Thursday, 30 April 2009 10:00

Esperson --- New Pressures, New Solutions

Written by Dan Esperson

Folks in the collision industry are universally known for their savvy, determination and creativity—it’s a common thread that unites those that have chosen a career repairing collision-damaged vehicles. We enjoy doing what we do; we even revel in it at times. But no one has ever been able to turn sheet metal into gold. Barring some totally unforeseen discovery, don’t expect that to happen anytime soon.

A new reality is sweeping through the industry these days, one that will demand even more determination and creativity. This reality will require your shop to find new ways to keep sales and profits under your roof and not send those dollars out of the building. As economic uncertainty roils the industry, every dollar that leaks from our shops is a dollar that could be used to make payroll, buy parts or cover fixed overhead expenses. An owner or manager that understands the financial realities of the collision industry knows that those dollars can be hard to find.

Why is this so important?

By whatever financial measurement you or your accountant currently uses, the fact is that “net profit expressed as a percentage of sales” has never been lower for most in our industry—ever. Across the board, costs are up and gross profits are down. The end result is that most shops are dropping less and less to the bottom line. Can you name one significant expense line on your financial statement that has gone DOWN over the years?
    The causes are numerous but the effect is singular: a lower net profit. This trend emphasizes the need to wring every dollar available out of the money sponge. The proverbial “low hanging fruit” approach is to turn no-gross sales dollars into net profit dollars by ending the practice of giving them away. It’s as simple as this: Every repair kept under your roof generates some gross profit, while those same repairs that are done on a sublet basis generate virtually none. Worse yet, they add expense and create inefficiency. This doesn’t have to happen!
    Most shops do not generate any gross profits when subletting a variety of services that could be kept in-house. If you are outsourcing airbag resets, simple hybrid de-activation or reactivation services, or basic driveline or suspension repairs, money is escaping out the door. And the reason is simple: The insurance industry is simply averse to paying traditional gross profit markups for uncontrolled sublet services.
    The headache and expense of having to schedule and deal with a multitude of sublet vendors having varied levels of expertise are well documented—ask your production manager. Or ask your payables department about the number of checks they issue each month for sublet services that have generated minimal or no gross profit. What about the customer relations issues? How about the re-do? And isn’t the risk to your hard-earned reputation also a factor here?

Profit from Progress

Many informed industry observers tell us that escalating financial pressures will force shops into finding new ways to profit from new vehicle technologies—not just survive them. What are these pressures?

1)  Like it or not, relations with insurers is key to driving business into your shop— and most insurers are all about efficiency. It’s difficult to efficiently manage many aspects of a traditional collision repair, let alone trying to control a sublet vendor. (Your sublet airbag guy can’t get here until next week and the car is already being detailed.)

2) We are moving toward vehicles that are dominated by electronics that monitor, control or activate almost all the systems concerning safety, comfort, and drivability or handling. As these vehicles work their way into the nation’s fleet, they will be coming into your shop soon, if not today. (Why exactly is that “tire pressure” light on?)

3) Alternative fuel vehicles are here now and becoming a fact of collision life.  They will become more common every day. There will even come a day when they will be a significant portion of the vehicles you repair, especially with aging fleets dictating more total losses. (Isn’t that a Prius® being towed onto the lot?)

4) Efficient production processes are a new focus of the leaner business environment we see these days. Aggravating time delays for transporting and retrieving an offsite repair defines “inefficient.” Why does it always take two people from the shop to run that vehicle? (Chase car out of gas again?)

5) Industry dynamics suggest that collision repairers are moving toward a business model that includes full mechanical capabilities under one roof. The multitude of drivelines: AWD, 4WD, FWD, not to mention electronically controlled comfort and convenience systems all need service, maintenance and repair. (And the dealer has a week backlog in his service department.)

It Starts with OEM Information

You can help to maximize profits and efficiencies by gaining better control of your production processes through the use of OEM information. Everyone wins when the shop is able to turn “sublet heartburn” into a profit event by having access to the same OEM information enjoyed by the dealer. OEM information gives you the proper tools to retain the dollars that are currently draining the efficiency and profit from your operation. Instead of chasing expensive and confusing sources to gather repair information, a single point of contact for collecting proper repair procedures and materials provides a way to capture that profit opportunity for the shop (and your technician). Chances are that you are currently using a sublet vendor who has an unknown level of expertise, and a much lower financial investment in his facility or personnel. You keep the vehicle, you keep the dollars and you benefit from a much more efficient production process.
In looking at these influences, we are seeing that forward-looking shops are investing in the information tools and training to turn these opportunities into production-enhancing, profit-generating repairs instead of the dreaded “time-sponge” that puts zero dollars onto the bottom line at the end of the month. The benefits are obvious.
    Other benefits include the option to expand mechanical services into your customer mix. Upsell opportunities exist for many vehicles that come through the shop, not to mention the perceived value from a customer’s perspective. Knowing that all repairs are kept under one roof solidifies the shop-customer relationship. Given the new design parameters of today’s vehicles, you are often confronted with a repair that requires you to deal with mechanical issues as part of the loss. The forward-thinking facility finds ways to convert that dilemma into a profit—at minimal investment.
    There are several other benefits of having critical repair information immediately available—primarily because once you control the profit erosion, you can turn your attention to other production efficiencies that will also stop the leakage. The person in your shop charged with production control knows that eliminating bottlenecks are the key. The frustrations that plague the collision repair process are well-documented. As “lean” production methodology becomes more widespread, the need for more and better information will drive that process—straight to your profit potential.

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