In the last year or so, many industry events have included discussions of consolidation for collision repair shops. Coupled with industry trends of a declining number of repair facilities and larger facilities, and an assumption these trends will continue, the consolidation discussions have led to a concerned interest by the Automotive Service Association (ASA).

Several years ago, government regulators estimated that there were 60,000 collision repair facilities nationwide. Some would argue that this number has diminished by as many as 10,000 shops to date.

There are differences as to the precise definition of a consolidator. Whether it be simply a business entity with more than one location, a franchisee or a publicly traded company, it is clear that insurer-owned or insurer-financed repair facilities are receiving the greatest scrutiny.

With this in mind, ASA met with the Federal Trade Commission's (FTC's) Bureau of Competition to discuss the future of the collision repair industry and, more specifically, the role of facilities owned by insurers. Historically, ASA has worked with the FTC and the U.S. Department of Justice on issues related to collision repairers. Federal regulators also have participated in seminars hosted by ASA around the country. Our industry is very complex and these meetings assist our regulators in better understanding the relationship between insurers and collision repairers.

Industry leaders have stated that independent repairers perform about 80 percent of all collision repairs. If over 90 percent of all repairs involve insurers, their role in the marketplace is key to the future of the independent repairer. Historically, most of the collision repair issues involve the relationship with insurance companies at the state level. These include a variety of subjects such as salvage titling, steering, replacement crash parts, paint issues, etc. The collision industry's concerns are not dissimilar to others that deal with insurance managed care issues, including health. Many states are beginning to address problems that have been controversial for several years.

Not since the 1960s has the concept of insurer-owned repair facilities been a major consideration. However, the insurance industry has recently started investing in the collision repair industry. In 1997, a foreign-owned insurance group invested in one of the larger collision repair organizations in the United States. This continued in 1998 with the purchase of the Mirror Finishes chain by a major U.S. insurer.

Over the years, ASA has worked with federal regulators and the Judiciary Committees in the U.S. House and Senate on many insurance-related issues. However, direct competition with insurer-owned repair facilities is a new field.

ASA's approach with the FTC was to determine general policy concepts at the agency as far as competition in the collision repair marketplace. Two overriding themes are key to the FTC's review of insurer-owned repair facilities. First, does the agency have jurisdiction? Second, has there been an imminent threat of harm to competition?

With regard to jurisdiction, federal regulators historically have been broad interpreters of the business of insurance. Although the case Group Life and Health Insurance Company vs. Royal Drug Company, 440 U.S. 205 (1979) defined the McCarran-Ferguson Act's antitrust exemption, regulators are quick to offer the states as the sole relief and applicable forum in any discussion of insurance concerns. Many argue that Congress was clear in its delegation of insurance matters to the states during the 1940s. McCarran-Ferguson has stood strong against legal and legislative attempts for insurance reform. Are there current state laws that prohibit insurer-owned repair facilities? Clearly, federal regulators will be reluctant to venture into what they perceive is a state area of jurisdiction. Some industry advocates have focused on the insurer's conflict of interest once they own a repair facility. Is this an ethics question or a legal issue?

The second area of consideration, having to do with competition, is much more intriguing. An early view by collision repairers sees the consumer threatened by an increasing percentage of insurers directly involved in the collision repair marketplace. Under federal scrutiny, this might not be the correct approach to analyzing a growing industry issue. Regulators would view any potential harm to consumers through a much different methodology. Harm will come when the consumer's options are too restricted.

If we move to a concentrated, vertically integrated industry, the focus is on how many vertically integrated options are available to the consumer. If nine insurance companies control 100 percent of the collision repair facilities, this may not be enough choice or competition to maintain an economically healthy industry and ensure competition in the repair market. But if 30 insurance companies control the repair market, this could suffice for federal regulators. At this point, some regulators would argue that our industry is decentralized enough.

As our industry moves to larger facilities but fewer in number, it is clear that our national strategies must also continue to mature and evolve. Is it our decision to restrict what types of owners should be in the repair marketplace? What has been evident for years is that independent repairers don't want trade associations, insurance companies or government regulators too involved in their businesses. "Independent" has quite a sweeping meaning.

Our industry is changing. In order to continue our philosophy of independence, we should strive to improve areas that impact the daily business life of repair facilities. Controlling who owns a shop is a dangerous, controversial road to venture. Should individual owners have the right to determine themselves whether they will sell their facility to an individual, a "consolidator" or an insurance company?

Whatever your views, you must now take into account what federal regulators observe from the consumer's position. In the future, if enough entities are in the marketplace to assure adequate competition, it may not matter that a majority or all repair facilities are controlled by a number of insurers, if this number of insurers is sufficiently large.

If repairers believe that insurers should not be allowed to own and operate a consolidation of repair facilities, this will have to be debated and resolved at the state legislative level. Clearly, federal regulators are less concerned with the concept of insurer-owned repair facilities than the number of competitive options available to the consumer, and repairers cannot depend on the federal government to intervene in the issue of insurer-owned repair facilities.

Bob Redding is the Automotive Service Association's Washington, D.C., representative. He is a member of several federal and state advisory committees involved in the automotive industry. For more information about the legislative activities of ASA, visit www.TakingTheHill.com.

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