Multi-shop and Insurer Relationships: What You Need to Know for Smooth Sailing
Happy customers, consistency make for good multi-shop, insurer relationship.
Multi-shop operations (MS0s) are possibly the fastest growing part of the automotive industry - whether the owners are selling their business to a consolidator, joining a network of MSOs, or acquiring new locations for their independently owned MSO.
While the number of new shops in operation may not have increased dramatically, the number of collision repairers under the same "umbrella" (multi-shop operators) seems to be growing. Approximately 10.3 percent of collision repair business is performed by MSOs according to The Romans Group, a consulting group that published the study, "A Profile of the Evolving Collision Repair Marketplace."
Changing Face of Collision Repair Industry
There are several reasons for the proliferation of multiple shop operations in the collision repair industry. Whether an MSO is independently owned or part of a national franchise, there are numerous advantages to being part of a larger group of collision repair shops. Leveraging these advantages is one reason why independently owned shops decide to leave the standard independent business model. But in today's economy, with the challenges facing independently owned businesses, consolidation and owners leaving the automotive industry are another reason for the growth of MSOs.
According to a 2010 article in Body Shop Business, collision repair shops are "shrinking at a rate of 6 to 10 percent per year." This same article claims that as much as 30 percent of collision shop owners are debating either closing their business or selling their business and leaving the industry.
Mike Schoonover, president and chief executive officer of Schoonover Body Works in Stillwater and Shoreview, Minn., said: "Some [owners] have grown tired of the industry, have reached retirement age, or do not believe they have a future in the automotive industry. Sometimes these individuals are no longer willing to work to meet the industry's challenges." While these are all reasons why an independent owner might decide to give up the independent business model, Schoonover believes many others "see the glass as half full."
He said, "Another segment of the collision industry is willing to work to increase the size of their business. I see these as the 'glass half full' people. They are going to grow, increase in size, and realize the advantages of having multiple locations."
Stacy Bartnik, vice president of field services, CARSTAR Inc., believes there are other reasons why an owner might want to join an MSO. Bartnik said, "I believe collision shop owners are trending toward MSOs because in this economy it is important to be part of a good group of like-minded business people who are working toward the same goal." CARSTAR members have the advantage of owning their own business while still being part of a larger organization.
As you can see, there are several different types of MSOs and it's important to know the difference. While it might seem like a contradiction, independent MSOs do exist. A single person, whose business has expanded, thus increasing its footprint in the market, usually owns an independent MSO. But MSOs as part of a network or franchise are probably what most people think of when discussing MSOs.
Advantages to Being an MSO
Denise Caspersen, manager of the Collision Division of the Automotive Service Association (ASA), explained that there are many advantages to becoming an MSO - whether you are an independent multiple-shop operator or part of a larger organization.
Caspersen said, "In many ways a successful single shop owner can duplicate a model in other strategic geographic locations by replicating successful standard operating procedures, branding strategies, and interindustry relationships, following the business model in the original location. This allows for a greater capture of the market while increasing facility name and reputation recognition more effectively. When discussing the increase in the growth of franchises and networks, some of the reasons for an increase are improved buying power, consistency in branding, group marketing power and a solid infrastructure."
Whatever the motivation behind becoming an MSO, the advantages for both independent MSOs and larger network MSOs are often similar. Chris Andreoli, process director-Claims with Progressive Insurance, explained: "Depending on the population base of the surrounding area, MSOs are seeking to have a broader market footprint. They are able to look at the population and clearly say, 'we have a location near you.'"
Developing a market footprint as an MSO is important, Andreoli said, since most consumers only have need of a collision repair shop once every seven years, on average. He said, "For most consumers, it's been a while since they have needed the services of a collision repair shop. MSOs have the scale to advertise effectively and be top-of-mind for consumers when the time comes that they do need collision repair services."
MSOs are often able to offer expanded hours or have their business run on days when smaller independent operations are not. With larger staff numbers, many MSOs are able to operate their business on a shift schedule that independent shops cannot keep up with. But there is also a financial advantage to sharing costs between multiple locations. Schoonover said, "MSOs have the ability to help each other by sharing expenses and by using resources more efficiently."
