A path forward for MSOs

Oct. 5, 2022
As MSO operators, the demands on us are greater, and we must rise to the occasion.

Having just returned from an action-packed CIC meeting in Pittsburgh, my head is swimming. The event was well attended, and we had presentations on the following topics:

  • Electric vehicle (EV) disconnect/connect procedures and safety
  • Augmented reality (AR), especially in aid of vehicle repairs and procedures
  • EV charging stations for the repair field
  • Implementing an Advanced Driver Assistance Systems (ADAS) repair/calibration business
  • Vehicle manufacturer panel discussion, including on the topic of alternative fuel vehicles
  • Future industry business models, including for insurers, vehicle manufacturers, vehicle and parts recycling, and repairers
  • Post-repair inspection
  • Total loss handling, the art and science of getting it right
  • Future ADAS opportunities
  • Data control in our industry, especially around the use and sharing of vehicle identification numbers (VIN)
  • How businesses are handling the rising costs of parts and materials

There was a clear and definitive theme all about the increased sophistication of vehicles and repair processes, with implications of the need for our repair businesses to be more sophisticated, more diligent in terms of quality controls (including the use of vehicle manufacturer repair procedures), and the need to address increasing costs from new technologies as well as inflation. In other words, as MSO operators, the demands on us are greater, and we must rise to the occasion.

Other dramatic news

Thankfully, the business I work for, as well as most other collision repairers across the country, find our shops to be overflowing with work. Accident frequency seems to be high. Traffic levels seem to have returned to something similar to pre-COVID. Parts shortages still persist, and many insurers are struggling with prompt claim handling, especially in light of their own staffing shortages. But despite challenges, we are busy and seeing strong sales.

Yet the second quarter economic results show a shrinkage in the economy for the second quarter in a row, which is the typical definition of a recession. We are already starting to hear of some other industries cutting back and laying off.

Labor rates continue to be in the forefront of our industry. Inflationary pressures and the increased cost of exceedingly competitive staffing have caused even the more insurer-friendly and cost-considerate consolidators to strive for significant increases, even to the point of jeopardizing some referral relationships. Earlier this year, I asked a consolidator executive whom I know and respect about this activity. When I asked what the percentage of rate increase would be and how long it would take before it stabilizes, he quickly responded, “25 percent, and it will take all of 2023."

Insurers are raising premiums to combat inflationary pressures, though in some cases struggle with governmental approval, especially after a very profitable 2020. And the insurer landscape is changing. GEICO is about to pass the long-term giant State Farm in terms of having the largest market share. And Progressive is close behind. GM and Tesla are now in the insurance business.

And, last but not least, the big game changer in our industry known as consolidation has heated up again. Caliber added more than 200 locations in the first six months of this year. Service King received a new influx of capital followed by the announcement of a merger with Crash Champions, bringing their new entity up to 561 locations. A new wave of private equity investment money is fueling a number of regional and smaller MSOs’ growth through acquisitions all over the country. Apparently, some of the private equity firms are attracted to our collision repair industry, perceiving that it is resilient and offers good cash flow, especially in a time of (potential or existing) recession.

 There are mixed perspectives on what is happening with DRPs. Some experts say that they are dying a slow death, especially with the increased emphasis and popularity of Original Equipment Manufacturer (OEM) certification programs. Others say that DRPs are, and will be, an important component to the success of the new wave of consolidation and growth of existing consolidators.

Digesting this

My first reaction to all of this was to think, “What the heck?! How does one put all this together, analyze it, and choose a path forward for your MSO?” All of these factors are of such significant consequences and each cause one to think of different and conflicting reactions. Then as I think them through, most of them represent potential opportunities. Certainly, they each represent change and/or a need for change. My first conclusion is that sitting still is not an option. If an MSO does that, they will at least fall behind, and more likely be run over. But instead, we appear to have many options to move forward.

The increased level of vehicle sophistication presents new opportunities for additional sales due to necessary repairs. Some of us are embracing it with adding our own specialized departments/shops. Others will have to utilize third-party sources or sublet sources. All MSOs will have to embrace this. But those who master it will advance faster and further. And this is a tool to help us justify higher labor rates to cover our rapidly increasing costs.

Our current heavy workloads are obviously very helpful in terms of security and put us in a stronger bargaining position for rates. Even if a recession is upon us, we will be OK for at least a few months, hopefully long enough to ride it out.

The changing insurer and DRP landscape provides more options. Many shops are proving that they can thrive with few or no DRPs. And that trend, as well as having the OEMs in the insurance business, puts pressure on insurers to make their DRPs more “user-friendly.”

The consolidation activity causes a changing and uncertain change in competitive marketplaces. Again, resisting change isn’t an option. One must adjust accordingly. But there are options. And if you are inclined to sell, in the near future is probably a good time. (Certainly the brokers say so!) And if you wish to join a new, and perhaps different, consolidation model, there are more choices. And if you choose to compete with them, adjust your model accordingly. There are many niche opportunities to be considered, especially if you are not inclined to embrace larger/aggressive growth.

So, overall, if an MSO can find ways to move rates accordingly, and to attract staff, there are a number of different, and potentially attractive, ways to advance in this fast-changing market. Don’t be intimidated or overwhelmed. Instead, contemplate the options and opportunities and seize the moment.

About the Author

Darrell Amberson | Director, MSO relations

Darrell Amberson is the president of operations for LaMettry's Collision, a 10-location multi-shop operator in the Minneapolis area. Amberson has more than 40 years of collision industry experience, is interim chairman of the Collision Industry Conference, and served as chairman for the 2021-2022 term.

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