TABLE OF CONTENTS Jan 2013 - 0 comments

Risk and Reward

The formation of new partnerships and the need for a national accreditation system that identifies top body shops, perhaps rewarding them with a better door rate, are among the issues potentially on the Canadian Collision Industry Forum's radar this year.

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2013-01-01

It is hard to believe I have served as chairman of the Canadian Collision Industry Forum (CCIF) for two years. The position has proved somewhat of a learning curve for me.

As a shop owner myself, coming from a province with a single insurer like Saskatchewan Government Insurance (SGI) did not prepare me for how body shops in other parts of the country deal with multiple insurance companies, each with their own rules and estimating systems. No matter the differences, my personal view is that body shops have many things in common and it is on those areas that CCIF has focused its efforts.

Industry challenges that CCIF has tackled - and continues to address - include the following:

• the shortage of both skilled technicians staying and young people entering the industry;

• advanced vehicle technology that is making it more difficult for shops to repair today's vehicles and, in fact, is contributing to potentially more total losses;

• the need for a national accreditation program;

• a lack of repair standards being consistently employed by some collision shops and some insurers throughout the country; and

• the big one - the lack of profitability of collision shops, something that I personally believe is at the root of most of the industry's woes.

SUPPLY AND DEMAND

It has been said there are too many body shops and not enough work to go around, particularly in eastern Canada and the Maritimes. If that is true, though, why does the industry continue to have a shortage of skilled labour? It would seem that some of these shops could simply close their doors and go work for somebody else.

By remaining open, all collision shops are dragged down to a lower labour rate because the law of supply and demand kicks in and justifies these low rates.

Or does it?

It would be acceptable to keep all shops at a lower labour rate - if they were all equal. That is not the case: some shops do not spend money on training staff or buying new equipment; they do not take the time to hire apprentices and help develop their skills; and they do not participate in initiatives such as Skills Canada or I-CAR training. In fact, some shops continue to coast and drag down the rest of the industry.

Recently, CCIF commissioned the national accounting firm, Meyers Norris Penny (MNP), to carry out a study on Saskatchewan's collision industry. The results were very similar to those flowing from an industry study in Manitoba two years ago.

Compared with the rest of Canada, MNP found that Saskatchewan's government-run insurance system pays better than what the average shop in Canada could expect in terms of remuneration. The concern is that 246 of the 321 shops in Saskatchewan have sales of $1 million or less, meaning they cannot afford to invest in training or new equipment, or in developing new employees. The only shops making enough money to properly invest in their businesses were those who have more than $2 million in sales, representing just 9% of the industry.

What do these results have to do with body shops elsewhere in the country? If shops in a "best case scenario" with government insurance cannot make a buck, are shops in other areas that have less than $1 million in sales doing any better?

NATIONAL ACCREDITATION

Why should insurers pay any more to get their claimant's vehicles repaired? While it may not be necessary to pay all body shops more, if a national accreditation system was in place to identify the top shops, it would certainly be advisable to pay a better door rate to shops that have made the commitment to train and equip their shops to the highest levels. Perhaps, those who do not make those investments should not be rewarded with a better door rate.

The "worst case scenario" would be to keep door rates suppressed and chance having "good" shops opt to pack it in and go do something more profitable. Maybe one such enterprise could be opening businesses that specialize in "diminished value" lawsuits to deal with the workmanship of all the hanger-oners.

If a business cannot make a reasonable profit, sooner or later it is going to stop operating. Current business owners are hanging on because, quite frankly, running a collision shop is all they know. What happens when they retire? What bank will give a loan to a young entrepreneur when the business is unable to sustain itself?

Most current shop owners will soon figure out that they can rent or sell their facilities for more money - and fewer headaches - and that is what they will do. Just ask any shop owner if he wants his children to take over the business.

So what is the solution?

There is currently no clear answer, although that is not to say the answer is not out there. Insurers and collision shops alike need to engage in meaningful consultations to protect both of our futures. Repair shops need to be financially viable and insurers need competent shops to service your clients.

With its new direction beginning in January 2013, CCIF can serve as a forum through which these necessary consultations can be achieved. For example, CCIF is looking to team up with the Automotive Industries Association of Canada (AIA), a national trade association that represents the country's automotive aftermarket industry.

The aftermarket is a $19.4-billion industry that employs more than 420,000 people. It is composed of companies that manufacture, distribute and install automotive replacement parts, accessories, tools and equipment.

AIA represents manufacturers, re-builders, manufacturers' agents, warehouse distributors, national distributors, buying groups, wholesalers, machine shops, retailers and, through its councils, the interests of collision repair shops and automotive service and repair outlets. Its mandate is to promote, educate and represent members in all areas that impact the growth and prosperity of the industry.

These folks have the resources in place to help us do things such as develop a national accreditation program that will benefit all stakeholders. As the entity that keeps I-CAR training going here in Canada, AIA is also CCIF's best hope to stay on top of rapidly changing vehicle technology that is confounding so many shops and insurers.

Photos

Tom Bissonnette, Owner, Parr Auto Body
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Caption: Tom Bissonnette, Owner, Parr Auto Body
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