Fixed Ops Journal - June 2020 - F19

FIXED OPS JOURNAL

THINK AGAIN

Sure, collision repairs have tanked, but that doesn't mean it's time to sell

RICK POPELY

good" work but are finding it tougher to keep up
with the technology required to fix vehicles
these days. "The independents will tell you that
it costs them a lot more money to keep up with
all the software and everything," Parnell says.
The National Automobile Dealers Association says that 38 percent of franchised dealers
had on-site collision shops last year. Edwards
doubts that will increase, but he says dealers
could get a bigger slice of the repair business.

foj@autonews.com

or years, the body shop has been a
profitable component of the fixed
operations at Westside Lexus in Houston, the first Lexus dealership to be
named a certified collision center of the year
by Toyota Motor Sales USA Inc.
Westside Parts and Service Director Robert
Parnell says the collision shop generates profit from labor and materials, and selling replacement parts bolsters the bottom line in
the parts department. The dealership also
does a good business in repairing Lexus vehicles under direct-repair programs with insurance companies.
"We're very happy to be in the body shop
business and always have been. I can't imagine that ever changing," he says.
But collision repair business at Westside
and at dealerships across the country has fallen dramatically - 50 percent or more at some
shops - after stay-at-home directives during
the coronavirus pandemic sharply curtailed
traffic, and as a result accidents, on city streets
and state highways.
Given the current situation, some antsy
dealers may be wondering if they should stay
in collision repair. Before deciding whether to
cut bait, Larry Edwards, chairman of Edwards
& Associates Consulting in Purlear, N.C., suggests stepping back and giving the body shop
an arm's length, critical appraisal with a
SWOT analysis - business-school jargon for
assessing the strengths, weaknesses, opportunities and threats to the operation.
"A dealer can do a SWOT analysis on their
business if they're willing to be honest with
themselves and do an honest appraisal of
where they are," Edwards says. "From a SWOT
analysis, a dealer can quickly determine what
they need to do to make it a viable operation
and a profit-contributor to the dealership."

Leverage strengths
Though business is slow now and dealers
face growing threats from body-shop consolidators such as Caliber and Service King, Edwards says dealerships still have strengths
they can leverage to make collision repair a
profitable part of fixed operations in the future. Namely, original equipment parts, factory-trained techs and direct access to the manufacturer's engineering and technology.
Moreover, even the well-heeled consolida-

Importance of technology

Repair trends
U.S. dealerships operating on-site
body shops
(Percent of total dealership population)
2017
39.2%
2018
38.3%
2019
37.7%
Total dealership body shop sales
(In billions)
2017
$6.73
2018
$6.24
2019
$6.95
Body shop repair orders for all
dealerships in 2019
Customer
5.3 million
Insurance claim
1.2 million
Internal
3.1 million
Body shop sales per repair order
2017
$725.14
2018
$715.92
2019
$730.46
Source: NADA Data 2019

tors may not want to spend on expensive tools
and specialized equipment required by some
automakers to maintain warranties.
Westside's Parnell thinks dealerships will
have an edge as vehicles become more complex and manufacturers adopt more exacting
requirements for parts and repairs.
"In today's world, if you're a body tech or
you're on the mechanical side, you're either a
Lexus tech or a Mercedes tech, but you ain't
both," he says. "I'm not saying you don't have
the ability to fix it, but you don't have the ability to fix it and get it right the first time efficiently and profitably."
He says independent body shops do "pretty

"As the technology increases, the number of
people that can repair the vehicle declines,"
he says. "You would be a fool to try to work on
a Nissan Leaf if you haven't had training on
how to discharge [the batteries] and how to
properly handle the voltage in those things.
Some cars have [dozens of] computers, and if
you don't know where they are, you're going
to start frying some expensive hardware.
"All of those things are pushing the collision
repairs back towards the dealership."
Andy Church, COO of Dealer Solutions
Mergers and Acquisitions of Toronto, says
none of his clients has talked about bailing
from collision repair. Some, in fact, are looking
to acquire independent shops that don't have
the cash to weather the current slowdown.
"In mergers and acquisitions, if you're well
capitalized and you have a business foundation to support it, it's not opportunistic," he
says. "It can be a win for a small body shop
that's faced with the choice of, if they can't pay
their employees and they can't pay their vendors, maybe [selling] is a positive move because they can leave the business with dignity
and maybe even in a profitable way."
Though uncertainty continues to hang over
collision repair, there were signs that more
motorists were venturing out in early May.
The Federal Highway Administration said interstate traffic May 4-10 was down 29 percent
compared with a year earlier and 34 percent
higher than in early April. In Texas, traffic volume in early April was down 44 percent compared to late February, but by early May it was
down 28 percent.
Church says they shouldn't think only of
shrinking their collision repair operations in
this environment.
"Don't look at this as the time to cut all of
your advertising, all of your relationships," he
says. "Don't go into a shell, and don't be a turtle and hide your head." 

JUNE 2020

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Fixed Ops Journal - June 2020

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