Minnesota shop owner Geri Kottschade, ending her term as chair the WIN board of directors, kicked off the event with an overview of the 3-year-old organization. She also presented the WIN “Cornerstone Award” to Trish Serratore of National Institute for Automotive Service Excellence (ASE). The award is presented annually to a WIN board member who “lives the mission of WIN through her daily actions at work and in her community.”
That mission was outlined by incoming WIN Chair Kim White, the next speaker at the event, who explained that WIN is dedicated to “developing and cultivating opportunities to attract women to collision repair while recognizing excellence, promoting leadership, and fostering a network among the women who are shaping the industry.”
On the second afternoon of the event, John Edelen, a former executive with Allstate Insurance who last year became CEO of I-CAR, offered his overview of the state of the industry. Edelen opened his presentation by saying he felt a little like a “buzzkill” offering grim statistics on the state of the nation’s economy during a conference that was otherwise focused on more positive and upbeat topics.
“But it would be dishonest of me to not to lay out a perspective of the things that are taking place,” Edelen said. “I have too much respect for you and the reasons you are here to not share that with you.”
During his more than three decades at Allstate, Edelen’s responsibilities varied from developing the company’s practices and procedures for auto damage claims handling, to overseeing the launch of Sterling Autobody Centers following the insurer’s acquisition of the chain, and even establishing an Italian subsidiary of Allstate.
His career, he said, had made him comfortable in a strategic planning role, and his presentation at WIN was designed in that vein, as a look at the threats and opportunities the current economic realities offer various segments of the industry. Much of what he shared, he said, were not his words and thoughts, but those of others he has read as he scans the industry, looking for trends.
“If there’s one thing I would advocate it’s reading,” Edelen said in the preface to his presentation. “Read about your industry. Stay up on it.”
Among the observations Edelen shared:
● The “alternative parts” industry stands to benefit from a number of economic trends, including the turmoil among automakers and the closing of dealerships, which in some cases is hampering quick availability of new OEM parts. With the drop in new car sales comes an increase in the vehicle population, Edelen said. This in turn can fuel demand for used or non-OEM parts to keep older vehicles from being declared total losses, or to save money for cash-strapped vehicle-owners.
● A number of trends are driving down the number of accidents and insurance claims, Edelen said, including a drop in the overall total number of vehicle miles driven by Americans, which has surprisingly continued to decline even as recently as January, despite the drop in fuel prices.
● The government’s economic stimulus efforts include about $30 billion for highway and infrastructure improvements, and $16 billion for mass transit and high-speed rail projects. That will create jobs, Edelen said. but longer term “improved roads means fewer accident accidents,” and “more public transportation means less traffic and fewer accidents.”
● Insurers, Edelen said, often operate with “combined ratios” that exceed 100 – that is, their expenses and losses outpace their premium revenue. That’s fine when the companies’ investment income can offset such losses, he said, but as with individual investors, insurers are challenged right now to generate investment income. As auto insurers see combined ratios nearing or exceeding 100, he said, they will look for ways to trim expenses or raise revenue. Insurers entered the current downturn flush with cash from profitable years in 2006 and 2007, Edelen said, which is why the industry is among the most stable in the financial sector. But such “policyholder surplus” doesn’t last forever, and insurance premiums are beginning to rise, he said. In tough economic times, that generally results in higher deductibles and more uninsured motorists – more bad news for repairers who rely on insurance-paid work.
● Increased fuel efficiency and other clean air regulations are likely to result in more smaller, lighter cars, Edelen said, which also could contribute to an increase in total losses.
● Depending on which numbers you track, Edelen said, the total number of collision repair shops in the country is up, down or flat. Regardless, the declining accident rate will impact the industry, he said. Weather has helped give many markets a boost in the first quarter of 2009, he said; the second and third quarters of the year will give the industry “a more realistic view of the new economy.”
● How shops view (and likely will be impacted by) this may vary by shop size, Edelen said, pointing to the latest results of a quarterly CollisionWeek survey. In the fourth quarter of 2008, according to the survey, almost half of shops saw a decline in sales and 54 percent saw a decline in net earnings. But such drops were more pronounced among shops with annual sales below $1 million; 60 percent of those shops reported a drop in revenue, compared to 40 percent of shops with annual sales over $2 million. Less than one in 10 shops under $1 million said they planned to add staff in the next 90 days, while one in three shops over $2 million foresaw hiring in the short-term.
● When the economy will bounce back is tough to say, Edelen said. Government efforts to free up credit markets will work, he said, but how that will translate into new spending is unclear. “People are not going to be willing to load up personal debt the way that we as a country have for the last 15 years,” Edelen said. “They’re not going to be willing to do that for a good long time, perhaps until the middle of the next decade. That has a direct impact on consumption.” But some analysts, such R.L. Polk & Co., he said, are projecting demand for new cars to return to pre-crisis level by 2012.
● One upside for businesses, Edelen said, is that an unemployment rate that is likely to peak above 10 percent into next year means availability of talented people looking to work. One way to emerge from a downturn stronger, Edelen said, is to upgrade your staff now by seeking new talent and helping your current staff improve its skills and efficiency.
Edelen’s other prescriptions for making it through the downturn and emerging stronger were not dramatically different from those offered by others: cashflow management, targeted capital investment, a focus on creating value.
“Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable,” Edelen said, quoting Stanford University economics professor Paul Romer. Romer, he said, compares it to cooking: taking ingredients that combine to more valuable than the sum of the recipe’s parts.
“Growth,” Edelen said, quoting Romer, “springs from better recipes, not just from more cooking.”