Collision Centers Can Bump Up Dealership Profits

Fred Beans Auto Group of Doylestown, PA, represents 19 automotive brands. It also includes six body shops, and it’s no accident Beans wants to add more. The collision-repair business may not be as flashy as selling new cars, but income is steady.

“Profit margins on the body-shop business are pretty thin,” says Beans, “But the insurance companies pay as soon as the job is complete.”

Fixed operations are an increasingly important source of income for dealerships. Collision centers, as body shops now are known, have not been a prominent part of dealerships’ fixed operations, but that is changing.

As dealership groups add collision centers, they may discover that successfully running that portion of their business requires not only specific skills but also a good relationship with insurance companies. Mastering that requirement can make collision centers a profitable addition.

“The synergies make sense if you can run a body shop and run it well,” Adam Lawyer, a partner at Charlotte, NC-based accounting firm Dixon Hughes Goodman, tells WardsAuto.

The collision centers can buy the replacement parts from the dealership, he says, and they offer the dealership the opportunity to sell the customer a new car.  But Lawyer says owners of damaged vehicles aren’t the primary customer at collision centers.

“The insurance company is the main customer,” he says. “It dictates the amount of work that will be done and how they will pay.”

Collision-center gross profits at AutoNation grew from $10.3 million in 2014 to $12.5 million in 2015. In October, the dealership group headquartered in Fort Lauderdale, FL, announced it was adding 18 collision centers to its existing 70.

Operating them requires a good grasp of the collision business and strong leadership skills to deal with “the associates (who) fix the cars and their uniqueness,” Marc Cannon, senior vice-president-corporate communications, tells WardsAuto via email.

It also requires skills to handle “the customer that has just been through a traumatic experience, and the insurance companies that pay the insurance bill,” he says.

The decision to add more centers was based on AutoNation’s ability to send a majority of its dealership customers to its collision centers and on “our expanding relationship with our preferred insurance partners,” Cannon says.

That expanding relationship has helped push utilization at AutoNation’s existing facilities to an all-time high, “meaning we cannot push anymore through the centers we have,” he says.

Maintaining a good relationship with insurance companies was a driving force behind Fred Beans’s decision in June to partner with CARSTAR Auto Body Repair Experts. Beans says the nationwide chain, which last year was acquired by Driven Brands, owner of the MAACO chain of repair shops, increased his collision centers’ brand recognition.

When a dealership group partners with CARSTAR, the repair shop takes both companies’ names. For example, CARSTAR Fred Beans Doylestown now is the name of the Doylestown collision center.

CARSTAR helps his collision centers focus more on key metrics, such as cycle time and insurance-company satisfaction, Beans says.

With the CARSTAR name behind him, he has more clout with those insurance companies. “You need someone working on your behalf every day to get a seat at the table” with the insurance firms, he says.

Some 93% of the collision-repair business is insurance-related, says Sam Freeman, CARSTAR vice president-business development. CARSTAR has a team that cultivates relationships with insurance companies and establishes performance-based agreements, he says.

Fred Beans Group has hired a collision director who “lives and breathes” the collision business, says Beans. He is looking forward to growing his repair business and thinks his recent moves will facilitate that.

But, he notes, there is another important element to a successful collision-repair business: Good relationships with dealership customers.

“If you like the person you bought the car from, you will return to that dealership group for collision repair,” says Beans.