Matt Ohrnstein is certainly among those most versed in the "MSO value proposition," or what it is that multishop operators (MSOs) in the collision repair business believe they can offer that a single-location repairer may not. After all, Ohrnstein spent seven years as CEO of Caliber Collision Centers, overseeing the California-based consolidator at a time when it grew from about 20 shop locations to more than 60 in two states.
But two years ago after leaving Caliber, Ohrnstein formed the Symphony Advisors consulting firm, and while still focused on the automotive aftermarket, he said he is much more optimistic about the single-shop operator's ability to compete than he might have acknowledged in the past.
"In spite of pressures to perform, insurers need these repairers," Ohrnstein said.
Large chains of collision repair shops make good sense theoretically, and some are and will continue to be successful, he said.
"But the problem has been execution," he said. "It's very difficult.… I can tell you that first-hand."
Ohrnstein said he believes the number of collision repair facilities will continue to drop, from about 45,000 today to somewhere between 30,000 and 40,000 by 2015. The number of larger MSOs will continue to grow, and the biggest decline will be among single-shop locations with annual sales under $1 million, he projected. But there are certainly paths that will allow single-shop operators to remain successful, he added.
Ohrnstein was among a number of industry participants and observers recently asked about the prospects for single-store operators facing increasing competition from larger MSOs. Here's what they had to say.
Opposing views
Jim Ryan is also among those optimistic about the prospects for single-shop operators such as himself. Ryan owns and operates Ryan Collision Center with 15-employees in Omaha, Neb., and said that while claims counts are down in his market, his business hasn't suffered.
"In the last five years, we've continued to be able to grow our business," he said. "It's been a big challenge for us. It seems like the Midwest has been hit harder than some other areas. Claims counts are down, and I believe (vehicle) technology is probably going to continue to drive accident frequency down. So if I want to be able to grow my business, we're going to have to grab a greater share of the pie."
Ryan conceded that insurers are attracted to a "single point of contact," being able to address a larger market area through a MSO.
"But in our market, I perceive that some of the multistore operators struggle to provide consistent performance throughout their stores," he said. "So I believe that independents are viable and will remain viable. I think performance is a very key issue. If we can continue to provide strong performance, we will be in a competitive position against multistore operators."
Mark Bank takes a slightly different view of the situation. The owner of White Eagle Auto Body in Naperville, Ill., Bank saw his opening of a second location in a nearby community about 18 months ago as very nearly a necessity. "You've watched the average hours per RO drop," Bank said. "Because of the shrinking dollars, you're forced to try to do more work for less money just to try to keep things in check. It became clear that if I wanted to continue on my current pace of growth and my current lifestyle, I was going to need to broaden my customer base just to stay at the same level."
Sales at his first location have approached $3 million, and he estimated that location was only at about 70 percent capacity. Improving that, however, would require attracting work from greater distances than most customers are willing to travel, he said; so the second location helps expand the company's reach.
But others said they believe single-location shops can accomplish that same extended reach without opening another shop. Bill Rupp of Akins Collision Center in Santa Clara, Calif., has instead opened two satellite estimating and vehicle drop-off centers. The locations have helped the shop attract direct repair and other work within those communities and helped keep the company's 24,000-square-foot shop running closer to capacity, he said.
Rupp said some vehicle owners are a little skeptical at first as they realize the satellites are only an office and not a repair facility. But Rupp has worked to make the satellites look and feel much like their main facility's office, which is packed with antiques and collectibles that help bring back fond memories for customers who would otherwise be focusing only on the downside of needing collision repair.
"Some shops have tried this with just cracker-box, bare-bones offices, and we didn't want to do that," Rupp said of the satellites. "We show customers there photos of our main shop, and they see we're I-CAR Gold Class and ASE-certified. And almost to a person they've commented on how convenient we make it for them."
Changing insurer views
Another option for single-store operators working to compete against MSOs is to consider joining CARSTAR or Fix Auto, which much like the Ace Hardware franchise system give independently owned businesses some of the advantages enjoyed by MSOs.
Others say remaining a single-shop independent actually offers benefits that MSOs don't.
"Individual locations have a little more opportunity for adaptability than some of the larger consolidators or franchise operations," said Aaron Schulenburg of Bill Denny's Body Repair in Havre de Grace, Md. "I also think that larger multistores have been heavily dependent on their relationships with insurance companies. From what I'm seeing, there's less interest from the insurance industry to participate with the multistore operators or to participate with all of the stores within a particular group. So I think that's where the independent is going to have a little more viability for the future."
Dave March said he concurs. In 1997, he said he sold his single-location shop in the Los Angeles area to consolidator M2. Two years ago when M2 collapsed, leaving customers and insurers stuck with in-process vehicles inside 27 closed shops, March found himself back running his business.
"I think the insurance companies at this point are realizing there's some real ills to having all their eggs in one basket," he said. "They don't want to be in that position again. So I think at least for now they are looking at any larger players real skeptically and making sure they have some backup positions."
Some vehicle owners also prefer to work with the single-location facility, where they get something they won't at MSOs: a business owner who is on site making sure quality and customer service remain high. "In this business, you have to have some passion for it," said Al Estorga, who like March is once again running his shop, Estorga's Collision Repair Center in Long Beach, Calif., after having sold to M2 in the mid-1990s. "You have to have something at stake. And you have to be very personable and warm with customers and employees."
That, he said, is sometimes missing at large MSOs.
Know your competition
For his part, Ohrnstein pointed out that even 10 years into the much-discussed industry consolidation, the nation's 10 largest repair operations still only capture 4 percent of the market, so there's still plenty left for single-shop operations. Competing for insurance business will require those shop owners to offer quality, speed, and value, he said. Alternatively, he added, they can go after a niche market, such as high-end vehicles, or partner with one or more dealerships, or launch direct-to-consumer marketing campaigns.
But the good news is that unlike in some industries, single-location shop owners aren't facing international competition. Wrecked cars are not going to be hauled overseas, Ohrnstein said. So the one-shop operator doesn't have to look too far away to understand what it will take to succeed.
"You just have to be best in your market," he said.
sidebar: State Farm closes DRP loophole
When State Farm first announced its new "Select Service" program last year, some multishop operations in test markets found a way around the program's "best rate" requirement.
State Farm requires Select Service participants to provide the insurer with an equal or better deal than the repairer offers any other insurer. But initially, a five-location collision repairer, for example, might sign up three of its locations for Select Service at one set of rates, while channeling any direct repair work for other carriers at lower rates to its other two locations. It could thus say it was offering State Farm the best discounts offered at those three locations, while still keeping deeper-discounted DRP work at the other two.
But last fall as State Farm announced that rollout of the program would go nationwide this year, it said it had revised the agreement to close that loophole. It now requires multilocation shop owners to list all of the repair facilities that they own and have control over on the Select Service agreement.
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