Tuesday, 31 May 2005 17:00

Will auto shop certification give independents opportunity?

Although the percentage of dealerships with body shops has declined over the past 30 years, a growing number of automakers are working to help dealership shops gain market share. How successful they will be remains to be seen, but independent shop owners would be foolish to ignore the threat - or possibly the opportunity - these efforts may offer. 

The decline of the dealership shop

In some ways, it's difficult to imagine why a dealer wouldn't operate a collision repair shop. Combined with a sales and service operation, such shops enable the dealer to handle virtually every aspect of vehicle ownership other than keeping the gas tank filled. But there are a number of reasons why only 40 percent of the approximately 21,000 dealers in the U.S. now have body shops, down from about 70 percent three decades ago.

"It's a business that you either have to be in seriously or be out of," Paul Taylor, economist for the National Automobile Dealers Association, said. With insurer cost-control efforts and competition from larger repair operations, profits in collision repair are increasingly dependent on volume. Environmental regulations and improved repair technology can mean costly investments in equipment and facilities.

Dealers struggling to find good help to keep their service bays staffed may not want the additional challenge of trying to hire and retain qualified collision repair technicians. If dealership principals haven't maintained some focus on their body shop operations all along, it's easy to view it as an unprofitable use of a lot of space.

The collision side of the business also isn't something the dealers had received a lot of support for from the automakers. That's begun to change in the past few years, however, as more than a half dozen automakers have launched programs targeting improvements in their dealerships' collision repair shops.

The automaker programs

The automakers' "new" interest in collision repair manifests itself in several different forms. Ford recently launched its Certified Collision Repair Network (CCRN). The goal of CCRN, is to improve the quantity and quality of collision repair jobs moving through Ford dealership body shops and to improve customer satisfaction for both vehicle-owners and insurers, according to Garry Nelson, manager of the program for Ford. "In addition to providing customers in each participating market with top-quality vehicle repairs, this new program is designed to meet the needs of both the insurance industry and dealers who want to enhance and improve their current operations," Nelson said.

He said that although about 1,500 Ford-Lincoln-Mercury dealerships have body shops and all are welcome to participate in the program, about 100 dealers are enrolled in the program, a number the company hopes to double or even triple by early 2006. In order to qualify for the CCRN, a dealership shop must complete a 10-week training and implementation process followed by an annual third-party onsite inspection of estimating procedures, repair quality, equipment availability, training levels, and customer satisfaction data. Equipment requirements include having an electronic frame measuring system. Three in-process vehicles are also reviewed during the certification process.

"The inspection involves putting the vehicle up on the hoist and getting under there with a flashlight to look for the seam sealer and check the welds, for example," Nelson said. "We scrutinize them pretty closely. We do it as if we were looking at them from an insurance company perspective."

The program also has requirements for the attractiveness of the customer waiting area, lighting levels throughout the shop, and ongoing customer satisfaction measurement. Essentially, Nelson said, the program requirements are designed to ensure that participating dealers are capable of complying with any insurer's direct repair program requirements.

Nelson said the program is currently open only to franchised dealers, not independent shops. "We may find in maybe the second or even third phase of the program that there's a market area where there really aren't any good body shops at the dealerships, but the dealers want to recommend an independent shop," Nelson said. "But that's in a later phase of the program."

Toyota has a shop certification program that is similar to that of Ford's, although Toyota is working on requirements for independent shops to join the program, a process likely to begin this year.

General Motors in 2001 launched the Goodwrench Auto Body Center (GABC) program, designed to lend the consumer recognition of the "Goodwrench" name to the collision side of the business. By focusing on that moniker rather than the dealership name - the GABCs are often stand-alone facilities built away from the dealership - GM believes it can help its dealers turn their shops into more of all- make-and-model shops appealing to more consumers and insurers.

Audi in 1996 launched its certification program, which for now involves only shops repairing Audi's all-aluminum A8 model. About half of A8-certified locations can conduct full structural repairs on the vehicle, while the rest are limited to cosmetic repairs. Audi has said it's likely to establish a broader collision repair certification program for both dealer and independent shops.

Ray Coker of Mercedes-Benz said his company hopes to have 200 certified collision repair shops by the end of this year. Only about one-third of Mercedes' 327 U.S. dealerships have body shops, he said, so the program is also open to independent shops sponsored by a dealer. A dealer may also choose to sponsor more than one independent shop. The program has two levels: certification for general repairs, and a higher level of certification from structural repair work.

While the Mercedes certification requirements cover similar aspects of shop facility and operations as the other automaker programs, there are some significant differences. The only frame equipment Mercedes considers acceptable, for example, are dedicated fixture systems. Only specific welders and paint booths are approved. A dedicated, protected space for working on aluminum vehicles is required to prevent cross-contamination when working on steel.

Jaguar and BMW are also among the automakers to have shop certification programs, both of which are open to independent shops as well as dealerships.

Most of the automakers say the programs are designed to improve the quality, not the quantity, of dealership body shops. "This is not a program that encourages a dealer to go out and build a body shop," George Gilbert of Ford said of his company's shop certification program. "The idea is: Our current body shops want to have DRP relationships with insurance companies, so let's make them as efficient as we can."

