Can the Auto Glass and Collision Repair Industries Co-Exist
By Keith Beveridge
Part 1 of 2. Read Part 2 Here.
If you have been in the business for a few decades you know it has changed a lot. While auto glass companies and collision companies, for example, used to stay in their own lane, today there is a great deal of overlap and competition is plentiful.
I’m going to start with a bit of history then offer some valuable tips of how auto glass companies can compete.
Important Glass History
Many moons ago when I joined Pilkington (at that time it was still Libbey-Owens-Ford) straight out of graduate school, I had the privilege of working with Karl Alberti—he literally grew up in the glass business. He partnered with his grand-father in founding Findlay Glass after graduating from high school in the late 1930’s. After serving in World War II and the Korean War, Karl joined Libbey-Owens-Ford (LOF) and quickly rose through the ranks to become a senior executive. Karl left LOF and became president of Mobile Auto Glass Installation Centers (MAGIC). He quickly grew MAGIC, which was ultimately sold to Lear Siegler for its Safelite division. Karl was the Glass Professional of the year in 1990.
Karl had returned as a consultant to work for Pilkington. I was responsible for managing Pilkington’s Auto Glass Replacement Business Unit’s planning process and for producing the annual strategic plan. This meant I had to coordinate with the senior managers of each operating unit. At that time, Pilkington still operated 87 LOF installation centers. Karl was a consultant to the LOF Retail Group, and I spent a lot of time with him drafting the operating plan for this group as it no longer fit with the SBU’s overall strategic plan.
My job was to quiz Karl to see how to improve the retail group’s financial and operating performance. I used to tease him goodheartedly that he had forgotten more about the auto glass repair and replacement market than most of us (especially me) will ever know. This was only partially true. Karl knew al-most everything about the market and he still remembered it.
Recipe for Success
Karl’s recipe for auto glass re-tail success was fairly simple. I guess these must be the good old days that everyone talks about but doesn’t think was true at the time. To be successful, Karl indicated that an auto glass shop needed the following:
Customer satisfaction – regularly exceeding your customer’s expectations in terms of product, service and delivery;
Operational excellence – taking pride in your operation and service your customer’s vehicles like it was your own vehicle;
Quality – using only the highest quality parts, adhesives and installation techniques;
Local advertising – these were the days before Internet searches and online reviews–you had the biggest ad with local numbers in as many yellow page books as you could afford. These multiple listings were forwarded to a central number to appear local since most of the business even at that time was mobile.
Top of mind – Location managers/sales reps regularly called on insurance agents, fleets and body shops to gain top of mind with business influencers and vehicle owners; and
Accessibility – service was available weekdays, Saturdays or whenever your customer needed it.
Karl and I also discussed the automotive aftermarket at length. In particular, I asked him why most auto repair services were specialized. At that time, Meineke or Midas only sold mufflers. Goodyear and Firestone only sold tires and related products. Auto body shops only repaired collision damage. And glass shops were either full line (auto, residential and commercial) or auto glass only. New vehicle dealers generally were not interested in auto glass. Your local gas service station typically was your only full-service automotive aftermarket retailer offering everything from oil changes, tires, batteries and other maintenance.
Karl said that auto glass installation required technical skills that most automotive aftermarket retailers did not possess, and that auto glass itself was perishable. One broken windshield from one untrained technician would more than offset any gross margin that one of these retailers would make on a job. He indicated many of our industry pioneers did a great job of convincing at least some of these automotive aftermarket retailers (particularly auto body shops and vehicle dealers) to subcontract auto glass jobs to the specialist.
Fast forward approximately 30 years to today and we live in a vastly different world. For example, computing in the 1980’s went from dummy terminals attached to mainframes to desktops to lap-tops to tablets to the smart phones of today. The world wide web (the Internet as we know it) was just getting launched in 1991 and Google didn’t appear until 1998.
Passenger cars dominated new vehicle sales 30 years ago as op-posed to today’s SUVs and light trucks. Airbags were just being launched—Chrysler was the first of the Big 3 vehicle manufacturer (when there was a Big 3) to add driver side airbags standard to six passenger car models in 1988. GM and Ford followed suit and Chrysler soon added passenger side air-bags. Light trucks weren’t required to have driver side airbags until 1998. Today, most new vehicles have some sort of Advanced Driver Assistance System (ADAS) incorporated in them with many companies working on self-driving technology. Auto glass technology also has changed significantly. We have seen electronics embedded into the glass with heads-up display, rain sensors, ADAS cameras and other electronic devices. Many of these systems require recalibration.
From an auto glass installation perspective, the last butyl-set wind-shield drove off the assembly line in 1992. Our industry went from a butyl-set backfilled with urethane to a one component 30-minute safe drive away adhesive. We have also seen both the AGRSS and ROLAGS ANSI standards developed as well as the creation and growth of the Auto Glass Safety Council, AGSC Registered Member Companies and AGSC and NWRD certified technicians.
Auto glass fabrication has also seen many changes. Libbey-Owens-Ford was bought by Pilkington, and then by NSG. PPG spun off the glass division as PGW, LKQ bought the distribution business and PGW’s glass manufacturing was sold to Vitro. Ford spun off Carlite to Visteon. Visteon sold Car-lite, which then changed hands several times and is currently owned by Central Glass. FYG bought GM’s Moraine assembly plant and is producing auto glass in Ohio for both OEMs and the aftermarket. Many foreign auto glass manufacturers now supply products to the North American market. Corning has also teamed up with several vehicle manufacturers, including Ford, Porsche and McLaren, to address specific auto glass needs for Gorilla Glass and with Mopar for a replacement Jeep Wrangler windshield.
