"When we look to the horizon, although we don't see much in terms of the pressures easing for many stores, what we do see is when they do [ease up], what will be left will add up to a much healthier industry for those who remain," said Dick Cross, CARSTAR chairman and CEO. "We think that will generally be larger shops with better relationships with insurers; shops that are delivering much stronger operating an financial performance for their owners."
Cross, Dan Bailey, president and COO, and Dan Young, vice president of insurance relations, all participated in a press conference on Jan. 25 to present the company's outlook for 2011.
According to Cross, his optimism is anchored, ironically, in three significant industry challenges. First, insurance companies have "raised the curtain" on their intentions to work with a smaller number of better-performing shops. Second, the recession (combined with the flow of insurance claims to fewer shops) has "collapsed the air hose on smaller and less well-capitalized stores, who are finding more and more every day that they don't have the resources to keep up with what's going on around them," Cross said.
The third element impacting the industry is the pace of technology changes in vehicle design and construction that are increasing the cost of repairs while simultaneously driving down the number of collisions.
According to CARSTAR's estimates, industry revenues have decreased some 30 percent to 35 percent compared to 2008, while CARSTAR's same store sales are down 8 percent. The industry overall may have lost nearly 10 percent of stores last year, although those figures have been difficult to confirm.
"We do not see that pace abating in 2011," Cross said. "Costs are going to continue to rise, insurers are going to be directing cars to better-performing stores, and that will spell continued tough times for independents who don't have the mind set or capital to keep up with those changes."
Despite these business conditions, Cross thinks the market bodes well for CARSTAR's franchise operations. "We see this perfect storm kind of playing exactly into the strengths of our business model, which really offers solid, independent owners a support system and the resources we believe to compete in what we see as the emerging new world of collision repair," Cross said.
Focus on performance, metrics
While industry contraction may be bad news for individual store owners, both insurers and repairers have long known that there is excess capacity in the collision industry. With fewer stores in each market, the survivors will repair more vehicles and possibly be in a better position to negotiate labor and material rates.
But with more cars heading to fewer stores, repairers will have to step up their efficiency, quality, and overall business performance to survive. "If you perform, that's how you punch your ticket in 2011," Young said.
Young added that in his conversations with insurance companies, he has heard that insurers plan to increase the use of technology and automated audits moving forward. "But the king out of all this is to take care of their customers," Young said. That's because the insurance industry has become highly competitive, and insurers want to reduce the number of customers jumping from one insurer to another.
CARSTAR said it will focus on improving the efficiency and productivity of its stores in 2011. "Our industry is very inefficient, and there's a lot of margin there," Cross said. "That is going to be one of the keys to survival. This industry will become a lot more productive."
As part of an effort to measure that performance, CARSTAR is rolling out a new standard IT platform and shop management system that will allow the company to generate real-time data on every closed repair order in every store, every day. Called the CARSTAR Solution, the new system is being developed by Mitchell.
The company also will focus on improving the operating and financial performance of every franchised store. According to Cross, the average CARSTAR store gets back approximately $4.60 for every dollar it spends on the CARSTAR franchise. "We want to continue that value equation, but it's not sufficient," Cross said.
Insurer, aftermarket parts issues remain
Although CARSTAR believes relationships with insurers will improve, there will still be tension between the industries when it comes to repair costs. "I don't see that going away," Bailey said. "It just seems like the less claims there are, the more time they have from an insurance standpoint to manage the numbers and do more reinspections."
CARSTAR said it has national representatives within the corporate structure who can work with their counterparts at the larger insurance companies. "If you are a standalone store, you have nowhere to go," Young said.
The press conference also touched on a number of other hot-button issues. Cross and his colleagues said that they do support the idea of industry standard repair procedures, similar to those discussed at Collision Industry Conference (CIC) meetings. "I think for shop owners, to the extent that they can standardize what's expected of them by the insurance company and deal with one set of rules, it will add productivity and take costs out of the process for everyone," Cross said.
The CARSTAR team also discussed their position on aftermarket parts. Last year, the company got into a dustup with LKQ over the ability to track and trace aftermarket parts in the event of a recall. Cross said that since then, CARSTAR has been working with the distributor to better understand the market and develop ways to improve traceability.
"We've been meeting with them and have committed to a [traceability] pilot project with them at a company store," Cross said.
"There are good aftermarket parts and bad aftermarket parts," Bailey said. "We now know how to order good ones, and we know how to track them and we're seeing much better results."
