New-vehicle dealerships have shown they not only can compete with independent shops on sales of products such as replacement tires, but also can win significant market share. The time may be right for more dealerships to move into collision repair.
- From 2010-16, the U.S. auto industry logged 7 straight years of vehicle sales increases. New-vehicle dealerships have their best shot at fixing collision-damaged vehicles when they are newer.
- An increase in the number of miles driven -- partly resulting from cheap fuel -- means more accidents. Since 2014, the number of property damage claims paid by auto insurers has risen. In 2016, a property claim was filed for 3.6 of every 100 registered vehicles.
- The number of U.S. collision repair centers declined from 45,889 in 2003 to 41,047 in 2016. More independent shops (2,531) closed than dealership centers (2,311).
The growing complexity of cars and trucks, with advanced safety electronics and lightweight materials, has owners increasingly looking to franchised dealerships to fix their vehicles. These dealerships offer trained service technicians who use factory-certified replacement parts and factory-specified tools. Nearly two of every five franchised dealerships operate collision repair centers, the National Automobile Dealers Association reports.
According to the Auto Care Association, a trade group that represents aftermarket service providers, almost half of consumers take their collision-damaged vehicles to franchised dealerships for repairs when the vehicle is two years old or less. But after three years, customers start drifting to large national body shop companies and local mom-and-pop shops.
The revenue dealers lose to the competition is staggering. The U.S. collision repair industry booked sales of $45.8 billion in 2016, the most recent year for which figures are available, the association says. Franchised new-vehicle dealerships captured only about 15 percent of that business, roughly $6.9 billion.
But dealers are poised to win a greater share of collision repair business, industry experts say.
"As the cars get more sophisticated, the owner has a greater desire to bring it back to the place it came from," says Clint Marlow, Allstate Insurance's claims director in innovation and customer experience.
Advantage: Dealers
Advanced electronics such as radar, lidar and camera-based vision systems are the building blocks of autonomous vehicles. A new-vehicle chassis is getting more aluminum, cast parts, ultra-high-strength steel, magnesium and similar materials than before.
General Motors has started welding steel to aluminum in the Cadillac CT6 sedan. Ford's aluminum-bodied vehicles —F-series pickups and Ford Expedition and Lincoln Navigator SUVs — have moved aluminum repairs into the mainstream.
Automaker-affiliated dealerships have advantages in the competition to repair such vehicles, dealers and analysts say.
"It's very technical — you are not just banging steel," says Brian Stone, service director at Balise Collision Repair Centers, a four-store operation owned by Balise Auto Group, which has 24 new-vehicle dealerships in Rhode Island, Massachusetts and Connecticut.
"You are working on batteries and hybrids, frame machines and getting these cars back to within 3 millimeters spec," Stone told Fixed Ops Journal. "You have to offer a lifetime warranty.
"I honestly believe that a body shop can be your biggest profit net out of any of your fixed operations, if it is run correctly," he adds.
An industry veteran who has managed dealership and independent collision repair centers concedes: "The dealer lost hold of the customer on the collision side years ago. But now they have every opportunity, with the manufacturer, to regain ownership of that consumer.
"It won't be a matter of [customers] calling their insurance company first," says the industry veteran, who asked not to be identified because he is not authorized to speak for publication. "They'll call their dealer first, or OnStar. Or the telematics in the vehicle will notify the dealership and/or manufacturer that the car has been in a wreck. The first one who gets hold of the customer should be the one who steers or guides the customer."
So long, mom and pop
National collision repair companies, such as ServiceKing and Gerber, and smaller independent shops continue to dominate the industry. In 2016, the Auto Care Association says, there were 41,047 body shops in the United States, but only 6,349 of them were dealer-owned.
Still, Stone notes that in the region where his company operates, "a lot of mom-and-pop shops" are getting out of the business.
"Because of costs and accreditation, it is hard for them," Stone says. "Where those are dropping off," he adds, his shops have a higher local profile as a result. He notes his shops are certified to fix all the new-vehicle brands Balise sells, and some brands the group doesn't handle.
A state-of-the-art body shop is a capital-intensive investment, even after it starts generating revenue.
If the shop is to succeed, a dealer must be committed to spending on continual training for collision techs and for expensive new tools. When business slows, cranked-up marketing often is needed to generate a steady flow of body work.
Nick Notte, senior vice president at the Inter- Industry Conference on Auto Collision Repair, estimates that a 15,000-square-foot collision center, stocked with the tools and scanners needed to repair vehicles with such features as advanced electronics and aluminum panels, would cost at least $1.2 million. But that can be just the beginning.
This year, Bill Brown Ford in the Detroit suburb of Livonia, Mich., christened a body shop that cost nearly $2 million.
The store, which does a lot of business with truck fleets, installed two oversize paint booths to handle the tall version of the Ford Transit van and large F-series Super Duty trucks. The shop has a special area for aluminum repairs.
Return on investment
But the profit potential for body shops is also big, Stone says — as much as 20 percent per repair order. The quality of collision repair is also a major factor in retention or defection: I-CAR estimates that of owners who had a bad experience with a collision repair, two-thirds get rid of their vehicle within a year and 60 percent change vehicle brands.
Dealership body shops make money not just from collision repair, but also from selling repair parts to local independent shops.
About two-thirds of repair parts are supplied by automakers through dealerships, although that share has declined slightly as sales of aftermarket and recycled collision parts have grown.
"The investment might cause you to swallow a little bit hard," Notte says. "But once you do it and have the right [collision manager] in place, with the right equipment and the right technicians and the right training, you can be very successful."