But Blue Island leaders soon learned that small agenda item made their suburban community home to what may be the first of many skirmishes in the latest controversy within the collision repair industry: insurer ownership of shops.
Illinois shop owner Mark Pierson said he was one of about 20 collision industry representatives attending the Blue Island zoning board meeting late last year to voice concern about the site permit being sought by Sterling Collision Centers, a Massachusetts-based chain that was acquired about a year ago by Allstate. Pierson said he and the other shop representatives wanted to ensure, at the very least, that Blue Island wasn't granting Sterling any tax incentives for entering the market.
One city says 'no g
What's a PRO to do?
What's the Allstate acquisition of Sterling Collision Centers mean for your shop if you currently participate in Allstate's "Priority Repair Option" (PRO) direct repair program.
First, Allstate and others point out that Sterling won't enter all markets, nor will Sterling locations be likely to handle all the Allstate work in any market.
"Basically what we're going to get is work that comes after their shops are full," said Eric Heigold, body shop manager of Faulkner Oldsmobile-Mitsubishi in Philadelphia, home to five Sterling locations. "We're going to be the second choice."
No one at Allstate denies Heigold's assessment of the situation, and although they insist the Sterling acquisition does not spell the end of PRO, they're cagey about what the nation's 3,500 PRO shops should expect.
"Something we will be working through in the claims strategy area is the answer to this question: Given a commitment to the success and further development of Sterling, what is left?" John Edelen, assistant vice president of claims strategy for Allstate, said. "As I sit here today, I'm not in a position to answer that. There is a place for PRO in Sterling markets. There certainly a place for PRO in non-Sterling markets, now and in the future. How big a space, what that means in terms of volume, is something yet to be defined. We have a sense that there is a role [for PRO shops inside and outside of Sterling markets]; we simply don't know how big it is."
Edelen said he knows PRO shops need to consider whether staying on the program is good for their own interests, but he said he can't provide a lot of information on Sterling's growth plan.
"All I can encourage you to do is if you have a valuable relationship with Allstate currently, and it's something you're interested in sustaining over time, then you should declare that and act from that basis and we'll see where we go," Edelen said. "If you're not willing to run that risk, to make that bet, that's your decision as a business owner. We need to acknowledge and honor that."
State Farm doesn't rule out buying shops
As the nation's largest insurer, State Farm seems like the company best able to make ownership of shops pay off. Is the company thinking about following Allstate's lead in purchasing shops?
"Yes, we've looked at it," Bill Hardt, assistant vice president of property damage claims for State Farm, recently said. "Matter of fact, we spoke with Sterling long before the [Allstate] announcement. We've evaluated whether that made sense. We've spoken with other [shop] consolidators about it and given it thorough consideration. We do these things on a continuing basis.
"At this time, we don't see that as the direction we want to go," Hardt said. "We think there is adequate repair capacity out there. We've got a great many quality repairers that we work with. We have nearly 40 million policyholders out there, in every nook and cranny in this country, and we need to be able to provide service in the community. Will we continue to look at it? Sure. We continue to look at a lot of things that have never materialized."
And while Sterling got a thumbs-up from the zoning board, a subsequent hearing and vote before the Blue Island City Council earlier this year didn't go Sterling's way. The Council voted 11-3 to block the site permit thanks, according to the Alliance of Automotive Service Providers of Illinois (AASPI), to Illinois shop owners' efforts to help the Council "better understand the role and value of the independent family-owned body shop." (Sterling and its developer subsequently filed a complaint in the Circuit Court of Cook County against the City of Blue Island and the eight aldermen who voted against Sterling's permit.) Will Allstate's ownership of Sterling cause the repair chain similar bumps in the road as it seeks to grow? Are other insurers likely to follow the No. 2 insurers' lead and seek ownership of shops? Will consumers realize - or care - that the shops repairing their vehicles are owned - in whole or in part - by an insurer?
Here's a look at what promises to be among the most talked-about issues in the industry for the foreseeable future.
Not a first for the industry
Allstate's purchase of Sterling last year was hardly the first time insurers - including Allstate - have tried to achieve some level of "vertical integration" through shop ownership.
In 1976, Allstate opened Tech-Cor, a Chicago area research facility that includes a 30,000-square-foot commercial body shop fixing about 130 vehicles a month. And prior to Sears selling its ownership in Allstate, at least two east coast Sears stores had collision repair estimate areas, making referrals to a nearby Sears autobody shop.
So what prompted Allstate to try it on a larger scale in the United States? Chuck Paul, vice president of Allstate Insurance Company's claims strategy group, has spent a lot of time explaining the move over the past year.
Allstate wants to be unique
Paul has said the insurer hopes to address several needs through its acquisition of Sterling, which operates about 40 shops in eight markets. Competition from other insurers, he said, is forcing Allstate to find ways to control premiums and make its claims service better than before and better than other company's. Consumer's heightened expectations of insurers include "restoration," not just "indemnification."
So what kind of impact has Allstate's acquisition Sterling had on other shops in Sterling markets?
