops today are seeing the value that the OEMs provide,” he says.

With that being said, Anderson suggests that shops watch out for three things before making the plunge and investing:

1. Pursue the right type of OEM certification.

Anderson stresses that shops should research the market they’re located in before deciding which OEM certification programs to invest in. For example, if a shop invests money in an Audi certification program, but there are only roughly 20 Audi vehicles in the town, it’s destined to be a lose-on investment, Anderson says.

Anderson says that paint companies will often provide a shop with data needed to make such decisions. Axalta, he says, gives its customers a “G-map” to show the area’s demographics and type of vehicles in the market.

“If you don’t have that data, then utilize your management system,” Anderson says.

Or, third-party vendors that run the ORM certification programs will also typically provide such data.

2. Make sure there is a need before investing.

OEMs often restrict the number of shops on a certification program, like an aluminum certification program, so a shop operator should inquire with the manufacturer as to whether there is space for the shop in the program.

There might be 32 shops certified for aluminum repair in the program because there are not that many makes and models with aluminum available to the public, Anderson says.

“If there are too many shops in the program, then you would never get a return on investment,” he says.

3. Be mindful that you could wait for an opportunity to open.

If the aluminum certification program is full, the shop could potentially wait to be added to the list after another shop goes out of business or stops renewing its certification.

So, Anderson says it’s possible to be next in line in that area if a shop drops out.

Guarantee an ROI

Simple ROI equals gains minus cost, divided by cost, Anderson says. When calculating ROI, he says to consider all costs of the investment and if there is some related additional expense. For instance, costs could include interest expense, finance charges, increased asset or property taxes and opportunity cost of an alternate investment.

Ronak says a facility expense calculation is as follows:

  1. Determine the total facility investment
  2. Determine the required return on that investment
  3. Calculate incremental sales targets that provide sufficient revenue to cover cost and return
  4. If additional work volume is not forthcoming, consider adjusting to higher door unit rate for specialized work
  5. Develop a plan to achieve target sales or rate increases

Here’s how that looks in practice: If a shop owner borrows $75,000 in capital to invest in aluminum work and his or her gross profit percentage is 38 percent, he or she should consider the incremental gross profit dollars, Ronak says. If it’s a three-year loan with financing costs at 10 percent, that would add up to $15,000 at the end of the three years. That brings the total investment costs to $90,000. Dividing the total investment cost by the 38 percent gross profit results in $246,842 in additional sales needed over three years to break even on the investment, or $6,578 per month.

 

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