The ability for load leveling is another advantage that MSOs within the same market have. Andreoli explained, "Load balancing allows smoother throughput and shorter cycle times. An MSO has the option to move work from one shop to another in order to balance the volume." For example, if a collision repair shop has a three-and-a-half week wait time, they may lose business when a customer selects another repair center to make their repair in a timelier manner. When an MSO has a backlog of business at one location, moving some repairs to another of its centers is one way to level the workload without losing business.
Challenges for MSOs
Schoonover pointed out that, ultimately, MSOs face the challenge of being a successful chain - like the Nordstroms of the world. He said, "Our goal is to improve the way a customer perceives us, just like those other stores. Whether fixing cars or selling shoes, MSOs have to be able to operate multiple locations and have the customer leave the place saying they want to come back. We have to run our locations like a business and not like a body shop."
Consistency is another factor that experts at all levels point to as a challenge for MSOs. Schoonover said, "While it might be easier to standardize policies and procedures from one location to the next, insurers also want to know 'how is customer service from one location to the next'?" He acknowledged that ensuring consistent customer service could be "tricky" from one location to another. "As a multi-shop owner," he said, "I can improve upon our processes and procedures and the way our hands operate, but it can be difficult to have all my employees buy into the 'heart' of our business, which is great customer service."
Consistently positive customer service is one characteristic Andreoli is looking for when dealing with collision repair shops that have direct repair programs (DRPs) with Progressive - whether the shop is a stand-alone independent or part of a mega-MSO. "Progressive wants to build relationships with body shops and MSOs that foster a positive environment for our customers."
Mike LeVasseur, president and chief operating officer for Keenan Autobody's 11 locations, explained: "The advantage that a stand-alone, independent business has over an MSO is that there is one person in charge - one mind when it comes to the level of excellence in customer service. In an MSO, an owner has to develop a mindset and positive corporate culture that spreads to all the managers in all the locations, so they all have the same thought processes. The challenge is consistency throughout all locations."
Schoonover encourages MSOs to learn to use the key performance indicator (KPI) report cards from insurers to assess what weaknesses and strengths each location within an MSO has. "MSOs should be able to create a benchmark with their own shops," he said. "After understanding the information, investigate to discover what causes such weaknesses. These report cards can help an MSO see why one of its locations is underperforming."
Advice for Insurer Relationships
According to a 2011 article by Collision Repair Industry Insight, by 2010, regional MSOs averaged 6.5 DRPs and national MSOs averaged 7.7 DRPs. Having a good relationship with the insurers with whom you work is essential for smooth sailing within an MSO.
LeVasseur commented, "It is important for MSOs to be well-organized, and to work to develop a good relationship with an insurance company's upper management and with their re-inspector." Because the re-inspector can change from time-to-time, remaining flexible and knowing when to adjust and to adapt to meet the company's goals as well as the insurance company's standards can sometimes pose a challenge.
"The big problem that both MSOs and independent collision repair centers face is that there is often mistrust between the repair center and the insurer. The reason for this mistrust comes from the fact that collision repair centers want and need to make a profit, but insurers want to save money and keep costs low. MSOs must walk the line in meeting their own needs as well as those of their insurer. Being able to do this successfully can lead to a good insurer relationship."
Dan Young, senior vice president of insurance relations at CARSTAR, explained: "The insurance companies are looking for higher levels of customer satisfaction and they are looking for MSOs to provide this. They want to work with MSOs that can deliver the key performance benchmarks and do so consistently on a large scale. In return, the MSOs will have access to additional repair volume."
The standards for being a successful player in a DRP program and working well with an insurer are much the same for an MSO as they are for an independent collision repair center. Schoonover explained, "Many MSOs are implementing lean processes and lean ideas to keep capacity of their business where is should be." Insurers are looking for decreased cycle time for quality repairs and increased touch time for their customers, leaving their customers with a high satisfaction level following their collision repair center experience.
Business Is Business
Multi-shop operators have many advantages to being part of a larger organization that independent collision repair centers do not - from increased buying power to brand recognition. But many of the challenges facing MSOs are similar to those faced by independent collision repair centers. Bartnik commented, "A successful MSO in the collision repair industry is no different than any other multi-shop operation. It must be run by a business-minded individual who is prepared to meet key standards while offering customers a comfortable experience and communicating with them about what to expect."
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