"I've had several customers insured by Allstate told they have to take their car there," a shop manager in Houston, Texas, who asked that his shop not be identified said. "[Allstate] sent us an email saying it wasn't going to effect anything for us in working with them, but I've noticed to the contrary. I even had a customer in my office on the phone with Allstate, and Allstate told her she had to take her vehicle there, even though I am a direct repair shop for them. I did call and make a complaint about that but I haven't heard anything back from them."
Living with Sterling
Jeff Silver was well-known in the collision industry as the executive director of I-CAR until the mid-1990s when he shocked many by leaving I-CAR to open a collision repair shop in a Chicago suburb. Sterling has five Chicago area locations, but Silver said his shop has yet to feel any impact from the change in ownership.
"We have two Sterlings within 10 miles of us, and three within 20 miles," Silver said. "Our State Farm business has increased dramatically since [the Sterling acquisition] happened, and it hasn't hurt our Allstate business that we can tell. But time will tell."
Some shops participating in Allstate's PRO direct repair program in Sterling markets have seen a drop off in referrals, although others say they continue to get referrals from agents in their areas. Chris Jones, body shop manager at Goodson Honda in Houston, said he isn't even familiar with where Sterling's eight Houston locations are in relation to his dealership.
In Akron, Ohio, Rich Robinson said two of Sterling's five Akron/Cleveland shops are each about 10 miles from his MacIntire Chevrolet body shop, and he's experiencing only a "mild impact at this point."
And in Philadelphia, home of five more Sterling Collision Centers, Eric Heigold of Faulkner Oldsmobile-Mitsubishi said it's too early to judge how the Allstate acquisition will impact their body shop.
"Allstates a big company, but I just don't know yet if it's going to effect us that much," Heigold said. "The first month that they moved to Sterling, I had more Allstate work than I've ever had. So that wasn't a good month to judge. And now it's very slow for everybody, so it's not a good time to say, but I do have Allstate work here in the shop right now." Will others follow?
As Allstate promises to expand Sterling into new markets this year (see article elsewhere in this issue about Dallas expansion), will other insurers follow Allstate's lead? Brian Sullivan doesn't think so.
Bad fortune telling
Sullivan, editor and publisher of two newsletters in the property and casualty insurance industry, admitted that when he spoke at the International Autobody Congress and Exposition (NACE) in late 2000, he said he didn't foresee any insurers purchasing shops. Less than four months later, Allstate acquired Sterling.
So when he returned to speak a year later, just last December, Sullivan admitted his prediction got shot down, but offered his own take on Allstate's actions. Even more than squeezing repair costs, Sullivan contends, insurers are interested in innovating, finding ways to improve the customer's experience - in order to keep them as customers - and decrease loss adjusting costs (what they spend managing claims). He believes Allstate's "innovation" is evidence of a trend of insurers seeking control of the customer relationship.
"Insurers are waking up and saying, 'We only have one chance to make [customers] happy and it's in a shop that we don't own, don't control, have no say over, and we're getting blamed when the bathrooms are dirty,'" Sullivan said. "This is transforming the way they are looking at your business. You think they're trying to stick it to you. I'm saying they're buying shops or trying to control you because they're so scared of the downside of a bad repair experience. That's your trump card."
Says others won't follow
That said, Sullivan doesn't foresee other insurers buying shops, saying insurers often find out they aren't successful when they don't stick with their core business. Only a few insurers, he said, have the resources and market share to make it work. And even Sterling will probably be limited to market areas with high concentrations of Allstate customers.
But other insurers, he said, are making investments in repair chains in order to ensure they have access to repairers in key markets.
As a minority investor, the Exchange will not participate on Caliber's board of directors, will have no control over day-to-day operations of the company and will not have access to non-Exchange information. According to the company, Caliber has been part of the Exchange's direct repair program since it began in 1998.
"The trend toward consolidation within the collision repair industry was a critical factor in our investment decision," said Jim Gilmartin, the Exchange's senior vice-president for insurance operations. "The continued success of our [DRP] depends upon having the capacity to offer high quality collision repair services to policyholders and claimants who choose to use our program."
The consumer view
While insurer ownership and investment in repair shop chains is still relatively new, there hasn't been much of a consumer backlash against the idea.
"Consumers are not completely freaked out about the notion of their repair shop being closely associated with their insurance company," Sullivan said. "I think there's a lot of people in the collision repair industry that are very disappointed in this development. They were hoping the consumer would say the repairer is my friend, the insurer is my enemy. I think what you're finding is that consumers don't look at either as a friend or energy; they just look at them as insurers and repairers, and they don't really care. I originally was under the impression that the relationship between the repair shop and the consumers not unlike a doctor and a consumer. People really get mad when a doctor makes a decision about their health based upon the needs of the insurance industry. They really get mad. But they don't seem to get as mad about auto repair. Consumers are not revolting."
Shops banding together as they did in Blue Island to get a city council to deny a site permit may slow an insurer-owned repair shops chains expansion, Sullivan said. But it is much more likely that consumer reaction - whether it remains neutral or turns one way or anther - that will have an even bigger impact on the future of insurer-owned shops.
John Yoswick is a freelance writer based in Portland, Oregon, who has been writing about the automotive industry since 1988.