Why dealerships will need to be more like bodyshops in future

I had a catch-up last week with one of our research programme members, Ian Pugh, the MD of Fix Auto UK – the largest independent bodyshop network in the UK, made up of a mix of independently owned franchise sites and a growing number of wholly owned sites.  Ian is a very smart operator, tuned in to the broader developments in the industry, not just collision repair, so every discussion is far ranging and stimulating.  We obviously discussed the many challenges of operating a bodyshop, including technology, skill shortages and cost inflation.  At the moment, the pendulum in terms of balance of power in the UK between insurers and bodyshops has moved a little to the side of the bodyshops as capacity has reduced in recent years, but when I was driving home, it occurred to me that perhaps the most significant implications of what we had discussed did not relate to bodyshops, but to the dealer networks of the OEMs.

There are big variations in how the crash repair sector works across Europe – as indeed is the case to some extent with dealer networks in terms of consolidation and the underlying business model – so it is worth explaining how it works in the UK.  Although dealers have some body repair capacity, it is rarely linked to a single dealer site, with the big groups having only one multibrand bodyshop for every ten or more dealerships.  A couple of the big insurers have some of their own capacity, but in most cases body repair is through independently owned bodyshops, which tend to be relatively large scale compared to some other markets in Europe.  Many smaller owner-operators have exited the business or focus on minor repairs paid for by the car-owners.  The larger bodyshops including those in the Fix Auto network and those owned by the dealer groups handle the majority of the work funded by the insurers and have contractual arrangements with them in terms of committed capacity, labour rates and approval processes to govern their relationships.

Most insurers have recognised that in a highly competitive market, with most car owners using comparison sites to compare premiums when their renewal comes up, it is important to differentiate on the basis of more than premium costs.  One key area of focus is on the claims process, the speed of settlement and repair, and the customer satisfaction with the repair.  This often means that although the insurer may have a preferred network, the customer still has some freedom of choice about the repairer, although the process is slicker if the customer picks from one of the approved repairers.  It is less common than it used to be for customers to be penalised in some way, such as no courtesy car, if they choose another repairer.  In most cases there is no assessor involved in approving the work to be done and the related costs – this is handled through technology links where the customer and/or the repairer upload images to the insurer and the work will then be authorised quickly and remotely as long as the profile fits the historic pattern of similar damage.  The better operators like Fix Auto are continuously looking for new technology that allows them to remove cost from either the repair process or claim administration, and Ian described a couple of those initiatives to me where the cost-benefit equation is clearly positive and the customer benefit obvious.

So how does this relate to dealer networks, beyond the obvious point that their bodyshops need to keep up with the better independents if they want to remain competitive in the future?  We know that leasing is growing in most if not all European markets, and this is often not just the financing of the car, but the management of the maintenance and repair of the car throughout the lease through the bundling of service plans, and now to a limited but growing extent, the insurance of the car and therefore control over body repairs.  With a growing share of BEVs, manufacturers may extend their operational leasing involvement into the second or third user.  We also know that there is a general trend towards agency, or at least modifying the franchise terms to better support omni-channel sales networks, and that this will require more data and process integration.  The expectation is that car buyers will not shop around between dealers on the basis of price, but on the basis of the customer experience.  On the operational side, it will be far more important to reduce fixed and variable costs as there will be no significant upside on pricing.  The skills of the people and the strength of the processes within the dealership will be far more important than the physical surroundings.

In all these respects, I see similarities with how a good bodyshop operates.  They manage parallel relationships with a few fleets and insurers (UK bodyshops often refer to them as ‘work providers’ which says a lot about the mindset), and a much larger number of individual drivers who influence where the work goes, but are not paying the bill.  To be successful, they need to fit into the processes and systems dictated by the work providers, deliver high quality work and happy customers, and manage down the internal costs as far as they can without compromising the outcomes for any of their stakeholders.  What was clear to me from the conversation with Ian is that this still leaves huge scope for entrepreneurial endeavour – it is just refocused from the trading that has been the foundation of many dealers’ fortunes in the past.