It's easy to hear anger in the body shop manager's voice as he talks about the new competitor his Ford dealership in Houston has for collision repair work: a shop down the street.

“I've had several customers insured by Allstate told they have to take their car there,” the shop manager, who asked that neither he nor his dealership be named, says of the competition, one of 39 Sterling Collision Centers acquired this spring by a surprising entrant into the collision repair industry: Allstate Insurance. Sterling, with shops in seven states, will operate as a separate subsidiary of Allstate Non-insurance Holdings, Inc.

The Sterling shops were almost immediately converted to doing only Allstate-paid work. The Houston Ford dealership, a participant in Allstate's direct repair program (called “PRO”) regards the effect as significant and nearly immediate.

“Allstate sent us an email saying it wasn't going to affect anything for us in working with them, but I've noticed to the contrary,” the shop manager says. “I even had a customer in my office on the phone with Allstate, and Allstate told her she had to take her vehicle there, even though I am a PRO shop for them. I called and complained but I haven't heard anything back.”

The shop manager says Allstate closed its drive-in claims center in his area, instead directing vehicle owners to take their vehicles to the Sterling Collision Center about a mile away from his dealership to have damage accessed.

But not all dealership body shops in Sterling's eight markets have experienced similar impacts. Chris Jones, body shop manager at Goodson Honda in Houston, says he isn't even familiar with where Sterling's eight Houston locations are in relation to his dealership.

“I know it's impacting a lot of shops, but we are a direct repair shop for Allstate, and in all honesty, (Sterling) not hurting us by any means at this point,” Mr. Jones said.

In Ohio, Rich Robinson says two of Sterling's five Akron/Cleveland shops are each about 10 miles from his MacIntire Chevrolet body shop. He's feeling a “mild impact at this point.”

And in Philadelphia, home of five more Sterling Collision Centers, Eric Heigold of Faulkner Oldsmobile-Mitsubishi says it's too early to judge how the Allstate acquisition will impact their body shop.

“Allstate's a big company, but I just don't know yet if it's going to affect us that much,” Mr. Heigold says. “The first month that they moved to Sterling, I had more Allstate work that I've ever had. So that wasn't a good month to judge. And now it's very slow for everybody, so it's not a good time to say, but I do have Allstate work here in the shop right now.”

Mr. Heigold says it's his understanding that shops like his that participate in Allstate's direct repair program will continue to get Allstate referrals but that Sterling Collision Centers will be “at the top of the list.”

“Basically what we're going to get is work that comes after their shops are full,” he says.

Allstate doesn't dispute that, but emphasizes that its customers are free to use the shop of their choice.

“There will always be a need for us to utilize the services of other repair shops,” says Chuck Paul, vice president of Allstate Insurance Company's claims strategy group. “To ensure a wide market reach and to deliver true convenience and service to our customers, we will always have relationships with other networks and shops.”

Mr. Paul says the Sterling acquisition was “the most direct way to differentiate ourselves from the growing competition” and a strategy to “create the greatest amount of value” for Allstate customers.

He adds, “We wanted an offering that looks and feels different from all of the other offerings, but was consistent market-by-market.”

Mr. Paul says Allstate would continue its expansion and growth plans in the years ahead.

“We're planning to expand into new markets in 2002,” Mr. Paul said. “We see huge opportunities for alliances with paint, materials and parts vendors. We will continue to explore new repair techniques that allow us to offer convenience and product differentiation to our customers.”

Allstate is the nation's second-largest auto insurer with about 12.2% of the general auto insurance market.

Allstate also has four Sterling Collision Centers in Atlanta, five in Chicago, six in Detroit, three in Jacksonville, FL, and three in Pittsburgh. Its annual revenues reportedly exceed $100 million.

For the most part, body shop managers are taking a “wait-and-see” approach to Allstate's entry into the market. One industry survey found an almost equal split among those involved in collision repair as to whether they think other insurers will begin acquiring shops. But more than 78% of respondents believe the acquisition will not prove successful for Allstate. “The insurance companies can tell anybody where to take their car, but the customer in the end is going to decide where he wants to go,” Mr. Heigold says. “It comes back to a quality repair. To get business, you have to do a good job and take care of your customers. And shops just can't count on one insurance company for business. You have to look at all the insurance companies and go after all the business you can.”