Long Term Market is Stable
The available body shop business is based on two uncontrollable factors, one, the weather, and two, the human mind.
Since the vehicles are becoming "high-tech," the repairs are becoming much more technical and sophisticated. Some component metals cannot be welded or even straightened. Virtually every component on the vehicle has become a crashworthy part.
Unibodies must not only look good but the entire substructures must be brought back to original dimensions in order to have the four wheels go down the highway straight. Older vehicles with full chassis needed the frame brought back to original dimensions but the body only needed to look good. The bottom line of this "high-tech" vehicle is that many independents are unable to invest the money required for the modern equipment or even stay abreast of the technological training or skills.
Market Potential
The first concern any manager must consider with any investment is R.O.I. Step one in this endeavor is to evaluate your market potential. To calculate the market potential add up your new and used retail vehicle sales for the last six years. Do not include fleet sales or wholesale sales. You use a six-year owner base since this is the average trade-in cycle. Step two is to multiply this owner base by four flat rate hours per vehicle per year, this gives you the market potential in flat rate hours. Step three is to multiply this annual flat rate hour base times your expected insurance rate.
Formula 6 year vehicle base x 4 frh/veh/yr x insurance rate = Annual Dollar Market Potential. If your insurance labor rate is in the $26 to $30 per hour range your parts to labor ratio should be about $1-85 cents to $1. Higher labor rates will reduce the parts to labor ratio since parts prices are much more stable across the country than labor rates.
How much of this Market Potential can you attain?
· As with most market surveys there are many variables:
· Competition.
· Your reputation in the community.
· Your willingness to do all body work in house, including used vehicles-remember, sublet costs are put into the cost of the vehicle with no profit added. Repairs accomplished in your body shop have a built-in 70% gross profit on labor and 30% gross profit on parts.
· The dealership's willingness to merchandise this profit center.
· Your ability to obtain and retain qualified management and staff.
· Your location.
· Direct repair.
As a general rule aggressive dealerships are able to obtain 70% of this market based on repairing their makes only. I have measured body shop market penetration as high as 205%. This is expandable based on the variables listed above and the willingness to repair vehicles other than your franchised makes. The ultimate limiting factor is body repair space. It is easy to put the paint department on shift work since the job durations are normally short. The body repair area is much more difficult to put on shift work since clearing a work stall for the next shift because of the length of repair time becomes difficult.
One major consideration is that you already have two built-in controllable customers-your warranty paint repairs and your used car business.
· Facility Planning.
· Based on your original calculation of the annual flat rate hours (six year new and used vehicle base times four flat rate hours per vehicle per year) you have the basis to size the facility. Your body shop should operate at 160% productivity, 12.8 flat rate hours per man per workday.
8 hours per day 5 days per week 52 weeks per year =2080 clock hours minus 2 weeks vacation - 80 clock hours = 2000 clock hours
160% Productivity x 160%
Billable hours per man = 3200
Divide the market potential expenses in flat rate hours by 3200 billable flat rate hours per man at a 160% productivity. The result will be the number of men needed to generate these annual flat rate hours and have 100% market penetration potential.
A. Some body shop Benchmarks
Body men to painters = 3 to 1 for imports (3-2 for domestic)
Stalls per body man = 2
Stalls per painter = 3
These figures do not include dedicated frame stalls or paint booth stalls.
B. Ratios
Using the ratios above, 75% of your body technicians will be body men, 25% will be painters or painter helpers depending on your management techniques. For domestic shops, 67% will be body technicians and 33% will be paint technicians.
C. Stalls Needed
Allowing two stalls per body man and three per painter plus the frame stall and paint booth gives you the quantity of stalls needed to meet 100% of your market potential.
D. Shop Layout
Square footage in a body shop is a meaningless number. Usable stalls are the proper comparison.
Shop layout will be dictated by the section of the country you are located in and land configuration.
a) "Center aisle layout" is dictated in cold sections or areas of unusually high rainfall.
b) "Outside drive-in layout" is dictated in areas where cold weather is not a factor but rain or dust may be.
c) "Open bay layout" to the outside, no doors, can be used in areas where the weather is mild and dust or blowing rain is not a problem.
In an effort to control dust in the paint area keep the body repair air separate from the paint shop air space. This usually requires floor to ceiling walls.
If at all possible keep the body shop on the dealership site. Putting distance between parts, cashiers and business office audits only increases the difficulty of managing the shop and the body shop management feeling a part of the dealership management team. Give the body shop visibility from the road signage if it is hidden within the "depth" of the dealership.
Typical Management Overhead Structures
As a shop grows so does its overhead management count and resulting manning. Somewhere around five total technicians (and helpers combined), a typical body shop requires one manager. As the shop continues to grow, a support person will be needed at the eight-technician level. Continued growth will dictate a third person at the 11-technician level. The third person will either be a shop foreman/estimator or a full manager depending on the management capability and growth of the original manager. The fourth overhead person is usually needed at the 15-17 worker level.
Somewhere in this progression you will need a detailer or the ability to "sub" out this work, further adding to overhead costs.
Semi-fixed and fixed expenses remain almost at the same level in a quality shop. The increased overhead indicated above must be overcome by business volume. Many shops grow to a point where they hire this overhead, then stop growing and therefore can't justify the expense. The result is a body shop in the red.
Engineering Profit
Profit does not happen by itself-you must establish your guides and force volume to meet those guides. The following guides will net you 20% profit on labor sales, the benchmark. Note, I do not include parts profit transfer in this calculation.
30% cost of labor has been a benchmark in dealerships for 10 years and independent shops for 5 years. Reference the 1995 presentation by Charles B. Baker, publisher of Collision Repair Industry "Profile of a 'Winner' Shop".
Cost of Sale (technician pay) 30%
Personnel 30%
Fixed and Semi-Fixed 20%
Labor Net Profit 20%
Close examination of the above benchmarks reveals that management can correct cost of sales and volume can correct personnel (overhead) and fixed/semi-fixed costs.
Equipment Needs
Excess equipment will not produce excess productivity.
To begin with, most good managers can develop the basic tool requirements of a shop. The tricky areas are for the large purchases, frame racks and paint booths. These are two of the requirements of any modern shop. I suggest that you visit other shops in your area. Look at both the types of equipment you like and the types you don't like. Ask the users their opinion on both types. You may discover problems in equipment manufacturer support, which is a must. Remember a dealership body shop will usually be a "production" shop where efficiency and speed is important.