The Profitability Question

There seems to be increasing conversations concerning the profitability of collision repairers and most of these discussions raise far more questions than they provide answers. It’s not surprising that this is the case considering the state of the industry today. Some repairers are embracing new ideas and processes, while others are reluctant or resistant to change, using the age old strategy of hoping that if they ignore the problem long enough it will go away. I believe there is hope for the reluctant. Every market has an adoption life cycle and some shops will be late comers. I don’t have much hope for the ignorant however, since I don’t believe this will be a problem that will go away.

So what is repairer profitability, and what does it need to be to have a healthy repair industry and encourage re-investment into the business? At the recent CCIF conference there were several presentations regarding industry sustainability and profitability. The highlights were:

1. Questions raised regarding the accuracy of data provided by several organizations working on industry reports to try to gage where the industry is today.
2. A presentation given on a lean repair process, suggesting that up to 15% waste (cost) could be eliminated from typical collision repair processes.
3. A panel of collision repairers, discussing sustainability, were suggesting that insurers need to increase compensation to repairers. Decreasing parts GP% was cited as an example to reduce margins.

As a few associates and I reflected on the conference topics over dinner, it was fairly apparent the take-aways were discouraging. As an industry, we don’t really have reliable information to assess profitability and sustainability, and we are wasteful with resources; we may be improving but there is a long way to go. We need to increase profitability; I don’t believe insurers have an appetite or can make a business case for increasing compensation until the prior points are addressed. In the meantime, it’s all about maximizing resources and efficiencies.

The good news is that many shops are focused on process improvement and better utilization of resources. The challenge comes with the information we are given; will we be able to get credible and statistically valid information on repair businesses? At AutoHouse Technologies, we are reviewing our ability to provide a repairer side industry trends report. At a minimum, this would provide +/- % of gross profitability, profit center mix, payer analysis, etc. Stay tuned for this and if you have any suggestions or comments on the topic we would be happy to hear from you.