On day two at IBIS in Munich, Germany Brad Mewes, principal, Supplement told IBIS Global Summit 2018 delegates that consolidation has reached a new phase and mega deals are now a real potential in North America. Brad provided delegates with an insight into the past, present and future of consolidation and how the industry is now in a new phase. Brad referred to his presentation at IBIS 2016 and highlighted how 2015 saw lots of activity with private equity investment entering the sector and how predictions of consolidation had been quite ambitious. Brad pointed to how, at that stage, the major players were growing rapidly with growth rates (CAGR) of 33% and said ‘at that stage the ambitious targets did not seem out of reach.’ He continued: ‘it was an intense period of growth and opportunity.’
Fast forward to 2018 and the ‘big four’ in North America have continued to grow, but at a slower rate of 26% CAGR. ‘Growth is now far more strategic’, said Mewes. However, asking what had changed in the space, Mewes pointed to the continued growth of the two major franchise operators – Carstar and Fix Auto – who he classed as ‘very active in the market and have grown aggressively.’
“So,” Mewes questioned rhetorically, ‘is consolidation dead? His response was that it is not dead but it had entered a new stage of a consolidation curve, and said “Industries evolve in a very predicted way over time,” and highlighted the four stages of consolidation that can help to track this development.
“In 2015, we were in stage two. Today, it is closer to stage three,” he said delving a little deeper into the North American market. This suggested a period of mega deals and greenfield site development where the strategy was based on profitability and scale.
Despite the slowdown, he pointed to the ‘unprecedented amount of capital and dry powder investment capital available. He said this was being invested in horizontal acquisitions and integration of businesses.
In closing, Mewes suggested there is still a lot to target within the space and the potential for cross border consolidation is certainly evident but such a ‘mega deal’ would greatly depend on the opportunity available.
Fleets set for fundamental change
“Autonomous driving and increased sharing behaviour will fundamentally change the automotive and mobility industry, was the message that came from Phillipe Enderle consultant, strategy operations, Deloitte. He explained how fleet management will be a key enabler for the electric and autonomous future of mobility. He explained how fleet management extended the value chain of OEM and captive business, whilst additional fleet management services add additional revenue and profit components.
Prior to Enderle taking to the stage, his colleague Dirk Utman, senior manager, risk advisory, automotive, Deloitte provided an overview of the organisations’ automotive centre of expertise that includes areas such as business growth, operational excellence, finance, technology and people. “There will be challenges but the opportunities related to new technology are emerging, for example, around data and how it is managed and accessed,” said Utman.
Looking specifically at fleet management in the North American and European markets, Enderle highlighted how, ‘today fleet management is big but it will be huge in the future,” he said.
Enderle told how the size of the corporate channel in the region was smaller than in Europe in relative terms, highlighting how despite there being more resignations in North America than the UE27 (19.3 million versus 15.8 million) there remained a ‘huge private retail share’ of circa 80%. In the US, Deloitte’s research showed the market size for fleet management services as being roughly between Germany and France, whilst the Canadian market for fleet management services is about half the size of Spain’s.
Focusing on the fleet management company competition in the US, Enderle pointed to Europe’s largest and the world’s second largest fleet leasing company, Leaseplan as an example pointing to its 1.6million cars under its management and with an average growth of 4 .5% per annum since 2010. According to Enderle, Leasepan’s new strategy is any car, anytime, anywhere, highlighting a shift in its mindset to become a mobility provider. He highlighted how fleet service income is of growing importance to fleet management companies. “Much of their service provision is outsourced,” said Enderle highlighting a growing opportunity for service providers.
In closing, Enderle pointed to how fleet management companies will evolve into providers of multi-modal mobility which in turn will create greater commercial opportunities in financing and related services; vehicle related and driver related services.
Different perspectives, similar challenges
The key message to emanate from two of the world’s leading repair organisations, was that despite the geographical differences, the challenges of collision repair remain central.
