You must learn from the mistakes of others. You can’t possibly live long enough to make them all yourself. ~ Samuel Levenson
He came to town in 2001. The effect of his presence was felt almost immediately.
His dazzling multi million dollar body shop with a built in Starbuck’s style coffee bar was conspicuously poised on the busiest highway in Tulsa.
Stories quickly circulated about his business building tactics.
His Friday lunches with as many insurance agents as he could fit into one limousine. His relentless courtship of all the major insurance companies was starting to work. His stalls were filling up and the buzz was huge.
Where did he get this business?
A large body shop I worked with went from 500,000 a month to less than 300,000 and has yet to gain it back.
Yes, Todd Fox with his Fox Collision Centers became the guy to fear, hate and in some ways, to admire.
Tulsa residents loved Fox. Why? The public loves whatever is new and they want to go where everyone else is going. Fox spent millions plastering his ads on television and billboards and city buses.
From inside of the industry, I heard many stories about angry customers.
Keeping cars for many weeks past the expected completion. Constant turnover of technicians. They were even driving vehicles hundreds of miles away to another state for paintless hail repairs.
Still, people loved them. I remember one customer being really put off when they asked if they should take their car to them and I recommended someone else.
Fox even put themselves into the paintless hail business by partnering with a crew from Texas. In 2005 he put together a huge trailer for mobile hail sites. This he placed on a main intersection near the heart of the hailstorm.
Total Market Dominance
How do you compete with a company who gives so many concessions?
How do you keep their success from becoming your distraction?
How do you avoid blaming your slow business on their shady business practices?
If you are in the paintless or body shop business here in Tulsa, you could easily become competition focused.
I remember a competitor who moved around the corner from me eight years ago. His location on the main road virtually guaranteed notice from anyone to whom I gave directions to my shop.
It was a price shopper’s paradise.
I figured I’d be smart and put myself in a better location as well. Still, I could watch as customers would leave my driveway and enter his a few blocks down the road.
One by one, the wholesale accounts I used to count on for their “loyalty” jumped ship and went to the new shop. Why? His goal was to set up a one stop shop for all reconditioning. One price for everything needed to get a car ready for sale.
It worked… for a time.
His business was a distraction for me emotionally and this was a huge mistake. He went under a year later and still can’t return for fear of the Internal Revenue Service. All of the focus and emotion I invested in this competitor turned out to be useless.
Now Fox Collision has become the latest “Flash in the Pan” business to sell a new vision and then disappear in the mist.
Gone. From 1 location in 2001 to 18 in four states by early 2006. Now, back to zero.
What happened? More importantly, what can you learn from it?
Todd’s letter to the Body shop industry:
“My name is Todd Fox. I am 43 years old and the president of FOX Collision Centers, Inc.
I operate 18 auto collision repair facilities and satellites that serve a four state area. Our
annual sales top $28 million. I have been in the collision repair business since I was barely
eleven years old, when I swept floors in my parents’ body shop. I witnessed the “Cowboy
and Indian Days” when body shop owners and insurance personnel were adversarial, rude,
and, at times, eager to cheat each other out of anything and everything.
FOX Collision Centers historically have made money. Sometimes not much, but enough
for me to still wake up excited at 4:30a.m.every morning and go to work! But, the bottom
line is that the business model that supports the new DRP models does NOT work
financially. At the beginning of this year, with my regional group of shops operating on
the lowest gross profit margins in our history,and the next evolution of DRP being
implemented by the largest insurer in North America, I asked myself,“How can my group
of shops survive in the years to come?” Unfortunately, the answer that became obvious
was, “We cannot!” Though ALL of our shops are busy with work and in good standing
with all concession-based and non-concession-based DRP programs, I am sad to announce
that today I will close all 18 of our locations. Hundreds of people will lose their jobs. I am
so sorry, sad, and discouraged.”
DRP is an abbreviation for Direct Repair Program. It is the equivalent of Managed Health Care or as they are called in the United States, PPO and HMO.
It is an agreement between an insurance company and a body shop for how a car will be repaired and how much the repair will cost.
