Bodyshops Tackle Profit Issues

Listening to where bodyshops focus their efforts to improve profitability provides insight into how jobbers may be able to assist them in their business.

“Running a profitable business is a combination of art and science, as you make the transition from working in the business, to working on the business,” says Joy Skinner, Industrial Park Collision, Orillia, Ont., during a panel discussion on profitability at the Canadian Collision Industry Congress in Toronto last month.

“As the business environment changes, the business must adapt. If you didn’t make any money last year trying to be the best and the cheapest, you have to make changes. If you don’t make them, you will only be the cheapest, not the best.”

Not surprisingly, she and the other panellists are all focused on building the ability of their shops to put more cars through, and to build more profit into each job.

“There are so many things that affect our profitability,” says Rick Dey, Oregans Automotive Group, Halifax, N.S. He says that the business has chased a lot of red herrings in the search for improving profitability, but he has learned that some basic approaches have earned the most for the business.

“One of the two things I have focused on that had a considerable affect was getting back to upselling.”

The upsell, or add-on sale, is not a concept unique to the autobody sector, but Dey says that the menu approach for additional dents and scratch repair–$50 for a door ding for example–has proven to be of great benefit to the bottom line. He also says it hasn’t been very difficult.

“We call it making the most of every car. From a cost analysis, everything is already being paid for. You don’t have the same fixed expenses as another repair. We are having a 90% success rate selling it.”

“The second area of focus was something as simple as supplement documentation, getting them controlled and authorized through the insurance company.”

Supplement administration–making sure that additional work required is documented and claimed–is critical. His focus on that side of the business should offer jobbers an insight into how bodyshops can gain or lose enough on a job to make it unprofitable.

“If you don’t claim it properly, you could wait a month, and then the insurance company is going to want to negotiate.” His business collected all the individual requirements–they participate in 10 direct repair programs (DRPs)–and took a low-tech but effective approach.

“We have generated a binder with every company–the pictures they require, who you have to call to get authorization, etc. It has also helped us train new estimators because it becomes their system.”

Those internal systems are important, but focusing on the customer is critical too, says Sam Saccoia of Nick’s Auto Collision in Toronto, Ont.

“We gather the important information pertaining to the claim, but we also focus on the concerns about the repair. It may seem difficult but it is simple. We ask, “What are your concerns about the repair?’”

The shop created a special portion of the form for this, and it travels with the repair. And, when the repair is complete, the concerns are addressed with the customer.

The process has been an enlightening one. “We usually discover what we thought the customer is concerned about is not what he or she says they are concerned about.”

The same customer-centric approach permeates the entire facility, but that has taken effort. “You are intent on taking care of the customer, but what about the people at your facility? We want to make sure that we send the same message out to each customer.”

Justin Di Ciano of JJ Auto Collision, also in Toronto, has focused a great deal of effort on lowering the price paid for goods.

“Instead of purchasing what we need once a week or once every two weeks, we purchase once every six months. We treat it like a government organization: the lowest bidder gets the sale. It is amazing how when you put it that way to a salesman or a jobber, they come back with a price you didn’t expect to be paying.”

Later, during the question period, panellists and attendees alike debated the merits of this approach. They agreed that it might improve your price, but you need to take into account the cost of owning that inventory and housing it, as well as other issues like theft, which can increase the cost of acquisition. They also wondered about the inventory turns and what the loss of floor space to house the inventory might mean for lost productivity.

The lone jobber on the panel, Brian Slaunwhite of Ferguson’s Auto Parts Ltd., in Halifax, N.S., said outright that he wouldn’t deal that way. It simply doesn’t provide any profit basis for providing service in the interim, especially if there was always the possibility of losing the large supply orders over a few dollars on price.

Besides, he asked, “Why would you tie up all that money in inventory when your profitability relies on your labour?”

It was a point which provided everyone in the room with something to think about, including Di Ciano.

Training Gap Costs Shops Every Day

Cost of rework and comebacks eliminates the profit on a job, says jobber Brian Slaunwhite, Ferguson’s Auto Parts Ltd., Halifax, N.S., and training is at the heart of the problem.

“One of the causes of redo is not training the staff for the right job. The [Canadian Collision Industry Forum] study says that 40% of shops don’t receive any training. There must be some truth to it,” he says. The cost to morale and customer relations is real, but the cost to the bottom line is impossible to dismiss. After having studied many jobs, he says that on average, much of the profit comes from labour.

“On a $1,000 job, $300 profit comes from labour,” he says, and that is quickly lost on unpaid rework.

“If you can train or upgrade your employees’ skills, you can change that. Sometimes you get trained and it’s not the training you really should have. You have to give them the right training for that job.”

His philosophy on training is that he does not charge customers to come for training. He sees the benefits of a better trained staff as paying dividends to his business in other ways, but it still takes him 150 calls to get 20 or 30 seats filled for the training courses he organizes, which cover business management and technical areas.

Over the years he has collected the reasons he has been given for not attending training: most can be put firmly in the category of lame excuses, but he says that he keeps trying.

“We don’t charge customers to come to training. If they don’t come, the next thing I know I’m out writing a credit or a claim. If we train them, those things don’t come back on us.”

Business Models Aside, Jobber Contribution Important

Bodyshops may operate on different business models–independent, dealership, franchise or multi-outlet–but they all require the same commitment to ensure success.

Participants in a panel discussion on different business models for collision repair operations said that the relationship they have with their jobbers and dealerships was important. Most of the larger organizations were in a position to strike nearly exclusive deals with individual jobbers.

Mithal Abougoush, a partner in four Boyd Auto Body & Glass shops in Kelowna, B.C., says that this arrangement has proven to be very beneficial.

“We find that dealing with one vendor is really helpful. It is not entirely exclusive, but if they serve us well, and in accordance with our agreements, we’ll stay there. It really streamlines our billing too.”

“You get the best price through loyalty,” says Joe Schmidt, who operates a Carstar franchise, adding that this is important, but that there are other issues too. “They supply training and other services, too. Invoicing is a big factor. We may get multiple invoices, but they are already coded to our chart of accounts.” With an ISO system in place, that helps to keep tracking systems happy.

Des D’Silva is owner of the Imperial Auto Collision Group, which operates in the Greater Toronto Area.

He says that the
reciprocal commitment between himself and his key suppliers is more important than top line cost. “It’s not just about the price of paint. It’s about their commitment to helping us grow.”

The panellists revealed other issues about their business too.

Richard Marsh, Windsor Body Works, owned by a Chrysler dealer, says that the benefits afforded his operation revolve largely around the data-gathering capabilities of the dealerships.

“Dealerships have a huge amount of data going back 10 years or more–lease agreements, service histories . . .” says Marsh, and these data can be invaluable in targeting marketing.

Though the bodyshop can use the database so well for marketing purposes, it is still incumbent on them to market before and after service.

“We recognized that the dealership has all these tools, but we’re still competing with the banner groups and the independents. We are off site; we have the look and feel of an independent. I see a lot of dealerships going down this road. You wouldn’t know that we are owned by the franchise.”