The Battle for Market Share
It’s one of the dilemmas of the U.S. collision industry: Will independents, MSOs or consolidators win the battle to acquire the insurance carriers’ prime share of the business? Now, before we go any further, I have no idea what the answer is. I have, however, seen what’s happened in other parts of the world and seen some winners and losers, so maybe we can begin to predict what might happen here.
I am led to believe that the consolidators are taking over—taking over by gobbling up independents that just want to get out, or that accept offers that are just too good to for them to refuse. In Denver, where I spend a significant amount of my time these days, consolidators now control about 50 percent of the market, and this makes the remaining independents very nervous. That has a knock-on effect on distribution and the traditional supply chain to collision centers, as the big boys already have centralized paint deals and parts purchasing agreements.
Nevertheless, independent collision shops have something very special to offer. They are usually a family business with a personal name at stake. They take immense pride in the work they do, and will often sacrifice profit to go that extra mile to make sure that the vehicle is just perfect before it is returned.
The challenge they all face is that they are lone shops in the middle of a sea of competition, and they require individual attention when it comes to dealing with the insurance sector. The challenge for the insurance carrier is that each shop has to be managed separately, as opposed to dealing with either an MSO or consolidator, where less communication reduces claims costs. One call to a consolidator, and 50 lobby areas can be changed from blue to green at a stroke—that’s attractive to an insurer.
MSOs offer a wider geographical spread than an independent, and at the same time, provide one point of contact, and can, if the service level agreements are in place, load-level claims within their own organization to help reduce cycle times. I have seen cases in some parts of the world in which MSOs can get quite strong in an area, and this has an unsettling effect for the insurer because it tends to drive prices up, and control can seemingly be lost.
Another advantage that the MSO has, is that typically these are 2–10 shop operations which have grown organically, still have a very service-based ethic and can share information across the organization without too many internal politics getting involved in decision making. This puts them in a good position for expansion, but if the processes and standard operating procedures are not well documented, trained and enforced, they have a danger of not being able to deliver as they used to as a smaller organization.
Consolidators face an even bigger problem. First, they are very attractive to many insurers because of scale, but this is also their weakness. They have typically grown through acquisition, which means that not only have they bought collision shops, but also their cultures and baggage. So, as they grow bigger, they effectively pile more potential trouble into their system unless they have a very strong replicable model.
History shows that consolidators go through a honeymoon period. That is to say that the insurance carrier is initially very keen to work with them, and it probably takes a year or two for the contract to settle down, and everyone forgives the little mistakes that are made through teething problems. By year two or three, the performance is typically stagnant as the business tries to bring an order to the shops, so that they perform consistently. Experience shows that by years four to five, many consolidators still haven’t really outperformed independents, and in some cases, because a local independent can move much faster, they significantly outperform the consolidator. This starts to bring into question why the insurer contracted the consolidator in the first place.
I’m generalizing here, and there are the good and bad in every type of collision shop model. The challenge is predictability in outcome. Insurers love predictability. It’s actually more important than claim cost, because they are typically risk averse.
Providing a predictable outcome is how any smart business, large or small, consolidator, MSO or independent, can win. The processes inside your business, by definition, ensures you can repair vehicles fast, correct, affordably, and consistently across every shop that you own. The traditional chaotic nature of body shops means that customers are often let down, cycle time is excessively long, and costs are out of control.
It requires a radical change of process, and more importantly, a radical change of culture to succeed. Shops that can change those two key things will end up being the most successful.
Jon Parker is managing director of the Byteback Group, a U.K.-based information technology and services company aimed at advancing the collision repair industry. Parker can be reached at email@example.com.