Until recently, Walt Link was a division vice president for Gerber Collision & Glass, overseeing nearly 200 stores in the company’s West division.
Link joined Cole Strandberg, host of The Collision Vision podcast, driven by Autobody News, for the first episode of its new series, “Operational Excellence: Shop Strategies for Success.” Link talked about financial management and growth planning, as well as his newest professional pursuits -- including an innovative new tool he thinks will help shops address their labor shortages.
A Diamond in the Rough
After serving four years in the U.S. Navy, Link was looking to transition to civilian life. In 1997, he opened a collision repair center with a business partner. A few years later, Link sold his share of the business to his partner and then worked for different companies in the Atlanta area.
In 2019, he joined Gerber Collision & Glass, first as a regional vice president in Florida, then in Atlanta. In 2022, the company was restructured and Link was promoted to division vice president in the South. In November 2023, he moved to that same position in the West.
“It's been a really good career for me,” Link said. “This business is a diamond in the rough.”
Financial Metrics
The overall health of a company is based on its bottom line, or earnings before income, taxes, depreciation and amortization (EBITDA.) “Top-end revenue is for rookies,” Link said. “EBITDA is where the professionals play.
“I'm not trying to minimize what top-end revenue can do for you in your business,” Link said. “I'm just suggesting it's how a person manages all the facets of their business that leads to higher EBITDA dollars.”
Link said there is a “sweet spot” where a shop’s indirect costs get to a point when top-end revenue starts ticking up, but getting there requires adding more employees to handle more vehicles.
In his experience, Link said, a shop doing around $275,000 in top-end revenue makes as much in EBITDA dollars as one doing $450,000.
“I can prove that all day long, because you cannot stretch people out so thin, you're going to start losing out on CSI,” Link said. “I'm not saying that you can't grow organically and go from $275,000, but you do need to be prepared that your bottom line is not going to start actually seeing the rewards of that increase in top-end revenue until you get to that $475,000, even $500,000 mark. Then you're going to start seeing a significant improvement in your EBITDA dollars.”
When creating a budget, Link said the aim is see organic growth year over year. The goal amount will vary from shop to shop, whether it’s 1% or 10%.
“Financial growth is not always about the top line,” Link said. “It is my humble opinion that bottom line growth is way more important.”
The bottom line shows the strength of the company’s leadership in managing its employees, and represents how much an owner can reinvest into the company.
Owners need to be aware of indirect costs, like overtime for employees who support the company’s sales but don’t directly contribute to them, like the general manager, production manager, estimators, CSRs, porters and parts coordinators.
“Managing their overtime can be an absolute EBITDA killer,” Link said. “Don't get me wrong. There is good overtime, in every business. But how you manage that and those indirect costs most likely will be the difference between being EBITDA positive or negative.”
“Labor efficiency” is based on the number of hours a tech can turn compared to the number of hours they are on the clock. Link said as a shop general manager or owner, he likes his techs to be around 200% -- meaning if they are on the clock for eight hours, they can flag 16.
A tech’s experience level affects how repairs are distributed, because that plays into their labor efficiency.
“You don't want your most junior technician performing the most difficult repair that you have or vice versa, and that's why we have categories, A tech, B tech,” Link said.
“Labor is by far the No. 1 place that can have the most significant impact on our gross profit, because it has the highest margin opportunity,” he added.
Parts are another important line item in a shop’s budget. Link said while it is important to build and maintain good relationships with vendors to ensure your shop is getting the best discounts, sometimes it also pays off to shop around.
“People love to talk to the same [parts] people because they think they're going to take care of them,” Link said. “I am not saying that they won't take care of you if you ask them to give you a better discount, but I certainly would call around and just make sure, because the margins on parts keeps lessening and you need every dollar you can get.”
Parts coordinators also need a tight system for following up on parts credits.
Shops need to make sure they’re charging for everything they do to restore a vehicle to pre-accident condition, Link said.
“I'm not talking about inflating repair costs just to make a profit,” he said. “But you do need to make sure that your team is educated on what our insurance partners allow us to charge for. That changes all the time, due to the ever changing ways that vehicles are being repaired.”
Considerations for Growth
Just adding stores for the sake of upping your store count isn’t a healthy strategy, Link said.
Location is important, which includes making sure the market can support another collision repair shop. Look at population growth projections for the next several years. Having the right team before expanding is also key.
“I would say there can come a point where you may lose focus on whether growth is just going to be a win for your owners or your shareholders, or whether it's just going to be a win for your employees’ bonus structure,” Link said. “I'm not suggesting that financial responsibility gets negated when people look at growth. But you gotta have discipline.”
Company leaders should keep up with professional development and keep an eye on industry trends, like the impact of OEMs’ new production methods on being able to repair them after a collision, which can require new tools and training for techs.
Private Equity
Link said there is strength in numbers -- a larger group of repair shops can have a more influential relationship with insurance companies on how repairs should be performed and what they should be paid for.
“I personally believe private equity has a has a huge role in what we do,” Link said.
He said in addition to the big five consolidators in the U.S., another segment should grow: “Maybe 20 or even 30 more private equity companies that get 100, 150 stores,” Link said. “I think there would be some strength there. And again, I am not suggesting that it's us against the insurance companies. It's absolutely not. We need to figure out a way to be partners.”
Trends
Link said the top trend in collision repair is work in progress (WIP) levels.
“I think that the biggest trend that anybody needs to accept is that we are going to go down to 2019 claim counts,” Link said.
“We've spent the past three years enjoying the highest level of claim counts and WIP levels that we've ever seen in this industry, and for whatever reason, people are hitting the panic button now,” Link said. “And I understand why. We're just now getting back to pre-pandemic levels of work.”
As ADAS evolves to prevent more collisions, it will also contribute to a degradation of claim count.
“But don't forget the severity of claims has gone up tremendously,” Link said, as parts prices have increased and ADAS needs to be recalibrated.
The Tech Shortage -- Maybe Not?
“Maybe we really don't have a tech shortage,” Link said. “Maybe we are just not utilizing the techs that we have the most efficient way.”
Link said he is developing a “tech share” product, called Bolt, that will allow a shop to bring in a body technician, paint technician or estimator to work during their downtime at another shop.
“What if there was a system that could utilize all that downtime that we all know technicians have and that they are going to have here moving forward, with the claim counts going down? What if there was an app or a website where you could utilize that as tech share? Think about the savings in terms of benefits, in terms of payroll taxes, all of those things.”
Link said he is introducing Bolt to the industry at the 2024 SEMA Show in Las Vegas.
“I'm going to show everybody how tech share is going to revolutionize our industry,” Link said. “It’s the gig industry,” he said, comparing it to Uber.
Link said he is also talking to a private equity firm about investing in acquiring some collision shops and building more, so he can operate them the way he sees fit.
“I can't tell you how excited I am about that,” Link said. “I got to do it once when I came right out of the Navy, and it has been a goal for me to get back to that point.”
Key Takeaway
Claims counts and WIP are going down, and with them, top-end revenue. Evaluate the impact it’s having on your business and consider offers from consolidators, private equity groups or other independent owners looking to acquire your shop.
“This is not a scare tactic. This is just real talk here,” Link said. “This is probably a pivotal point in whether or not you want to sell now or wait. And I would say that every month that goes by, it is going to have a negative impact on the valuation because of how we, as consolidators, look at evaluating that business.”
Abby Andrews