Trade group chief sees growth in dealer-owned operations
Belovich: Body shop expansion paid off.
|The share of U.S. dealerships with body shops rose slightly last year but still trailed the share in 2006.|
|% of dealerships with body shops|
|Source: National Automobile Dealers Association|
In 2010 as the economic downturn squeezed the auto industry, Traverse City, Mich., dealer Otto Belovich wanted to improve his company's cash flow.
So he doubled the size of the body shop that serves his two dealerships to 10,000 square feet, doubled his technician count to eight and added a second paint booth.
Belovich's efforts paid off. His body shop's annual revenue rose to $2.8 million from $1.8 million before the expansion. And today business is good, he says.
"We could double it a-gain," Belovich says of the shop. "If you don't want to grow, you've got to go away."
But Belovich is an exception. The share of dealerships operating body shops has shrunk since 2006, according to data published by the National Automobile Dealers Association.
Body shops are expensive. Real estate, a building and equipment can easily cost about $2 million, says Lloyd Schiller, a consultant who specializes in fixed operations.
Dealers also are building larger shops that accommodate multiple stores, Schiller says.
And there is a shortage of shop technicians, especially those with the know-how to repair newer vehicles crafted with different metals and advanced plastics.
Finally, some dealers dislike terms imposed by auto insurers, who often pick where vehicles are repaired.
But that hasn't stopped some dealers, such as Belovich, who want to be one-stop sources for all their customers' automotive needs.
Dan Risley, president of the Automotive Service Association, predicts that the number of dealership body shops will rise in the coming years. The association is a trade group that represents automotive service and repair professionals.
As automakers increasingly incorporate materials such as carbon-fiber reinforced plastic, aluminum and steel of varying strengths into their vehicles, repairing the vehicles requires sophisticated and expensive training, equipment and tooling, Risley says.
Manufacturers will make those things available to their dealers first, he predicts.
"One vehicle could have up to 13 different types of substrates and could require different types of repair depending on which type of substrate you're working on," he says.
According to NADA Data 2014, the annual financial profile of franchised new-car dealerships in the United States, 36 percent of dealerships operated a body shop in 2013, up from 34 percent in 2012.
But that's below the 41 percent that had body shops in 2006, before the Great Recession.
Butch Hollister, a 20 group moderator with NADA, describes dealership body shop growth as "static," but the shops are profitable for dealers who have them.
Collision repair generates labor revenue and adds to dealers' parts sales, he says.
But Hollister agrees that "it is not an easy business." One challenge that has nagged dealers for years is direct repair contracts.
Under direct repair contracts, dealers enter agreements with insurance companies on the parts to repair damaged vehicles, prices for repairs and how quickly vehicles will be repaired, Hollister says. In exchange, the insurer recommends the shops to their customers who file insurance claims.
Some dealers don't like direct repair contracts because they give insurance companies power to dictate how much they will pay for repairs and what parts must be used.
Belovich says at one time he had numerous contracts with insurance companies but has ended most of them.
Problems arise when customers, especially those with late-model vehicles, want their vehicles repaired with new parts from the auto companies -- but the insurance company pays for aftermarket parts, Belovich says. He also has had problems with the quality of some aftermarket parts.
"It's about keeping the customer happy," says Belovich. "A happy customer comes back and buys another car."
Rick Case, CEO of Rick Case Automotive Group in Fort Lauderdale, Fla., says his body shop on the west side of the Fort Lauderdale area handles all makes of vehicles "from Fiat to Ferrari," including aluminum-bodied Audis.
He has direct repair contracts with several insurance companies.
His technicians are so busy that the shop operates two eight-hour shifts five days a week and sometimes adds a third shift just to keep up. He plans to open another body shop in 2015 on the east side of the Fort Lauderdale area.
Case has six dealerships in the Fort Lauderdale area, not including Alfa Romeo, which he will add this summer.
He says: "We want to be a full-service dealer to our customers and the collision business is profitable business."
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