ABRN: Why did Marx Group Advisors create its new collision division?

MB: The collision repair segment of the auto care industry has entered a period of great change and some of its challenges are unique, bringing to mind the expression "perfect storm." Caught up in that storm are thousands of baby boomer collision center operators who want to retire, but lack an exit strategy. That's why we saw the need to create a special Collision Division focused on helping operators through their options and develop and exit plan. If that involves selling their business, then we are all well placed to facilitate this, since we understand the industry, its dynamics and the key players.

ABRN: What is driving the major consolidation in the collision industry today?

MB: The storm clouds started gathering as a whole generation of collision center operators began to think about retirement, not only because of age, but due to changing demands which included:

• The downloading of administrative tasks from insurers to repairers.
• Insurers becoming more aggressive in performance measurement and pruning their networks of preferred repairers.
• Advanced vehicle technology, including the use of multiple new materials such as boron, other high strength steels, aluminum and carbon fiber, requiring costly new equipment, tools and training to carry out safe, correct repairs.
• Greater OEM interest in how their vehicles are repaired. Their goals were not well aligned with those of insurers, so the collision repairer has been caught in the middle. For example, the OEM insisted on the use of OE parts while the insurer would authorize the repairer to use only aftermarket replacement parts.
• Difficulty in attracting and retaining skilled staff, particularly entry-level young people.

Also contributing to consolidation is the fact that some operators are simply closing their doors and walking away. However, there is also a more positive side to the story:

Certain operators figured out how to at least live with these challenges by developing a profitable business model and replicating it across multiple facilities. This is generally referred to as the MSO model (Multi Store Operator). MSO’s work at several levels, starting with an individual operator buying out his local competitor who wants to retire. Further along are those that have grown within their region to maybe seven or 12 facilities. They may now be ready to sell out to a larger network wanting to establish critical mass in that region. What makes all this possible is the availability of cheap capital, the involvement of private equity (PE) groups and the ability of MSO’s to not only replicate their business model, but obtain cost savings through centralized administration. In addition, MSO’s provide a consistent and reliable service for insurers across whole regions.

Meanwhile, PE firms are buying larger shops and regional MSO’s to build their empire. These mega-firms have the clout to negotiate with the insurance companies, while smaller firms do not.

ABRN: What do you think the industry landscape will look like in 5 years?

MB: For all the reasons previously stated, consolidation will continue, but I doubt that it will happen so efficiently that capacity will perfectly balance with demand. Nevertheless, there will be considerably fewer repair facilities and an evolving industry profile. Some repairers will opt to specialize. At one end of the spectrum, there will be facilities not equipped or trained in the complexities of structural repair, but remain competent in providing panel repair and paint service. Others will carve out a niche for themselves by specializing in the repair of certain makes of vehicle because of commonality in the tools, equipment and repair processes involved. Of course, some higher volume facilities will want it all and operate on a scale enabling them to repair all makes and models. In order to do so, they will need to draw on all the lessons learned over the last 20 years in terms of production methods and management techniques.

There will be greater recognition of collision repairer brands, perhaps as operators offer more services required at greater frequency than collision repair, in order to familiarize the customer with their brand well ahead of that once-in-seven-years collision. And the big will get bigger as investors decide it’s time to cash out to others who have further growth ambitions.

ABRN: How should shops prepare for this change?

MB: The first step is to be attentive and tune in to the big picture. Read trade magazines, attend industry events, talk to industry people, and ask questions. Asking questions is probably the most useful activity, but the challenge is learning how to ask the right questions, particularly when you don’t know what you don’t know. As a consultant and trainer, I am often surprised by how difficult it seems for some people to distill their thoughts so that they can ask a critical question, process the answer and find the follow-on question to ask. By asking the right questions to different people recognized as successful, they will develop an understanding of where they are today in that big picture and gradually shape their ideas on viable options for the future.

There comes a point when the information gathering is done and it’s time to decide on a vision backed up by goals and strategy. Since many collision repair operators have spent their lives repairing cars and managing people, developing a strategy may not be familiar territory. Whether the vision is to exit the business or grow it by acquisition, it is often helpful to work with an external advisor to develop clear goals and an implementation plan.  Outsiders can often hone in on the questions that need to be answered and help you get through the tough decisions that might otherwise continue being deferred. Just like a paint job, it’s all in the preparation and it’s time for many operators to start doing that now.

More about Mike Bryan
Mike Bryan has extensive sales, marketing and strategic planning experience in the collision repair industry. He became a national brand launch and integration specialist, planning and executing the introduction of ICI Autocolor paints through newly acquired companies in North America and Europe. As Business Development Director for North America, he developed sales teams, distribution networks and global relationships with major motor manufacturers.

Mike is a former Chairman of the Automotive Industries Association of Canada (AIA), and a founder of the Canadian Collision Industry Forum (CCIF), an organization that provides a national venue for all collision industry stakeholders to network, share information, and collaborate to develop solutions to common industry issues and challenges. After establishing his own consulting business in 1999, Mike managed CCIF from 2001 to 2013, developing it into a respected national body influencing the strategic direction of the Canadian collision repair industry.

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