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Collision Repair Centers Present Big Opportunity For Dealers

Lucas Deal November 15, 2012

Proper people and processes can lead to big profits.

By Denise L. Rondini, Executive Editor

drondini@randallreilly.com

Only about 20 percent of truck dealers currently operate collision repair centers, according to Mark Martincic of KEA Advisors. Another 10 to 20 percent do some parts replacement and collision work in their mechanical shop, but sublet panel and structural repairs along with paint work.

            While statistics do not seem to be available on the market size for only heavy-duty vehicles, Martincic says there are approximately 13,400,000 vehicle crashes in the U.S. each year that generate  almost $29,125,000 of repair work. There are approximately 52,000 collision repair center so the potential volume per shop is 4,400 repairs or $565,000. Of that, insurance companies pay approximately $23.8 billion.

            Survey results show that 41.1 percent of collision parts are replaced with OEM parts, 25.4 percent of damaged parts are repaired, 17.9 percent of damage parts are replaced with aftermarket crash parts and 15.6 percent of damaged parts are replaced with salvage parts.

            The bulk of sales volume in a collision repair center comes from parts (37 percent), followed by refinish work (31 percent), metal labor (22 percent), structural labor (5 percent) and sublet work (5 percent), according to Martincic’s research.

            While it takes a lot of work to open a collision repair center there are many  benefits to doing so: improved fixed absorption, improved customer relations from being a full-service dealership, increased parts sales through the body shop, more sales leads for new or used trucks sales resulting from heavily damaged or totaled vehicles. In fact, Martincic says in dealerships with body shops, fixed absorption is 19.4 percent higher than in dealerships without body shops.

            “If a customer goes to a competitive dealer for collision work you lose the parts sales and if he goes to an independent there is no guarantee that you will get the parts sales. The biggest reason to offer collision repair is that it keeps the customer in your family rather than allowing him to go  somewhere else.”

            The parts to labor ratio in the collision repair center is one to one, he says. And every dollar of parts sales can equal 30 percent gross profit, while every dollar of labor sales can equal 75 percent.

            But there are also some significant challenges to operating a collision repair center, according to Martincic. “This includes environmental regulations, equipment needed, training, quality management, and most important, expertise in developing an effective business plan and operating process.”

            Before deciding to add a collision repair center, dealers need to determine if they have economical bay space available and qualified managers to run it. “They also need to do some market research to determine the need and project potential volume and gross sales,” he says.

            Dealers need to be aware that the hourly rate for collision repair is usually lower than that in a mechanical shop, but the amount of hours and the proficiency numbers should be higher. “The proficiency rate for a mechanical shop is 95 to 100 percent,” Martincic says, “and the guide for a collision repair center is 150 percent or more.”

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