Before he got into the collision-repair business, Jon McNeill was unfortunate enough to be a collision-repair customer. After a neighbor backed into his wife's Volkswagen Jetta in the summer of 1996, McNeill set out to have the car repaired. His insurance company insisted on estimates from three different body shops. The $1,600 repair job was then delayed interminably at the shop that wound up doing the work. When the McNeills finally got their Jetta back, two months had gone by since the accident.
At first, McNeill, a former Bain & Co. consultant who had left the firm to start an insurance call-center company, saw red. Then he saw an opportunity. During the next several months, he and Bill Haylon, a onetime Bain colleague, drew up a business plan for a national chain of auto-body shops that would focus on faster, more reliable service. In 1997, along with longtime body-shop owner Bob Thompson on board, they founded Sterling Autobody Centers.
Sterling tries to apply assembly-line discipline to the repair process. Company technicians are encouraged to improve the work flow continually and to share their ideas with the other shops in the chain. Rather than focusing on individual productivity, the staff works toward the goal of getting more cars out the door. Faster repairs make for happier customers (and happier insurers).
In recent years, a number of regional consolidators have begun operating auto-body shops that are built around similar principles of efficiency, teamwork, and reliability. But Sterling could very well become the biggest of the bunch, not to mention the first national chain of auto-body shops. Allstate, the nation's second-largest insurer, liked the Sterling model so much that it purchased the company last year. Now the plan is to expand the chain — which already has 43 centers in 10 metro areas, including Atlanta, Chicago, and Houston — into dozens of Allstate's top markets. To paraphrase Sterling CEO McNeill, the strategy is to do for collision repair what the Home Depot did for hardware.
And like the Home Depot, Sterling's growth is not without its opponents. In Chicago, a group of body-shop operators is trying to block construction of a new Sterling center. Even though Allstate lets its customers choose any auto-body shop for their repairs, small shops fear that the insurer will push Sterling. In California, a bill that prohibits insurers from having even partial ownership of a repair shop was recently introduced, potentially shutting Sterling out of a huge market.
Meanwhile, McNeill still insists that Sterling is a much-needed option. Collision repair is a $26 billion industry with about 60,000 auto-body shops — the vast majority of which are independently owned. "It's a fragmented industry," he says. "There's no consistency in terms of quality or technology or process."
There is also the often-adversarial relationship between repair shops and the nearly 1,500 insurers that offer auto coverage. Both sides routinely disagree on the cost and the time that's needed for repairs. In the 1970s, Allstate actually managed to improve this relationship by creating a direct-repair program. The network featured reliable shops that required less oversight and received faster approval on estimates and parts orders. Most insurers now have their own direct-repair networks.
But those networks don't do enough to streamline the processes of claims and repair, says Chuck Paul, Allstate's vice president of claims strategy. With Sterling, he says, "we hope to raise the bar."
The acquisition is already saving time and money. By giving Sterling direct access to a client's claim information, Allstate has reduced the number of phone calls that confirm the basic information in a claim record by 80%. For one body shop in West Chester, Pennsylvania, repairing cars in seven or eight days is saving the insurance company about $100 per claim in rental-car fees.
When Thompson converted his West Chester shop into the original Sterling Autobody Center, he and the Sterling team looked at a year's worth of repairs and identified ways that its technicians could work both smarter and faster. Their cycle time was about 15 days, he says, which was about average for the industry. Not surprisingly, the biggest holdup came in waiting for car parts. "Every time we ordered a part, it added 2.9 days to a job," says Thompson, who is now senior vice president of business development for Sterling.
To prevent reorders and delays, Sterling needed to be able to write accurate estimates. Rather than basing them only on visible damage, which is common when insurers ask for multiple quotes, Sterling instead prefers to "tear down the car," says Thompson. A damage-analysis manager removes all of the damaged parts and decides what can be repaired and what needs to be replaced. By understanding the full extent of the damage, technicians can minimize the chances of unexpected repairs popping up later. (Sterling now averages less than one reorder per repair.) Also, technicians can better predict when the repair work will be finished. In fact, Sterling guarantees its due date. "Before, our on-time delivery was about 68%," says Thompson. "Now we're at 95%."
"We're not doing anything fancy," adds McNeill. "We're doing what Henry Ford did 100 years ago. I've told our guys that in five years, I want to be able to have the bulk of our repairs done in one day. You can't do that by just showing up and doing things the same old way."
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Sidebar: Shop Talk
Sterling Autobody Centers is applying sound business practices to an industry that's famous for lacking them. Here are three of its guiding principles.
1. Do the little things right. As part of damage analysis, technicians take each wrecked vehicle apart, making sure to "bag and tag" the smallest components and then store them on that car's parts cart. Otherwise, a $4,000 repair could stall over a broken or missing $4 part.
2. Don't start what you can't finish. In some body shops, technicians start a repair based on which parts have come in first. Then they stop and wait for more to trickle in. Sterling uses a parts broker, who ensures that all of the parts arrive at the same time. Only then does the work begin. "If you were baking a cake, you wouldn't start if you didn't have the eggs," says Bill Little, general manager of the Sterling shop in West Chester, Pennsylvania.
3. Clean is good. The repairs may get messy, but the shop doesn't have to. Sterling insists on keeping its centers clean and orderly — not just because its customers can watch the activity through the large windows out front, but also because it sets the right tone. Employees are repair professionals, not grease monkeys. "There's no spitting," says Little. "You see that at other shops, but I don't want people doing it here. This is where we come to work every day. I want it to look nice."