Does a downturn in repair volumes mean independent shops will be forced to close? There are ways forward to profitability, this UK group model shows.
In the second part of his interview with Evolution Repair Group founder
Anthony Heard, Barry Edney looks at the pace of change in the UK.
It’s been an interesting few months, in the UK.
Since the first part of my interview with Anthony Heard went to print. We’ve had a general election and a new government installed with a massive majority, promising a raft of employment reforms including increasing minimum wage and employer costs.
Most in our industry are waiting to find out what that will really mean for their businesses and their costs line.
All of these concerns really highlight Anthony’s views about understanding and managing costs as the key to being successful or even surviving.
Also in the news is the recent announcement by Steer Group, one of the bigger UK consolidators, that they are acquiring Gemini ARC. All of this confirms Anthony’s view that the consolidators will only get bigger, and independents must work together to survive.
For those of you who missed the first part of my in-depth interview with Anthony Heard, Anthony is the founder of Evolution Repair Group, a group of independent repairers working under a single banner to leverage their combined scale.
Cost of living reducing claims
Barry Edney: In past articles for NCR I’ve reported on the ups and downs in workload across the UK. I also read recently that claims are down by 30 per cent. What’s driving this?
Anthony Heard: The main driver seems to be the cost of living. Insurance premiums in the UK have increased by an average of 61 per cent. As a result, people are raising their excess to lower their premiums, making them less likely to claim for smaller damages. For example, two years ago, someone might have had a £250 excess, making it cheaper to claim for a £750 dent. Now, with a £750 excess, they opt to pay out of pocket or simply not repair it.
BE: That makes sense. Are there any other factors contributing to this downturn?
AH: 2023/24 was the mildest winter for years. Normally, December is hectic due to winter conditions, and that carries through to March. But this year, December was mild, so there was less damage. Consequently, January and February, which are typically slow due to post-Christmas recovery, were even quieter. By March, instead of picking up, we were still down by 30 per cent because fewer people were claiming.
BE: How are the big groups responding to this downturn?
AH: The large groups are pressuring their work providers to send them all available repairs, arguing that with such large staff numbers, they can’t afford the drop in work. This leaves the independents, who usually rely on overflow from the big shops, struggling. Now, independents are down by 30 per cent and losing substantial amounts of money each month.
BE: What does this mean for the future of independent body shops?
AH: Unfortunately, many independents will likely go under. They’re unable to compete with the big groups’ buying power and processes. As a result, I’ve seen body shops sell for a fraction of their previous value because they’re desperate to sell. For example, shops that were worth a million pounds six months ago are now available for next to nothing because they’re losing £50,000 to £60,000 a month.
Closing the gap
BE: How has your business managed to stay profitable in this climate?
AH: Despite the downturn, my six body shops are still profitable because we have higher average repair costs. While others are estimating at £2000, we’re at £4000. Even with a 30 per cent decrease in work, we’re still making money. It’s crucial to know your numbers. Many body shops don’t understand their financials well enough and end up as busy fools, chasing volume without profitability.
BE: Are you seeing any changes in the behaviour of repairers in the current market?
AH: Yes, work providers in the UK report receiving 50 to 60 calls a day from repairers begging for work, even offering to increase discounts. This is a dangerous strategy as it doesn’t ensure survival, just busyness without profitability.
BE: What does this mean for the future landscape of the industry?
AH: In the next six months, I expect to see many independent body shops closing. While this might seem advantageous for larger groups like ours, it’s disheartening. I don’t want to see anyone go bust. This situation underscores the importance of collaboration and understanding every penny going in and out of your business.
BE: Shifting gears a bit, many shops complain about a skill shortage in the industry. Do you agree?
AH: Yes and no. While it’s true that fewer young people are entering the industry, we also aren’t doing enough to attract them. For example, when Chris Weeks visited a college, students had outdated perceptions of the motor trade. Once he explained the modern technology involved, like using computers for diagnostics, many students showed interest. We need to do a better job of educating potential newcomers about the advanced skills required in today’s auto repair industry.
BE: So, the problem isn’t just a lack of interest from young people?
AH: Exactly. The industry itself is partly to blame for not showcasing the technological and skilled aspects of the work. Additionally, many shops have the wrong people in the wrong roles, which exacerbates the perceived skill shortage.
BE: Can you elaborate on that?
AH: Sure. For instance, when I bought Manchester Accident, we had four panel beaters. Two left for higher-paying jobs, and the owner panicked, thinking we needed more panel beaters. However, by analysing their efficiency, we discovered they were only 60 per cent efficient. By reallocating tasks, such as like having a dedicated strip and re-fit person, we improved efficiency without needing to hire more panel beaters.
Smart task allocation
BE: So, smart task allocation can address some of these issues?
AH: Absolutely. It’s about having the right people doing the right jobs. This ensures efficiency and maintains skill levels. For example, we avoid having panel beaters handle tasks like door replacements, which can be done by strip-and-fit personnel. That allows panel beaters to focus on complex repairs.
BE: How do you manage recruitment for your shops?
AH: We’ve started our own recruitment company, Motor Match Recruitment, to handle staffing for the entire Evolution group. This approach allows us to control costs and ensure we get the right people. We offer a fixed recruitment fee, which is significantly cheaper than other recruiters in the UK.
BE: That sounds efficient. Do you think other body shops could benefit from your model?
AH: Definitely. By reducing recruitment costs and improving task allocation, we help body shops operate more efficiently. We want to support the industry as a whole, not just our own group.
BE: You mentioned the importance of maintaining skills through appropriate task allocation. Can you expand on that?
AH: In the past, there was a push to replace rather than repair for speed and profit, which led to a decline in repair skills. We focus on balancing efficiency with skill maintenance. For instance, a new door replacement is often more efficient and results in a perfect finish, unlike a complex repair which might not meet quality standards.
Insights for Australia
BE: Have you considered expanding your expertise internationally, particularly in markets like Australia?
AH: Yes, Australia’s market is quite similar to the UK, and there’s a lot we can learn from each other. I’m interested in visiting and possibly attending industry seminars there to share our experiences and gain new insights. This could be beneficial for our brand and help further our impact on the global auto repair industry.
BE: How do you stay informed about global industry practices?
AH: Through networking and staying connected with industry experts worldwide. For instance, a former colleague, who is now based in Australia, recently shared how their body shop showed some of my LinkedIn posts to their staff to highlight what we do. Such exchanges highlight the global relevance of our practices.
BE: Do you have any plans to visit Australia?
AH: I’m considering it. Attending a seminar or conducting a study tour in Australia would be beneficial for both our brand and the industry. I’ll be looking into opportunities to make this happen. Hopefully I can work with NCR on this. Watch this space!
BE: Thank you, Anthony. This has been incredibly insightful.
AH: Thank you. It’s been a pleasure to share our ideas and good to know there is an interest in what we do.
BE: As we wrap up our discussion, how would you summarise your key to success?
AH: Knowing your numbers is the key to survival in this industry. Everyone can repair cars, but managing your finances effectively is what makes the difference. This downturn has highlighted the need for financial acumen alongside technical skills in the body shop industry.
BE: Many thanks for your time. I really do appreciate you sharing your insights. Any final thoughts to wrap up?
AH: The auto repair industry is evolving, and by adopting efficient practices and focusing on skill development, we can overcome challenges like skill shortages and improve overall service quality. It’s an exciting time to be part of this transformation.
I couldn’t put it better myself. I have always been amazed how our industry continues to adapt and rise to the never-ending number of challenges that come our way. We always find a way. We’re a tenacious bunch in the collision industry!