During the session, ‘Collision repair around the world,’ Summit delegates heard from Michael Wilmshurst, chief executive officer of Nationwide Accident Repair Service Plc, and Frank Liu, CEO of Fix Auto China, on how their respective markets provided both opportunity and challenge in equal measure.
When asked to describe each company’s model of operations, Wilmshurst explained that Nationwide places an emphasis on the diversity of the repair solution where different problems need different methods.
“We have a saying, sometimes you need a nurse, sometimes you need a doctor and sometimes you need a surgeon,” Wilmshurst said. In order to repair correctly, a company must have the right equipment, and technology. Furthermore, he stated that it is important to ‘keep within scope’ and make sure you are capable of doing the job before taking it.
But talent is a concern in both markets with Liu highlighting the lack of technicians within China’s industry. He pointed to efforts Fix Auto has made to implement training. Supported by government funding, Fix Auto China has invested in schools to train technicians, Liu said, “The goal was to set the bar for the industry in China, we are the future for the industry.”
Both agreed that, with the industry as specialised as it is, relationship building is fundamental and that in order to repair cars safely and serve the customer well, companies must work together with an element of transparency, Liu said, “You have to build trust by showing transparency.”
They expect the pace of change to accelerate, with Wilmshurst saying that there is a drop in frequency from market share gains. “Vehicles that used to be written off are being repaired.” He believed that the value of cars is going up, which means more repairs opposed to disposal.
Liu added that people now care more about the quality of repair than ever before. “The industry standard is being brought up, where more opportunities are being made,” he said.
Shared Vision key to success
Jennifer Boyer, Ford’s global collision business and strategy manager told delegates that a positive brand experience can only be achieved with partners who share the Ford vision. Opening her presentation at the event, Boyer pointed to the Henry Ford quote: “If I had asked people what they wanted, they would have said faster horses” to emphasise how the business has constantly innovated over the years. Boyer then provided some examples of the long list of Ford innovations over the years that included the aluminium F150. Technology was then highlighted as the key driver today and said, ‘technology compresses time.”
“We have innovation, technology and now connectivity,” said Boyer. “The convergency will create unparalleled opportunity to create new mobility solutions and richer user experiences.” She explained how the business was constantly evolving to meet customer needs stating, “Listening to our customers is key to our product strategy and our collision strategy.”
Boyer then highlighted three main influences, insurers, OEMs and the collision repair industry. With millions of Ford vehicles involved in collisions annually, she told delegates, “Collision is part of the Ford ownership experience and we need to be prepared to serve our owners.” She continued: “Collision needs to be understood as part of the Ford customer experience.” Ford collision philosophy is ‘to provide Ford owners with quality collision repairs utilising Ford OE repair procedures and parts.’
Boyer demonstrated how Ford’s collision strategy has vastly evolved and now involves many different personnel in the process. “With our owners being the focus we feel it our duty to educate them, and that is where the critical nature of relationships come into play. Relationships matter. We have not been as engaged in this industry as perhaps we should have been – 18 months ago in the US we had one person on the collision team, we how have five.
“Challenging perspectives is now and frankly none of us can do it alone, “ said Boyer. “It starts here,” highlighting how consumer education is the key to a positive brand experience, something she said can only be achieved with partners who share Ford’s vision.
Ownership is key
Day two opened with a debate around the skills gap with the panel much of it was down to ownership of the issue. The panel, comprising Jim Muse, sales director, North America and president of I-CAR, and Stuart Sandell, director, sales replacement division, Enterprise Rent-A-Car, Europe, Enterprise Rent-A-Car discussed the industry’s skills issue, relaying ideas and perspectives from a corporate and grassroots level.
Sandell suggested that the skills shortage is not just an industry specific issue but industries across the world are suffering. He also pointed at how different European markets are developing at a different rate and therefore certain skills issues are more evident in some areas than others.
Muse described how in general the workforce within the industry was ageing and took a ‘show of hands’ survey of the ‘baby boomers’ (those born between 1945 and 1965) amongst the IBIS audience and quipped, “We are the problem”. However, he explained, “As we move and our industry moves so our image does too.”
