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Monday, 04 April 2016 16:00

Mike Anderson Advises Auto Body Shops on How to "Thrive Not Just Survive"

Mike Anderson headshot

Mike Anderson from Collision Advice gave CAA San Diego members tips on how to run a successful business.

What will it take for an auto body shop to prosper in the future? Industry expert Mike Anderson shared tips on what shops need to do in order to "thrive, not just survive," during a recent California Autobody Association’s chapter meeting. It was held in March at Mitchell International in San Diego, CA.

Regardless of the type of business, Anderson said a company that wants to “thrive and not just survive” needs to focus on three specific areas: marketing, production, and finance - human resources.

 

Sales & Marketing

Currently, if a vehicle owner does not have a shop in mind to go to after an accident, the insurance company will make a referral to a DRP (direct repair program) shop. Anderson said that moving forward, OEMs will become more involved in this process.

In the future when someone is in a collision, Anderson said the technology in the vehicle will automatically notify the OEM about the drivability of the car. This will give the OEM an opportunity to direct where the car will be repaired, also known as “virtual steering.” During his presentation, Anderson showed CAA members a Collision Hub video released in 2015 titled, "Virtual Steering The Future Of Automotive Collision Claims." 

 

 

Several OEMs have already incorporated this technology into their vehicles and are in the process of building vehicle networks. Meanwhile, insurance companies are in discussions with OEMs to be their preferred carrier of choice.

Anderson shared information from Erica Schaefer at Chrysler: “Statistics have shown that 60 percent of consumers who have to return their car back to a body shop for a problem no matter how minor, will sell or trade that car in within one year. Sixty-three percent of that number will change vehicle brands when they sell or trade in their vehicle.”

“At the end of the day, the OEMs want to protect their brand,” said Anderson. “DRPs are not going away; however, I do believe that as shops we need to set ourselves up to win and this OEM trend needs to be clearly considered.”

He said in the past a prosperous shop was either part of a DRP or had high-end OEM certifications. This is no longer the case, according to Anderson. “The shop of the future that is going to thrive and not just survive, is going to be a blend of both,” he said. “If you have not started down the path of OEM certifications, you have already started to lose the race.”

In addition to pursuing OEM certifications, he said it is critical to monitor and maintain your shop’s online presence. He talked about ensuring your business presence is consistently representing your brand. Regardless of the search engine used – Google, Yahoo, Facebook, Bing, white pages or yelp – having a consistent and accurate listing is critical to success. Anderson advised having the shop’s logo, shops hours and website link accurate across the board.

Websites such as www.yext.com can provide information on how consistent your shop ranks in regards to your online presence.

In order to “thrive and not just survive,” Anderson noted that the following are important to consumers -- trust, empathy and direction (TED), while insurance carriers are looking for service, speed and accuracy.

To meet these needs, Anderson recommended that shops focus on the three Cs – CSI, closing ratio and cycle time.

 

CSI

“If you want to thrive and not just survive, you need to give extraordinary, over-the-top, off-the-charts customer service,” said Anderson. “’Good nuff’ is not good enough.”

In addition to paying attention to how your customer is greeted, the appearance of your front office and the use of uniforms, one of the biggest factors affecting CSI is whether or not customers are kept informed via their preferred method of communication -- text, email or phone -- while their vehicles are repaired. Sixty-three percent of customers surveyed prefer to receive text message updates, but this ranges depending on gender, age and demographics.

He mentioned a new KPI (key performance indicator) that insurance companies are now tracking and should be monitored – Assignment Received to Estimate Start Date. This is the time period that insurance companies measure a shop from the time they send an assignment at FNOL (First Notice of Loss) on a customer’s car until the body shop actually begins writing the estimate.

The industry average is currently 5.5 days. “Insurance companies want it to be less than 1.6 days because they see a direct correlation between the time it takes from FNOL to when the shop contacts the customer and begins writing that estimate,” said Anderson. “The longer the period between FNOL and a shop beginning an estimate impacts what they pay on bodily injury claims.”

Some of the MSOs he works with have call centers that contact the vehicle owner within seven minutes of when they receive an assignment. “If shops are taking up to 5.5 days to contact the customer, they can be assured that they are losing work,” he said.

Another factor affecting CSI is whether the vehicle is delivered on time. “The number one thing that contributes to on-time delivery being missed is that we give them a false date to start with,” said Anderson. Although shops often feel pressured to give customers a date, one of the things Anderson said he learned from Cheryl Hart at 3M was to change our word tracks with customers and let them know that we will be able to provide a more accurate date once the car has been disassembled, the shop has received full authorization from the insurance company and find out when the parts are available.

He stressed the importance of ensuring vehicles are repaired properly the first time and suggested using the asTech Scan technology from Collision Diagnostic Services to identify issues with a vehicle. After being hooked up to the car, the vehicle is connected to an OEM SCAN Tool in Dallas, Texas where they have factory-trained technicians who use OEM scan tools to provide relevant information.

Another idea he shared is having an after-hours emergency number for customers. The recording should include information about whether the shop is open or closed; if it has a towing service and provide the phone number; the address of the shop as well as a nearby landmark; and where the key drop is.

