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Car Talk

Three routes lead to same end for repair shops: their fair share


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Jim Henkel, left, area developer and Evan Staples, owner of an Honest-1 in Minnesota.

New in the toolbox for three auto franchisors is a CEO from the restaurant world, an owner flush with capital, and a line of eco-friendly products. Plus a cardinal rule: Don’t make your customers feel stupid.

When a hailstorm hit Denver this summer, Alpine Carstar Auto Body shifted into high gear. ‘Owner Gary Boesel expanded front office hours to seven days a week, from 7 a.m. to 7:30 p.m. He gave desk space to estimators from several insurance companies, who were adjusting claims for back-to-back customers. “We were writing about 70 estimates a day,” Boesel said. “Usually it’s about 12.”

He leased an additional building, 2,500 square feet, and called up temporary technicians from a service to provide skilled dent repair, plus put on roofs and trunk lids. “We had Grand Central Station here in the office,” Boesel said, and business was still going strong six weeks after that June storm. “It’s controlled chaos.”

The quick response explains why Boesel’s two Carstar collision repair stores are successful. Part of the Carstar brand for 20 years, his two locations together do about $7.5 million a year in revenue.

But it’s his immediate phone calls to insurance adjustors, whom he calls his partners, and his invitation to accommodate their meetings with clients, that underscore the defining factor of the collision repair business today. Insurance companies rule, providing “a vast majority” of a year’s sales, according to Carstar’s CEO David Byers. And insurance companies don’t like to deal with thousands of mom-and-pop shops.

The result is a rapidly consolidating industry, for general car care as well as collision repair. Industry players are pushing aggressively for their share of the market, albeit each of the three profiled here is doing so in different ways.

‘One throat to choke’

Carstar’s CEO Byers said revenue last year at the Overland Park, Kansas-based collision repair company increased almost 6 percent to just under $597 million, pushed by a boost in insurance-related business. The mid-sized company has 200 units in the U.S. and 150 in Canada. Since being named CEO just more than a year ago, he’s ramping up the acquisition pace, revamping the company’s business development function and staffing up to five full-time people devoted to identifying well capitalized auto repair operators who want to join Carstar’s network. They added 17 locations last year and are on track to do 50 in 2012. He wants to reach 500 total within three years.

Byers, the former chief operating officer for H&R Block, attracted the eye of Carstar owner Champlain Capital Management because of his background overseeing some 13,000 H&R storefronts throughout the world. “The ownership was looking for someone who had deep franchise experience,” he said.
Byers said 90,000 auto repair shops existed just a few years ago; now the number is more like 35,000. What happened to health care in the 1980s is affecting car repair now. “You’re going to end up with in-network and out-of-network providers,” he said. “The vast majority of the work that goes through auto body repair shops is paid for by insurance. The largest insurance carriers, instead of having to work with 35,000 independent body shops, they want to work with fewer, larger, branded providers who can leverage for scale.”

Put another way: “They want to have one throat to choke. They want repeatable outcomes.”

Rissy Sutherland, Honest-1

New CEO at Driven Brands

Driven Brands, based in Charlotte, North Carolina, is a large car repair franchising conglomerate with a similar mandate to grow, in this case pushed by a brand new owner, Harvest Capital, and a brand new CEO, Jonathan Fitzpatrick.

Fitzpatrick had been on the job all of two weeks when reached in late July, replacing longtime CEO Ken Walker. Fitzpatrick hails from Burger King, where he was chief brand and operations officer since 2005, and his global background with a franchised chain was the attraction for Harvest Capital.

“The most important thing is my experience in franchising globally for 15 years,” he said. “We’ve got these very strong powerful brands, and I think we can make them even stronger, even better.”

Chief among those brands is Maaco collision-repair shops, Meineke Car Care Centers and Econo Lube ‘N Tune. Driven Brands was sold by private equity firm Carousel Capital in December last year to Harvest Partners of New York. Harvest is much bigger than Carousel, with $1.3 billion in capital under management, compared with about $600 million for Carousel. At the time Walker said the company’s best option for building equity was to make acquisitions, and Harvest has the resources to make more of them.

Fitzpatrick isn’t detailing how he’ll differentiate each of the brands he oversees, but said he’ll look at each independently. He plans to be in the field touring locations at least one week a month. “That gives me the ability to get the insight from our franchisees. They’re owner/operators; they have the equity. That’s where you get your best insights. That’s the biggest lesson I learned from my great time at Burger King.”

‘Jump off a cliff’

Honest-1 Auto Care is a small franchisor, based in Scottsdale, Arizona, with 30 units. Rissy Sutherland, who took over as COO when she bought an equity stake in the company four and a half years ago, decided a complete overhaul was called for.

“We stopped franchising. We stopped for one year,” said Sutherland, because the company was “troubled.” “We designed our training program, our fluid program, what our motto is—everything was done from the ground up, before we released our new concept.”

Sutherland said she grew up in the automotive industry, and was an executive at Moran brands, owner of Mr. Transmission shops. As a well-known woman in the industry, she got headhunter calls “all the time,” and followed up on an inquiry by CEO Jack Keilt to join Honest-1 just to be courteous, then agreed to meet at an industry event.

“That day we ended up talking for 10 hours,” she recalled. “We got so excited in that one day of brainstorming, that within one week I had decided I wanted to jump off a cliff, leave my very cushy wonderful position, and start over from square one, and invest in this company and build it from the ground up,” she said.

One of her two main initiatives is to make Honest-1 units woman-friendly, because she noticed when running Mr. Transmission shops that her customer base switched from male to female. “In 10 years I had gone from a 70 percent male customer base; now I’m at a 68 percent female customer base.”

Most important, she said, is the sales approach, which she believes men appreciate, too. “I want to be spoken to as an equal and as an adult and I want it in layman’s terms. I want to be able to understand it so I can trust you,” Sutherland said.

A second initiative is eco-friendly products. “That has to be the most important thing we do, is to be clean in a dirty business,” she said. Among the actions: researching and developing an eco-friendly fluid line, including a bio-based oil “which is completely, including the bottle it comes in, completely biodegradable. I could pour it on the ground and it would not do a thing to the environment.”
She thinks the efforts are paying off, with system sales up 30 percent in the past year, and same store sales up 15 percent.

Back at Gary Boesel’s Alpine Carstar in suburban Denver, he interrupted an interview to handle a detail for a company pizza party that day. The host? One of the insurance companies that was grateful Boesel had thrown open the doors after the hailstorm—and who will likely be back when the next storm hits.

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