Muse interestingly highlighted how the average technician age in the U.S. is 41, against the average age of the workforce in the country being a little over 42.
Discussing the image of the industry, Sandell suggested that UK-wise there is little in terms of ‘aspirational’ figures to inspire the next generation within the industry and referenced TV drama series as portraying a very outdated image of the sector.
Exploring what more can be done to raise the profile of the sector, Muse explained, “We are looking to engage the community with the educational/training schools to raise the bar. However, the challenge is we have a bit of a fragmented message due to the nature of the sector and as an industry we don’t have a great deal of scale. I think there is an opportunity here.”
Muse suggested that mentoring is a very important aspect in people development. Something Sandell agreed with, suggesting that he has benefited from numerous mentors over the years. Muse suggested companies needed to have their own strategy when it comes to developing people. Sandell suggested overcoming the skills gap is about ownership but also collaboration – ‘smaller organisations will find it harder to own the issue” while Muse raised two issues: firstly, there needs to be a value proposition for someone to join your organisation and, secondly, if the industry could plug the retention issue that it would solve a number of problems.
Culture key for calibre
Sanders, president and COO Caliber Collision opened his session by stating, “I really want to challenge the perspective that the higher the pace of growth gets, the more your results deteriorate.”
He then went on to highlight how Caliber’s approach to business and staff or ‘teammates’ engagement has seen it improve across all of its key performance indicators over the past three years. Sanders listed Caliber’s performance metrics as cycle time, NPS, return rate, kept informed, delivered on time. He explained how the company’s strategy has been crucial to that growth and how that focus was developed following a meeting which questioned: “Why are we in business today? Immediately after that meeting we started to put the building blocks in place to facilitate that fast growth,” said Sanders.
“Our secret source is our people, we are a purpose driven organisation,” said Sanders as he introduced Caliber’s philosophy of restoring the rhythm of people’s lives and explained how they humanise the repair process – focusing as much on people (i.e. vehicle owners) as they do the repair job at hand. In his opinion: “The perception of our industry is changing, it’s becoming more professional on a daily basis.” With this Sanders highlighted how the business invests in its teammates and how that has resulted in 50% of its leadership team coming from the shop floor.
“If you’re in a leadership role at Caliber, you are committed to the success of everyone around you,” said Sanders who then described the company’s four pillars for success: best trained, most satisfied teammates – “we invest $10-$15 million per year in training,” provide operational consistency, manage overall client cost, “we have strategic partner programmes with DRP’s which allow us to manage our own shops,” and focus on my customer, “this is the critical piece.”
Challenges creating opportunity
IBIS Global Summit 2018 delegates heard that skilled workforce and correct repair were two of the key challenges for the industry in the near future. The message came from the final session of the IBIS Global Summit 2018 which saw Ford’s Jennifer Boyer and Caliber’s Mark Sanders provide their respective opinions on the challenges and opportunities within the collision repair industry.
In continuing the theme of skills shortage, Boyer, after sales marketing director and global collision repair director, Ford Motor Company, stated that a key strategic focus for the business is to support its dealers and collision centres in the recruitment and development of its people. “There is more opportunity for us, collaboratively, to promote this side of the automotive industry.”
Moving onto the subject of repair and the implications of new vehicle manufacturer technology, president and COO of Caliber Collision Centers, Sanders said, “The day of repairing any vehicle in any shop is over. I want strategically placed operations to handle specific vehicle brands.”
Boyer agreed and said, “There will be a variety of solutions in the future, some specialists and some hybrid approaches.” She reiterated this by highlighting how equipment and training were two key aspects of Ford’s approach to the collision sector.
In closing, and discussing the role of the insurers within the claims process, Sanders said a collaborative relationship was vital. Their moment of truth is when a claim occurs, it needs to be a positive experience.” Boyer agreed a partnership approach was required and said she saw a great opportunity to work collaboratively with all stakeholders to provide the Ford customer experience.