The last and potentially biggest change is to the automotive aftermarket. Most aftermarket specialists are no longer specialists. Meineke, Midas, Speedy, Firestone, Goodyear and many other after-market retailers have been forced to diversify their products and offer complete car care. These retailers typically now offer consumables such as brakes, mufflers, batteries, oil changes, tires, steering and suspension parts and other repairs. These retailers generally compete by differentiating themselves by their service levels and their brand promise.
To some extent, the automotive casualty segment (collision and auto glass replacement) have avoided some of the issues seen elsewhere in the automotive aftermarket. However, other factors may cloud our future.
Industry Consolidation – the auto glass replacement segment has seen significant consolidation over the past 30 years but that pace has slowed in recent years. The last big acquisition was last year when Safelite acquired Truroad. Truroad was formed when JN Phillips and TechnaGlas merged. While paused because of COVID-19, Safelite (owned by Belron) will still likely continue to acquire targeted glass shops.
The collision segment continues to consolidate, though that also has slowed down a little because of COVID. The North American Collision Repair Business in 2018 was estimated to be almost $40 Billion. There are currently more than 32,000 auto body shops in the U.S. and almost 5,000 in Canada. While still significant, the number of body shop locations has declined by more than 20% since 2008. All of the major collision networks offer some level of auto glass replacement. This collision industry consolidation trend is expected to continue and the risk to an auto glass shop is that these collision networks leverage their existing collision insurance relationships to disrupt the existing auto glass insurance relationships.
Economic Indicators – prior to COVID-19, most economic indicators were favorable but since then, the impact on the auto glass re-placement market are mixed at best.
Overall Economy – while some sectors are doing well, the over-all economy shrank by 32% in the second quarter of 2020. While this level of contraction is not expected to continue (but who knows), most economists do not see the U.S. economy recovering to pre-COVID-19 levels until 2022 at the earliest. This will negatively impact the AGR Market;
Unemployment – is up, but down from its peak. This along with the ending of $600 Federal Unemployment benefit will lower personal income and negatively impact the AGR Market;
Working at home – means fewer trips and lower miles driven but the trips that are taken are generally longer. The impact is mixed;
Miles driven – Rolling 12 month miles driven were down to 2015 levels, but they have been increasing every month since March 2020. The continued monthly miles driven growth means we have likely hit the bottom and are growing again;
Weather – an increase in severe weather continue to positively impact the AGRR market;
Insurance – with the reduction in miles driven, many insurance companies are lowering premiums and offering refunds increasing income;
Construction – many states have taken the opportunity with lower miles drive to ramp up road construction which positive impacts the AGRR market; and
Ride share and public transportation – with COVID-19 negatively impacting these services, private transportation will need to substitute for this loss positively impacting the AGRR Market.
Technology – the proliferation of ADAS and other collision avoidance systems are estimated to be included as feature on over 50% of new vehicles by 2021. These systems will reduce collisions by as much as 30% in the next five years. This will lower the total number of collisions, but the severity and cost to repair for each accident will likely be greater. It is uncertain what the impact to the size of market will be.
Price of Technology – ADAS and other systems have increased the cost of repairing vehicles. This impact is three-fold as: 1) the auto glass parts themselves are generally significantly more expensive; 2) the installation may take longer as more of the vehicle may need to be disassembled and reassembled; and 3) the applicable safety system may need recalibration.
Increased auto glass technology generally will not lead an insurance company to declare a vehicle a total loss for just a windshield replacement. However, this may not be the case in collision claims. Older vehicles with significant damage may be written off. However, since the price of ADAS systems generally increase the price of new vehicles along with a corresponding increase in the vehicle owner’s insurance premium, this trend is likely mixed.
Training – Increases in technology usually requires increased training. ADAS systems will cause both auto glass shops and auto body shops to increase their training pro-grams. Given the width and breadth of these technology increases, the auto body shops will be impacted on a much greater scale.
Technicians – with the exception of the increased unemployment caused by COVID-19, there is a global shortage of qualified technicians in both the auto glass repair and replacement market and in the collision market. This may impact availability and increase the job cycle time.
Networks / Third-Party Administrators (TPAs) — all the major collision chains have a third-party administrator that works directly with insurance companies. The TPAs for insurance companies and collision network TPAs have developed Direct Repair Programs (DRPs) to better manage auto damage claims and increase their policyholder’s claim satisfaction. The risk to the auto glass shop is that insurance companies and the collision networks expand the Direct Repair Programs to auto glass. On the one hand, this may be positive if it disrupts the status quo with their existing auto glass TPA as your shop may benefit by providing the installations if you participate with the collision shop’s TPA. On the other hand, if the applicable TPA uses their organization’s internal resources, it will not use your shop to do this work.
The major collision groups (and likely many of the large vehicle dealer groups that we did not dis-cuss) are focusing on the auto glass replacement market. Boyd says they are the second largest auto glass retailer in the U.S. and since they are publicly traded, we know their strategy is to continue to grow both their sales and the number of markets they service. If these major collision groups can make inroads into the major insurance companies with their networks and DRP programs, the auto glass replacement market will change.
Strategies to Compete
So, given where the auto glass and collision industries have been and where they are going, what does an auto glass shop need to do to compete in today’s marketplace? It is generally not focusing on duplicating what the “Big Boys” do. It is finding your own path. Most of Karl Alberti’s wisdom still applies today but we need to tweak it for 2020. Look to the November/December issue of AGRR for part 2 of this article with those answers.
Keith Beveridge operates Beveridge Consulting which specializes in strategy development, marketing and operational review. He is an authority on windshield repair and customer experience. He is a former member of the boards of directors of the Auto Glass Safety Council (AGSC) and the National Windshield Repair Association (now NWRD) and a former chairperson of the Repair of Laminated Auto Glass Standard (ROLAGS) Committee. He is a former senior vice president of Novus.
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