By Robert L. Redding, Jr.
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As the industry treads into new territory with Allstate's acquisition of Sterling Collision Centers, everyone is asking the same question, “How will this impact the industry?
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Collision repairers learning of the recent Allstate Corporation acquisition of Sterling Collision Centers, Inc. are not faced with a clear “negative or positive” analysis of the purchase. Clearly the industry is moving quickly into new areas but one can not ignore trends over the last years.
From single collision facilities to companies expanding to multiple locations during the 1980s, the industry has been moving parallel to other business interests. The increase in the number of direct repair programs (DRPs) was not dissimilar to the health care industry and what we now see in the lumber supply as well as other building trade areas. During the '90s, consolidation of repair facilities was the topic of the day. Key players in the industry sold their facilities to well-heeled companies and many times stayed with the company in some professional role. At least one of the consolidators was funded by a major international insurer.
Now Allstate has purchased Sterling, the consolidator with 39 shops in seven states. Many of these are in various metropolitan areas of these states. The Automotive Service Association (ASA) has received many inquiries from members, the trade press and business publications regarding the acquisition.
Most of the questions are the same. How will this impact the industry? On its face, you have 39 facilities in a universe of approximately 50,000 shops nationwide. This will have minimal nationwide impact. If you review the concentration areas of these 39 shops, it could change the dynamics of the local marketplace.
Isn't the Allstate/Sterling deal a warning for the independent repairer? These well-heeled shops could continue to expand and eliminate independent shop market share. Depending on specific variables, those shops now involved in Allstate programs could suffer. Where does it stop? Rumors are rampant that other insurers are negotiating with consolidators even today. Finally, this is one more entity competing in an already tight employee market. Will their benefits and salaries outpace what independents are able to provide?
Is there any positive impact from the acquisition? The industry now has one more well-funded buyer in the marketplace. With an aging ownership and increasingly expensive facilities, business owners may see this as an opportunity. Will these types of purchases aid in increasing the value of repair facilities? Quite possibly. Has a standardization of procedures and escalation of competition from the consolidators raised the quality and productivity of the independent repairer? Many would argue that the critiques of independent facilities afforded by consolidators has worked to advance the rank and file in the industry. Without question, collision facilities are now reviewed by the business community with such scrutiny that the availability of equipment, training and information is at a level that any repairer has the opportunity to compete with providing a quality, efficient repair.
Finally, these new members of the collision industry could provide more employment opportunities for those that desire collision repair as a vocation.
Surely this association and others will scrutinize this transaction to a great degree, but one must note that we function in a free market system. By their definition, collision repairers are independent and enjoy the fruits of a competitive marketplace. This automatically creates hesitation in criticizing the Allstate purchase. But it is imperative that we as independents compete on a level playing field. Is this playing field level?
One can assume that Allstate has studied with fervor the steering statutes of those states with Sterling facilities. Do these states prohibit direct repair facilities? As a whole, no. One of the states does have restraints on aggressive DRPs, but will still allow programs or lists. Clearly the laws in these states vary. It is our responsibility to review the adequacy of these regulations to protect the independent repairer and to assure their enforcement. But the object is not to prohibit a free marketplace, only to ensure that the playing field is level. Several of these states have little protection against aggressive DRPs. One of the states will allow almost any type of program. So a hurried response that “they can't do this” would be inappropriate. Yes they can.
ASA has summarized state direct repair laws and has this report available through its national headquarters or its Web site (www.asashop.org). There has never been a greater moment for repairers to unite behind a common effort to protect the free marketplace. This is one more validation of the need for the free association of individual businesses toward a shared good.
Our policy has historically focused on the right of the consumer to choose where a vehicle is repaired. Does this limit consumer choice? Are these state laws sufficient to protect the consumer? These questions will be answered in months to come.
ASA will continue to monitor the industry and work to ensure a level playing field that places consumer choice first.
