Published in Automotive News July 7, 2014
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.