A Vendor Perspective on the Changing Collision Repair Landscape
Change is the one constant in today’s collision repair industry, as vehicles, repair processes, customer expectations and the overall market makeup evolve. Though the shift, particularly in the way of consolidation, has been most heavily felt at the shop level, other industry stakeholders are also undergoing changes to meet the needs of their customers and thrive in the years ahead. Among them is the Valspar Corporation, which in June acquired Quest Specialty Chemicals Inc., a buy that added automotive refinish brands Matrix, USC and Prospray to its lineup.
Florian Girthofer, the vice president of channel strategy for Valspar and a former Axalta executive with substantial international experience, discusses Valspar’s strengthened position in the U.S. and his thoughts on the state of the industry for paint companies and shops.
Give me a snapshot of how you view the U.S. market for auto refinish and where Valspar fits in.
The U.S. auto refinish market is a highly polarized industry at this point. You have the four industry leaders (paint manufacturers) that occupy what’s thought of as the premium space, and then the perceived “tier-two” or economy brands. I think with the advances in technology and the current landscape, this view is starting to change in the U.S. market. The tiers are consolidating.
Take Valspar, for example. We’re currently perceived to be in the so-called tier-two channel, a view driven in part by our competitors. This is something we will change over time. In fact, we already see a shift in perception with customers and market participants that work with our products. They’re seeing great results from our performance. With our product and service lineup we will definitely move up as we continue to place a stronger focus on the end-user.
Tell me more about how you plan to change the current perception.
Coatings manufacturers will have some influence, but it will occur primarily through other market participants, mainly the insurance companies. Insurance companies are putting enormous pressure on body shops in terms of cost reduction, and shops are increasingly forced to think of other options—especially in North America. And that’s why more shop owners are talking to us about DeBeer, Valspar Refinish, Matrix and Prospray. We offer extremely good quality, both in performance and color match, at a much better value.
With the acquisition of Quest Automotive Products, we’re gaining more visibility by providing a much broader portfolio of brands, products and services. We’re also in a better position to meet the diverse and evolving needs of our customers. We want to be more customer-focused than the big paint market leaders. With the size we have reached with QAP, we’re in a much better position to do that—delivering better products and services at significantly better value to support the needs of body shops across the country. And with the increasing pressure, body shops will be looking for options and opportunities to strengthen their own profitability. This is where Valspar Automotive and its top-quality brands can help shops maintain and expand their bottom line—through productivity in the shop, quality results for car owners and meeting insurance companies’ expectations.
In what other ways does the acquisition help position Valspar for the future?
Certainly our scale has increased. We’ve expanded our brands and distribution, which is benefitting customers. For example, bringing the USC products together with the competencies of DeBeer, Valspar Refinish, Matrix and Prospray, we are delivering one of the most complete lineups to the marketplace. In the long run, this will be a clear differentiator as we become a one-stop shop for distributors and body shops. We’re fully aligning our products with each other, eliminating the need for shops to pick and choose products from different companies, which is inefficient, confusing and often affects the end results.
What are some of the most impactful changes you see taking place in collision repair today?
All eyes are on the MSOs and how consolidation will play out. I have a distinct opinion about what private equity is doing in the automotive repair and aftermarket space. Overall, I think it’s hurting. And while the pendulum is swinging toward consolidation today, I also believe it may be coming back fairly soon in the other direction.
For private equity, it’s all about how quickly they can extract money from the industry, not about improving service or performance. In fact, compared to many of the independent shops you begin to see a downgrade in finished product quality. The current consolidators, primarily the big MSOs, are buying out shops and consolidating purchase power simply to extract value. As I think about the big four MSOs, I believe they’ll have a challenging path ahead, in terms of meeting the expectations of both insurance companies and car owners. It’s quite challenging for these big networks to make sure they have consistent quality across their locations. And, you are only as good as the weakest link in your chain, and a lot of your reputation depends on that.
Another change is that parts suppliers are trying to take an even bigger share of the repair process. OEMs are looking at this very skeptically, especially with regard to the share loss they experience. Everyone is aware that OEMs’ main source of profitability is in the service and spare parts business, a segment that is rapidly shrinking for them. As a result, I expect that OEMs will put more emphasis on gaining control back in the service channel. They will increase their focus on the repair process and shops, not only dealers but independent shops as well, creating new opportunities for middle-market participants.
So you’re confident there will be a place for independent shops long term?
Absolutely. The independent shops are critical to a healthy industry. Think back 10–15 years ago to the first attempt of an MSO emergence, which eventually failed as they could not prove the end quality and value to the market. Once the big money pulls out of the market, the current hype will come to an end and the pendulum will begin to swing back.
The car repair business is a people business. It’s a relationship business. People are looking for a good experience, based on great personal service and high-quality results. And this is where independent shop owners flourish, where they can make a difference and where they can provide customized service to car owners. That’s how they’ll win.
In the end, while the current consolidation is driven by big money, the heartbeat of this industry lies in the independent body shops. These small business owners drive the quality and success of the body repair industry.