Thursday, 31 May 2001 10:00

Reaction is swift to Allstates acquisition of Sterling

When Allstate Corporation last month acquired Sterling Collision Centers Inc., a consolidator with 39 collision repair shops in seven states and nine metropolitan areas, it started a shockwave that resonated across the industry with as much thunder as the State Farm non-OEM parts verdict. 

"It will change the industry, one way or the other," predicted John Rattan, a multiple shop owner in Dallas. "If they (Allstate) succeed, you'll probably see other consolidators selling out. If they don't buy or open any more shops, it will answer the question once and for all about insurers owning body shops."

From FuelLine.com, an on-line industry publication: "An insurer's venture into collision repair quite possibly presents the collision repair industry its biggest challenge since it emerged 18 years ago from its 'cottage industry' image."

The most immediate reaction was by other insurers, including State Farm, which immediately ended their DRP agreements with Sterling, sending their business to other shops.

Better customer experience

"This acquisition is part of Allstate's effort to create a differentiated customer experience coupled with increased efficiencies and delivery of value to the policyholder," said George Ruebenson, Allstate vice president for claims and new chairman of the Sterling board of directors.

"We are very excited about this new relationship," said Sterling CEO Jonathan McNeill. "Allstate will be a terrific partner. They share our vision of expanding our model to other markets and are equally committed to customer satisfaction. Like Sterling, they understand that it is good business to reduce repair times and improve the facilities efficiencies while delivering superior customer service."

In the near term, the parties said the operation of the Sterling stores will change very little. They will continue to serve their current customer base. Longer term, as new Sterling stores are created, they will be designed to maximize the service benefits to Allstate customers.

Transition to "Allstate Only" shops

A memo to Sterling employees stated: "Sterling intends to transition to Allstate-exclusive work to realize for our customers the efficiencies and service enhancements to be gained from serving only one carrier.

"Sterling intends to expand its network into additional Allstate major markets through the development of new stores. Sterling's leadership is responsible for managing the expansion of the network and its operations."

Allstate's Ruebenson claimed that Allstate policyholders will benefit from "new efficiencies" in the estimating and repair processes. "The acquisition gives Allstate customers easy access to a leader in the auto collision repair industry. While the choice of repairer is ultimately up to the customer, the process of finding a high quality repairer does not have to rest solely on the shoulders of the customer."

Sterling will operate as a separate subsidiary of Allstate Non-Insurance Holdings, Inc. and will not be owned by the Allstate Insurance Company. The financial terms of the agreement were not disclosed.

The Sterling Story

Founded in Natick, Masachussettts in 1997, Sterling was first known as CarQuarters, Bill Haylon and Jon McNeill were co-presidents. They acquired Sterling Finish in Illinois in May 1998 and took Sterling for their corporate name in July 1998. In April 1998 they bought Yossi's Auto Center in Houston.

That same year, having grown to 15 stores in Illinois and Texas, they announced a $25.5 million second round of financing from Connings, a private equity group and. Berkshire Partners, LLC when it had 15 shops in Illinois and Texas.

In 1999 they entered Ohio with the purchase of JSI Collision Centers. Also in 1999, they bought Giles Collision, their eighth store in the Houston area.

Jon McNeill became, Sterling's CEO in early 2000 and Haylon was referred to as a "company founder." Aside from Houston, Sterling operates in Philadelphia, Pittsburgh, Cleveland, Atlanta, Jacksonville Chicago, and Detroit.

Memos tell of future
A Q&A memo from Sterling management to its employees, which was later given to the press, answers some questions about Allstate's future plans.

Am I an Allstate employee?
No. You will remain an employee of Sterling.

How will this change our relationship with Allstate?
Sterling will continue to be managed by our current leadership team with accountability for overall results, rather than being assessed car-by-car, store-by-store by the local Allstate claim management. For example, estimate re-inspections and file audits are being discontinued.

How will Allstate place referrals with Sterling?
Sterling will receive priority for referrals in markets where its stores are located, based on available capacity and in accordance with all applicable state laws


Allstate's current policy, that customers have the option to use the repair shop of their choice, remains the same (italics added).

Are we going to do work for other insurers?
Yes. In the near term, there will be little change in the way stores operate. While Allstate will be referring more volume to Sterling stores, you will continue to serve your current customer base. Referrals will be done in accordance with all applicable state laws. As is Allstate's policy today, customers will have the option to use the repair shop of their choice.

Sterling stores will continue to treat all customers, regardless of their carrier affiliation, with the same outstanding level of service and care that has distinguished Sterling from all the rest.

As current Sterling stores transition to Allstate-exclusive work, we anticipate that processes will change to reflect a single carrier model. As we complete the transition, we will move from operating multiple estimating systems and processes (in support of the many direct repair programs we currently have) to process efficiencies resulting from serving only one carrier: Allstate.

Over the next several years, Sterling intends to expand its network of repair stores into additional Allstate major markets. As new Sterling stores are created, they will be designed as Allstate-exclusive auto collision repair stores.

If my (Sterling) shop is empty next week, what should I do?
While we do not anticipate that this will happen, Allstate has committed to executing process changes that will result in increased volume to all Sterling stores.

How is Allstate going to get us increased volume if other insurers walk away?
Allstate has a plan in place to send us increased volume immediately. Allstate will manage referrals and volume in each market to match our available capacity, up to Allstate's claim volume in each market.

Your product is so superior in each market that many insurers may choose to stay. We will have to manage capacity expansion in order to serve all of the business that comes our way.

How will the repair process work? Who makes the decision on rates, parts, vendors, etc.?
We don't anticipate significant changes in repair processes. You will continue to run your business. You will not be required to use particular vendors, parts, etc.

The process will look similar to the Select Service process. We will receive an assignment, serve the customer, fix the car, and upload the information to Allstate. We'll be accountable for results - cycle time, CSI, severity, and financials.

We will be testing new processes in a select Sterling facility on an ongoing basis.

Regarding rates, both Sterling and Allstate are committed to maintaining PRO market rates. All other issues will be addressed in a collaborative manner.

How active will Allstate be in my store's operation/in my region's operation?
Sterling leadership will continue to manage Sterling stores. Our overall performance will be based on results. This replaces the previous Allstate relationship with our stores - the one based on "day-to-day, store-to-store, one car at a time" evaluations.

Estimate re-inspections and file audits are being discontinued.

What is the long-term plan for the Sterling network?
Consistent with all applicable laws and regulations, Sterling intends to transition to Allstate-exclusive work to realize for our customers the efficiencies and service enhancements to be gained from serving only one carrier.

Sterling intends to expand its network into additional Allstate major markets through the development of new stores. Sterling's leadership is responsible for managing the expansion of the network and its operations.

What do I tell customers when they ask "What relationship does Sterling have with Allstate?
Customers should know that Sterling and Allstate Insurance Company are affiliated as separate subsidiaries of the Allstate Corporation. However, neither Allstate Insurance Company, nor its claim organization, own Sterling.

Do we believe customers will be receptive to the acquisition?
Yes. Allstate conducted extensive customer focus groups. The focus groups said they were very receptive to a network of convenient and efficient repair facilities. Allstate ownership did not generate a significant level of concern. In fact, many expressed increased security if a company like Allstate owned the network.