“Practically every dealer in America is being called by automotive dealership brokers, eager to tell them their value and then represent them in a sale,” says David Roberts
Auto dealers are consolidating. No surprise there. Lots of reasons: retiring owners, scale economies, internet selling, increased competition, higher operating costs, increased vehicle complexity and new required investments in equipment and facilities.
Collision repairers are consolidating, too. Again, no surprises there either. Many for the same reasons. Retirements, competition from much larger players, higher costs of parts, paint, labor, calibration, and the increased investments to keep up with new technologies. According to CCC, in 2023, the average cost of repair surged to $4,550, up 6.5% from 2022; and the trend continues in 2024.
How Collision Repair Consolidation Impacts Dealer Shops
Collision repair is increasingly dominated by major consolidators such as Caliber Collision, Gerber/Boyd, Crash Champions, Classic Collision, and Joe Hudson’s Collision Centers as well as many large independent Multi-Shop Operators (MSOs). These large operators benefit from scale efficiencies, access to repairable vehicles through national insurer Direct Repair Contracts, and substantial private equity investments.
Access to Repairable Vehicles
Access to repairable vehicles is increasingly in the hands of the six largest insurance companies through their Direct Repair Programs (DRPs). While many insureds automatically think of taking their damaged vehicles back to the dealers where they bought them, insurers understand repairs are accomplished more quickly and predictably through their DRP networks. Few dealer shops are part of these networks.
Insurers also recognize that the average cost of repairs for similar vehicles are often higher when performed by dealers. So they try to keep repairable vehicles within their networks where they have more control.
Scale Efficiencies
According to the National Automobile Dealers Association (NADA) and The Romans Group, there are more than 5,500 dealer-owned body shops generating more than $6.5 billion in total revenues. The large consolidators plus the 200 largest independent MSOs total more than 5,000 shops with total revenues of more than $18 billion. That’s roughly the same number of shops as dealers — but with three times the revenues.
• Dealer Shops: Typically, dealer shops have an average shop size of 6,000 square feet with $1.25M in revenue.
• Consolidators and large MSOs operate “Scaled Shops”: In contrast, scaled shops have an average shop size of 12,000 square feet with $3.85M in revenue.
With greater access to repairable vehicles, larger scale facilities have lower overhead costs, higher retention of technicians, larger parts and paint discounts and more experienced management teams. With increased scale comes higher EBITDA margins.
Focus Advisors Automotive M&A estimates consolidators’ and independent MSOs’ EBITDA margins are more than double dealer body shop margins. As the power of large-scale shops grows, dealer shops are at an increasing disadvantage.
Challenges for Dealer-Owned Collision Shops
Dealer-owned shops suffer from multiple challenges. Meeting the evolving demands of insurers can be difficult for individual dealer shops, leading to operational inefficiencies. High technician turnover rates can disrupt the continuity of operations, while the ongoing need for investment in new technologies and staff training place additional financial strain on the business.
Selling Considerations for Dealer shops
For many dealers, selling their collision shops can provide significant benefits. For example, operational simplification allows them to concentrate on their core business while alleviating the challenges of hiring and retaining skilled technicians and shop managers. Partnering with larger operators can lead to improved cycle times and enhanced customer satisfaction.
From a financial perspective, selling can unlock capital and generate rental income, offering both stability and opportunities for future growth. This strategic move can streamline operations and provide a foundation for expanding other areas of the business.
Real Estate Considerations
When selling a collision repair shop, real estate considerations can be crucial. Most potential buyers prefer long-term leases instead of owning. Consolidators and large independent MSOs are willing to enter into market rate lease terms that offer operational flexibility. Leasing to a “credit tenant” can significantly enhance property value. Potential investors in dealer real estate like the enhanced credit profile of a large specialized voperator with its lower likelihood of default and a more favorable capitalization rate (cap rate). Financially, dealers gain additional rent or they can repurpose the facility for more service work with its higher margins.
More Dealers are Considering Selling Just Their Shops
Practically every dealer in America is being called by automotive dealership brokers, eager to tell them their value and then represent them in a sale. The value of the dealer’s body shop is seldom a key factor in the transaction. Some dealers have decided to just sell their body shops and realize the benefits of immediate capital gains, ongoing rental income and reduced complexity in their operations.
In a notable transaction in 2023, the Vinart Dealerships in the Lehigh Valley of Pennsylvania sold a large shop to a well-capitalized consolidator. Focus Advisors M&A, an investment bank that specializes in representing collision repairers, represented Vinart in the sale of its body shop and found multiple bidders interested in the large but underperforming facility. The dealership gained a long-term lease with a credit tenant and improved parts sales as well as faster cycle times for repairs.
Similarly, in another transaction, Focus helped facilitate the private sale of three large body shops to a regional MSO that led to over a 50% increase in parts sales and substantial lease income generation, allowing the seller to focus on core operations and pursue future growth opportunities.
What to Know
The collision repair industry is undergoing transformative changes, marked by rising repair costs, a surge in advanced vehicle technologies, and increasing consolidation by major players. For dealers, selling a body shop presents compelling advantages, including operational efficiency, financial rewards, and new growth avenues.
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