How some service & collision repair shop owners are seizing opportunities in the current wave of new technology and consolidation.
Consolidation is an evolutionary process drawn by opportunity. The high velocity – let alone breadth and depth – of industry change is daunting. Just consider the relentless introduction of new automotive technologies, innovative products and services and transformative business models.
Shop owners must be vigilant to remain relevant and competitive. They must stay constantly informed; determine which to adopt or avoid and adapt to or leverage. In today’s marketplace, consolidation is one strategy for coping with these demands.
Within the automotive ecosystem, we’ve already seen a significant transformation in both the dealership and the collision segments. More recently, it has begun to impact the mechanical service repair landscape. If you’re an independent shop owner today, there’s a need to understand the inbound changes and plan accordingly. As you will see, some have already seized and monetized the opportunities.
The consolidation trend is also now underway in the mechanical sector. Single independent shops are being assimilated into multiple shop organizations (MSOs) – sometimes one shop acquires others; at other times, the acquisitions are by a large regional or national network. Let’s take a closer look.
In 2016, Vincent Romans, the founder of Romans Group LLC, published a study titled “Profile of the Evolving North American Collision Repair Marketplace.” He also shared several comments that went beyond the scope of collision into the mechanical service repair sector.
“The consolidation, convergence and structural changes we have witnessed in collision are occurring within all industry segments, markets and businesses as we know them today,” he noted. “Vehicle owners need collision repair services on average every seven years or so. But when that happens, motorists rarely have a preferred collision facility of choice.”
“In contrast, motorists need mechanical services more frequently – several or more times per year, per vehicle. They often develop a preferred facility. For a consolidator, this is an attractive motivator for growing a branded presence.”
Consolidation Takes Many Forms
With many inbound technological advances making vehicles safer, expect a future with fewer accidents, less severity and reduced revenues per vehicle. Consequently, larger regional and national consolidators in the collision sector are expanding into mechanical service and repair, at a time when some mechanical shop owners are looking for an exit strategy. The Driven Brands conglomerate, which owns multiple shop organizations including MAACO and CARSTAR, is one example.
“We’ve been able to continue streamlining our operations, cross-adopt best practices from each and leverage our resources and operational expertise to enhance our platform for growth in the coming years,” says Michael Macaluso, president of CARSTAR North America. “Today, we are poised to deliver even more performance improvements and operational efficiencies for our store owners, insurance and other partners.”
“In addition to our traditional collision services, Driven Brands’ procurement programs have expanded CARSTAR’s profile by acquiring Meineke Car Care Centers and 1-800- Radiator to establish a presence in conventional mechanical repair and mobile air conditioning service.”
What Independent Shops Can Do
Some independent shops have leveraged consolidation to adapt to, and manage, inbound technology. Consider Ryan Clo, who until recently owned just one shop in Cincinnati: Dubwerx, which specialized in German nameplates Audi, Porsche and Volkswagen. He’s since become a MSO, with the acquisition of another local shop, Avid Autowerx, which specializes in Japanese makes.
“Becoming a MSO let me grow in my role as an owner,” Clo shared with me at the 2017 CARS event in Las Vegas. “While it allowed us to gain market share with different vehicle lines, more importantly, it helped me transition and learn to think more like a CEO rather than a shop owner.
Clo recalled Donny Seyfer, of Seyfer Automotive in Wheat Ridge, Colo., saying, “In our businesses, we have to become industry analysts.” And he began to realize that to do that, he would have to be positioned to get out of his shop.
“So I began hiring and training staff smarter and delegating day-to-day tasks to them, so that each shop could run smoothly, whether I was there or not,” Clo told me. “That mindshift gave me the time to travel, see and investigate what was coming – technologies, trends, etc. – and then decide what to prepare for and integrate.”
According to Bob Parra, who has grown his mechanical business from one shop to three, all located in the mid-cities area of the Dallas-Fort Worth Metroplex, consolidation of automotive mechanical repair shops isn’t new. “It just occurs in different ways,” Parra says.
“I can remember back years ago when we had buying groups coming into the industry trying to acquire mechanical shops and related businesses to expand their reach. Automakers such as Ford Motor Co., for instance, began purchasing salvage yards to get into that business, basically to control the cores.”
According to Parra, the industry has entered an era in which a single shop trying to service and repair every vehicle in every situation is unrealistic. “That makes consolidation, the way it’s traditionally viewed, challenging,” he says. “If you’re not at the forefront of staying ahead of technology in 2018, there’s no way you’ll be able to keep up with it in 2025 when we’re going to have vehicles with even more advanced technologies getting 54.5 mpg.”
Consider Consolidating Opportunities
Parra notes that the huge investment required in education, tooling, equipment, computers and software is daunting. And where they exist, state safety and emissions inspections can also be problematic. In addition, he says that the technology tsunami continues to introduce so many advances on both the collision and mechanical side, it’s difficult to make the large investment necessary to prepare for and keep pace with everything, let alone find, maintain and grow the competencies of mechanical professionals.
“We’ve been able to consolidate opportunities by recognizing niches we can grow into,” Parra explains, “Whether acquiring another shop or integrating specializations at certain locations, such as drivability, transmissions, steering and suspension, alignment, brakes or others. For instance, we acquired one of our shops because it had 20-foot ceilings, which facilitated us growing into a niche servicing tilt cabs, Sprinters and other larger vehicles.”
Parra adds that he’s preparing and training for other opportunities, notably new technologies that he sees, or expects to see, increasingly in the marketplace. “We’re investing in hybrid service and repair of Prius and Leaf models,” he says. “The movement away from V8 engines toward having V6 and V4, and planning for the entry of hydrogen vehicles in larger numbers here sometime after 2025 also has our attention.”
Mechanical professionals have long been familiar with how to use scan tools, software reprogramming devices and other resources to replace and calibrate sensors, actuators and other components – competencies collision shops are now being challenged to learn.
Parra then shares an ironic twist. “Some mechanical shops have begun to enter the collision business,” he points out. “One example is Evergreen Autoworks, a mechanical MSO in Washington State that’s owned by my good friend, Jeff Odom. “By incorporating some collision repairs into each of his once all-mechanical outlets, each location now generates more revenue with its existing building square footage, property layout and other resources.”
Clearly, mechanical shop owners have the savvy to leverage consolidation to seize opportunity. What’s in your future?