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The troubling issues

While the concept of standards and certifications for shops is hard to argue with, the automaker programs raise some concerns for independent shops. The questions being asked include:

• Will non-certified shops have access to all replacement parts? If an automaker wanted to ensure that only certified shops conduct repairs on particular models of its vehicles, could it not limit the sale of certain replacement parts to only certified shops? Indeed, Jaguar has said it will not sell structural parts for its all-aluminum XJ except to its 200+ certified repair centers.

"The construction techniques used in this vehicle are very unique," Don Krumholz, field operations manager for Jaguar U.S., said. "It is in the customer's best interest, our best interest as the vehicle manufacturer, and in the best interest of the collision repair industry to make sure that any repair...is a workmanlike repair that will stand the test of time, and that the customer will be protected in any subsequent accident in that vehicle."

Although there have been conflicting comments from Mercedes-Benz about whether it has a similar policy, Bob Sherry, supervisor of collision and wholesale parts for the automaker, said his company doesn't restrict sales of any parts.

"However there is a flag process that if one of, I think, six structural items for the CL [model] is ordered, it sets off a chain of events and our field team is notified," Sherry said. "At which time they would speak to the customer and recommend that the car be repaired at a trained and authorized facility."

• Will the benefits of becoming certified justify the costs? At a recent industry event, consultant David McCreight of Collision Resources, showed an example of one shop owner who determined it would require $156,000 of equipment and nearly $10,000 in training and tools - not to mention an annual fee of nearly $5,000 - to be certified to repair one particular automaker's vehicles. McCreight calculated that the shop would have to repair an additional 143 vehicles to make that investment pay off. Yet only a few hundred of those high-end vehicles are likely to be sold in his area, with only a small percentage of those needing collision repair work in any given year.

Such investment might pencil out more easily for independent shops if buying the equipment to meet one automaker's certification requirements helped the shop meet the requirements of another automaker. But Gary Wano, an Oklahoma shop owner, said another downside of the programs is that although, for example, the aluminum repair work may be similar among auto makes, BMW, Jaguar and Mercedes-Benz each requires different brands of tools and equipment to become certified.

• Will a shop invest in becoming certified - only to have the program dropped by the automaker? It's not tough to come up with examples of automaker initiatives that failed to succeed and were scrapped. And there's plenty of hurtles to making an OEM shop certification program successful, most notably the possibility that not enough dealers or shops will choose to participate.

Why not? The automakers say the programs will help shops get more insurer direct repair work. But there are reasons insurers may not choose a certified dealership network. In Ford's case, for example, about 1,000 of its dealers participate in a program that helps the dealer sell insurance to a customer at the time a new car is purchased. Is an insurer likely to want that dealership - even if Ford-certified - as part of its direct repair program if the dealership is selling policies for a rival insurer?

Turn-over in dealership collision repair shop management is also a common problem. Though it's one that automakers say the certification programs can help address by bringing systems and standard operating procedures to the shop that won't go away when a manager leaves, insurers aren't apt to stick with even a "certified shop" if shop management changes frequently. The automakers may also find that limiting the number of shops that are certified to do repairs on certain vehicles may make those vehicles more expensive to insurer, which could impact sales.

Insurance issues aside, many dealers sell wholesale parts to local independent body shops. Are those dealerships likely to certify their body shops and more aggressively go after collision repair work if it means that shops currently buying wholesale parts from them may decide it's not worth buying from a "competitor"?

So although more automakers are jumping on the shop certification bandwagon, it doesn't seem likely that all the programs will last.

Competition - or opportunity?

For Gene Hamilton, however, the shop certification programs are clearly a benefit. Hamilton, owner of the multi-location Sports & Imports collision repair shops in the Atlanta area, has built his business around fixing primarily just two makes of vehicles, Mercedes and Lexus. For the most, part he had the facilities, equipment and training needed to meet the certification programs. So now not only does he get the referrals of customers from local dealers that don't have body shops, he can also promote his shops as "certified" by the automakers.

But Don Keenan, a past chairman of the Society of Collision Repair Specialists and owner of six shops in Pennsylvania, isn't convinced the OEM shop certification programs are going to turn dealers into real challengers to well-run independent shops.

"Could this be a threat to our market? Of course it could. But it's only a threat if we let it be a threat," Keenan said. "The auto manufacturers recognize that they have to come into what is already our market. We are already doing the things they want to do. We are the specialists. We are what they are trying to emulate."

Keenan said any gain in market share dealerships achieve isn't likely to come at the expense of better shops. So while it would be foolish to ignore what the automakers and their dealers are doing, Keenan said, it's more important to continue to offer exceptional repairs and exceptional customer service.

"The key is to make it difficult or unappealing for anyone to enter your market," he said. "You be the toughest competitor. Why would they come into your market if you 'own' the customer, if you're doing top quality repairs?"

John Yoswick is a freelance writer based in Portland, Oregon, who has been writing about the automotive industry since 1988.

 

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