 

Closing Ratio

Anderson discussed the advantage of devising sales scripts to use when contacting customers. “The day after you deliver the vehicle, call the customer so you can ensure if there is a problem, you can head it off before the CSI survey is completed," he said.

He also recommended following up with customers after writing the estimate to ask if they have any questions as well as conducting sales training with staff. Anderson said that every good business does what he called “corporate espionage” to find out what their competitors are doing well and what they are struggling with. He encouraged attendees to conduct a SWOT analysis, checking the Strengths, Weaknesses, Opportunities and Threats of their business as opposed to the competition. This may include looking at their Facebook page, website, online reviews, what OEM certifications they have and how they rank with insurance companies.

 

Cycle Time

A year ago, Anderson said he would have recommended that in order to be successful in cycle time, a shop needed to repair vehicles at least two days faster than the market average, based on Enterprise’s Length of Rental ARMS Reporting. “Today, you need to be four days better than the industry average because everyone else has gotten that much better,” said Anderson. “Having a complete and thorough understanding of Enterprises ARMS reporting is critical to a shop’s success.”

 

Production

In regards to production, Anderson said it will be necessary for shops to retain more labor gross profit in order to pay for OEM certifications and training. Otherwise, they won’t be able to afford it. “The body shop of the future is going to have to retain 65 to 70 percent gross profit unloaded without benefits,” said Anderson. This can be accomplished through bonus-based pay plans, a team system, a tiered approach and labor rate increases.

Adding more non-included operations to an estimate will also help a shop’s sales mix, said Anderson. One of his recommendations to improve additional labor hours per estimate is to utilize Automotive Service Association’s (ASA) not-included chart. The free reference chart highlights the “non-included” operations when installing new replacement parts.

He also encouraged the use of estimatescrubber.com, which analyzes an estimate and shows what NOT included operations may have been overlooked on the estimate. It costs $25 per month for unlimited use.

“The shop of the future is going to have to focus on more repair versus replace opportunities,” said Anderson. “We’ve got to look at some repair opportunities when we know we can do a quality repair. More labor equals more gross profit.”

Anderson recommended purchasing a nitrogen welder for plastic repair since insurance companies are currently tracking repair versus replace on front and rear bumpers. In 2013, the industry average for rear bumpers was about 42 percent repair versus replace; front bumpers were 29.86 percent. That metric has since changed. Shops are now closer to 45 percent for rear bumpers and 32 percent for front bumpers.

He encouraged shops to stay up-to-date and educated as estimators. Some of the websites he has found helpful include www.boronextrication.com; www.drivealuminum.org; www.worldautosteel.org; and www.intlmag.org.

 

Finance & HR

In order to be successful, data will continue to remain key. “Data is going to be very critical to you as an OEM-certified shop,” said Anderson. “If you don’t measure it, you can’t manage it.”

The body shop of the future will use an accrual accounting system rather than cash, said Anderson. This means that they will adjust their work in process each month and reconcile prepayments with receivables. “Shops need to know how to manage cash flow and determine their ROI [Return on Investment],” said Anderson.

He said that although he hopes he is proved wrong, he believes that parts price matching will no longer be available in a year or two because OEMS are realizing a decrease in their profits. “This system is not working,” said Anderson. “It is a band aid for an issue that is not being discussed.”

It is for this reason he said parts discounts will continue to shrink. Therefore, he recommends shops focus on making more gross profit on labor. “If you want to maximize your gross profit, you need to focus on the 30-20-10 sales mix to achieve the maximum gross profit,” said Anderson.

This equates to 30 percent of sales coming from body, frame and mechanical labor; 20 percent of sales on paint labor; 10 percent of sales on paint materials; 36 to 38 percent on parts; and two to four percent on sublet. “If you hit this sales mix, you will make a 46 to 48 percent gross profit unloaded [without benefits], said Anderson.

However, most shops are 26 to 28 percent body, frame and mechanical labor; 13 to 15 percent paint labor; 7 – 9 percent paint materials; 40 to 42 percent parts; and the remainder on sublet. This amounts to 43 percent gross profit. “If you do $100,000 a month in sales, that three percent difference is $3,000. If you do $300,000 a month in sales, that is $9,000 additional money to your bottom line,” said Anderson.

He suggested looking at the possibility of bringing in some of a shop’s sublet in-house. “If your sublet is more than two percent of your sales, you need to ask yourself, ‘what can I bring in-house?’” This might include looking at more repair versus replace opportunities; more non-included operations to bump up the sales mix; more refinish operations and if the paint materials percentage is low, an invoicing system.

While taking steps to become a successful body shop in the future, Anderson recommended aligning yourself with people who will help you grow. “Surround yourself with people who are positive, not negative, and have the same vision and hope,” he said.

“In my opinion, it’s a bright future in the industry,” said Anderson. “I don’t think our industry is doom and gloom. It’s one of the most exciting times I’ve ever seen in my life.”

For more information, visit www.collisionadvice.com.

Click here to see photos from the March 3 CAA chapter meeting. 

 

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