June 19, 2012—In an exclusive interview with FenderBender, Dan Young, senior vice president of insurance for CARSTAR Auto Body Repair Experts, discusses how State Farm Insurance’s new online parts bidding and ordering pilot program through PartsTrader is affecting CARSTAR shop locations. He also discusses the driving factors for CARSTAR’s continued growth, and why franchising is becoming an appealing option for independent shop operators to survive in today’s market.
One of the hottest issues in the industry right now is concern over State Farm’s parts bidding program through PartsTrader. How is the program affecting CARSTAR shops that are in the test markets?
CARSTAR’s scale affords us the benefit of having stores in two of State Farm’s four test markets. We are in contact with them daily to monitor what’s going on with the new process, and we definitely understand the concerns. Those shop owners are telling us there are some pieces of the new process that are hurting certain efficiencies inside the shop, which need to be addressed. These same shops tell us State Farm and PartsTrader have been in the shops surveying the issues and working on resolutions. There is also an obvious concern out there right now about what this new parts supply process will do to the parts profits in the shop. We understand this concern and are watching it closely. But our shops are saying that it’s too early to tell what the exact impact on profitability will be.
How do you think the industry should address these concerns?
I think the key here are the participating shops in the pilot markets. What are they telling us? What are they able to share about the actual process with all the parties involved? Is action being taken on their feedback?
We’re talking about a process that has only been in place since April. Through the first half of May, shops in the test markets were still figuring out how to use the tool; there is a learning curve here. We’re now in a period of trying to determine how and whether the program is impacting profits and efficiencies—and by how much. I just don’t think we know enough yet. We need to let the pilot process play out a bit longer. I think things might look much different down the road than it looks today.
Several other shop operators have also reported efficiency losses due to use of the program. Is State Farm doing anything with CARSTAR shops to correct these issues?
From talking to our shop owners in the test markets, State Farm and PartsTrader are very involved in trying to identify issues that are causing process delays for our shops. It’s my understanding representatives from both State Farm and PartsTrader have been in every participating store we have in the test markets figuring out what can be done to resolve the issues. They’re interviewing each storeowner, and conducting 25-question surveys to identify what’s working and what issues need attention. Both companies do appear to be very engaged in trying to address whatever issues are presented.
Running a profitable shop is tough in today’s market. That’s one reason for the continuation of the industry’s shop consolidation trend, which CARSTAR continues to play a role in. Tell us about the company’s recent and future growth plans.
It’s definitely a core strategy for us to grow the business. We think the environment is conducive to grow significantly this year, and we have very aggressive goals in place to do so by strategically targeting certain markets. We entered California this year, and we’re now targeting Chicago, Austin, Dallas, Houston, San Antonio, Atlanta, and western Michigan. We’ve added eight new stores in 2012, and are confident we’ll have added 40 by year’s end.
What is driving that growth?
Consolidation is occurring both in the insurance and repair industries. We believe there are three viable options out there for the independent shop operator today. They can continue operating on their own, which is becoming increasingly more difficult to do as the market consolidation continues. They can choose to sell their shop to an interested buyer, which can be a great option if they can get the right price and aren’t interested in any type of succession planning. Or, they can join a network like CARSTAR. The growing appeal of the latter option gives shop owners a viable strategy to retain their own business, while gaining competitive advantages of marketing, insurance, purchasing, training assistance and an entire service team focused on operation excellence through a larger organization. This option allows shop owners to grow their business in a way where they don’t have to go it alone.
Do you expect to begin seeing multiple shop operations merging with one another to create even larger entities, and how will that affect independent repairers?
That’s already happening. For example, The Boyd Group/Gerber Collision & Glass acquired True2Form and CARS within the past couple of years. Service King just expanded into Arizona with the acquisition of eight Auto Body World locations. And Caliber Collision Centers recently acquired 911 Collision Centers.
That trend is going to continue. Insurance companies are looking to reduce the number of repair suppliers they work with. They want to have one single point of contact accountable for all operations that their company’s locations are responsible for. As insurance relationships and shop networks consolidate, independent owners really need to make a decision on what their future is going to look like. It’s going to be rough waters for a lot of independents moving forward. Retaining ownership of the business while bringing in the resources of a much larger organization like CARSTAR can provide shops with a much better chance of surviving and growing their business into the future.