FEATURE

IS COLLISION REPAIR RECESSIONRESISTANT?

Part 2

BY CHASIDY RAE SISK

Everyone who operates a business does so with the goal of making a profit, but when economic uncertainty abounds, small business owners may worry about their ability to remain operational. As mentioned in the May edition of Hammer & Dolly, the auto body industry may be a bit more recession-resistant than other businesses, providing shops with a chance to take advantage of different opportunities that others may not enjoy.

What exactly makes this industry so much more fortunate than most? To begin with, though many consumers drive less, Americans continue to rely heavily on their personal vehicles, and the combination of inflation and increasing interest rates have created a situation where buying a new (or even used) car is largely prohibitive. In fact, 2022 ended with new car prices averaging over $48,000 with an average interest rate of 6.5 percent resulting in a $700 monthly payment! Given the economic uncertainty pervading society at large, few people seem comfortable making such a large purchase right now.

“People worry about going into debt with such high car payments being financed for long periods of time,” explains Maylan Newton (Educational Seminars Institute). “Rising interest rates also cause people to hang onto their cars longer, investing in engine replacements and major repairs to avoid a new car payment. They’re more willing to invest in what they have to avoid the hassle of buying a new car; between surcharges and premiums, some dealerships are charging more than $30,000 above sticker price! The average consumer cannot afford that and would rather repair their current car instead of going into such massive debt for six years with high rates, especially with the way they’re rushing to complete vehicles now. I expect a lot of recalls in the coming years because they aren’t taking the time to build cars correctly. It’s going to be a good couple years for repair shops because of all these reasons.”

“With new car loans averaging 77 months and 14 percent of new car loans over $1,000 per month, this is the easiest time to take advantage of the opportunities that exist in the repair world,” agrees Rick White (180BIZ). “Consumers often resist investing in repairs, but why throw a $60,000 solution at a $4,000 problem? Service advisors can sell the repair by demonstrating the cost for a new car in payments and interest over a seven to eight year note. Help them understand that their vehicle is an investment and that we’re selling the ability to get more miles out of their car. The next 10-12 years will be one of the best times we’ve seen in the auto repair industry in a long time. People will keep their cars and invest in them because they understand that’s a better use of their money. Even a $3,000 repair costs less than six months’ worth of payments!”

Shops may need to spell this out for consumers, however. “A lot of consumers are not very intelligent about their cars,” Newton observes. “Our job is to help them understand the value of fixing the vehicle as opposed to replacing it. I use statements like ‘protect your investment’ and encourage them to make sure their car ‘lasts longer than the car payments do.’ Emphasize that neglecting to care for their car means it won’t last the length of time that they finance the car for. We have to change our mindset to focus on the customer’s needs, and that means talking less about the technical side. Instead, we need to explain how we’re protecting their investment and making it last as long as possible.”

In the collision industry specifically, a variety of opportunities arise from this decrease in the demand for new vehicles.

“Customers are more apt to fix their car instead of buying new, whether that means filing insurance claims or bringing the car in themselves,” suggests Mike Anderson (Collision Advice). “Shops are likely to see more customer pay vehicles which are usually the most profitable jobs since they mean more labor, less parts and a higher gross profit, plus there’s the added benefit of working directly with the consumer instead of a third-party payer.”

He also points out that people tend to focus on collision repairs cyclically. “As people slow down and start preparing for summer vacations, it’s likely that they’ll invest in their cars at that point to make sure they’re running properly and that they’re looking their best.”

Amid all these factors, shops focused on maintaining – or even growing – their market share may want to consider whether they are offering all the services that will help propel their business forward in the future.

“It’s important for any entrepreneur to be nimble and able to pivot and change their strategy,” says Rachel James (Torque Financial Group). “Could you market detailing services to help make that old car feel like new again? Or maybe, a conventional collision shop might consider offering some a la carte maintenance and service items to add some line items to their blueprints while creating convenience for their customers. Adding a band of business you’ve never engaged with before, such as glass repair or calibrations, could add an additional stream of revenue and more security.”

Shops that want to convince collision customers to purchase those add-ons will have more success if they’re able to establish those maintenance items as an investment.

“It truly can be an investment to the consumer, so that’s how shops need to position it,” James insists. “As a consumer who doesn’t want to spend additional money on a monthly car payment, you’ll have to accept that there will be expenses associated with maintaining that vehicle. From a shop’s perspective, it all comes down to communication, and a qualified customer service continued on pg. 20