These agreements are appealing to the shop because it guarantees them a certain amount of business. This is because the insurance company will “recommend” the shops who are on their DRP program. This is called “steering” since the jobs are steered to certain shops and away from those not in the program.
What do shops give in exchange for this business?
Sometimes it is just agreeing to do the estimating for the insurance company or to use a certain estimating software.
More often it requires the shop to keep their labor rates low and their materials charge below a certain threshold.
As you’ll note from Todd Fox’s letter, he blames his business failure on these kind of arrangements or DRP’s.
There are two myths which you hear almost daily, “We can make it up in volume” and “They must be making money, look how busy they are!”
Fox’s experience clearly spells out how wrong these myth’s are.
Body shop profit margins are somewhere in the 8 to 12 percent range. After everyone gets paid and all the overhead comes out, this is all that’s left.
Most shops spend very little on ads outside of a website and yellow pages. When you see one spend what Fox was spending, it is easy to think it must be working.
But remember, they are not charging any more than any other shop in town and are likely charging less due to their DRP relationships.
28 million dollars seems like a lot and it is. However, ten percent of that is not much at all when you consider the headache of running 18 locations.
Notice what Todd did:
“Eighteen months ago, although discouraged by the evolution of the modern day,
concession-based DRP, I was determined to overcome the costs of the added administrative
requirements and still ensure safe repairs. Even with the complexity of all the various
versions of DRP requirements, I established what we call the FOX Command Center. To
this day I am very proud of this centralized unit that monitors and administratively
processes every step of each auto repair. The FOX Command Center is located at our head
office in Tulsa, Oklahoma. It leverages technology to solve the issues that challenge every
shop on a DRP. The Command Center instantly improves our key measures in all DRPs.
In addition, it allows me personally to spend more time at home with my family, instead of
on the road. As you might imagine, it is a considerable expense to implement, and since profit margins are way down, the only way to make them up is in volume. Therefore, we brought in additional volume, but once we had it,many of the concession-based DRPs saw it as an opportunity to squeeze even more concessions and profits from us.”
Seems wise, right? Setup a command center.
The lesson is in what he says right after that, ‘profits are down, the only way to make them up is in volume.’
The labor rate in Tulsa for body shop repairs is 40 dollars per labor hour. If Fox was giving concessions to their DRP’s they were only getting 36 per labor hour or 20 percent less.
If “making it up in volume” were viable, his shops would need to produce cars at a rate of 20 percent faster to just be even with his competitors. Even if the volume were their, could he make his technicians 20 percent more efficient? Could he get the parts houses to deliver the parts 20 percent faster? Could he force the coatings used in the paint shop to dry 20 percent faster?
It is a ridiculous lie. A myth surely started by a person with no business experience.
The same myth is heard by those who look at Wal-Mart as business model. Sell at low margins and the profits will take care of themselves.
I call this “Outside In Math”. It is all too easy to look at a business, how busy they are, how many people go in and out and be misled by it all.
You as business owner, cannot be fooled by what you see on the outside.
Fox has proven that it is possible to be busy and still go out of business. Until their demise, you could hardly get into their parking lot they were so full.
In fact, this is one of the earmarks of a business soon to fail, according to Larry Steinmetz and Bill Brooks, the authors of “How To Sell at Margins Higher than Your Competitors”.
For you, if you have a competitor who seems busy and you feel jealous, go home and look at your own books. These are the only accounts you can see from the inside out.
The only ones you can change for the better.
What if you are still an employee and run your business on the side? Try to remember that your life as employee should be run like a business, too. Think about the employees of Fox who had to scramble to find work elsewhere. Who had more risk, them or Todd Fox? Who had more to gain?
Sometimes we put our trust in ivory towers and call secure that which can never be. We place our welfare in the hands of one or a few hoping they will continue to be successful.
I’m not saying quit your job, only that it is wise to put yourself in a position to be self reliant.
To have a skill like PDR which is portable, something you can take with you if the need arises.
To be open eyed and pragmatic about your position in the company you work for. Things can change very quick and they often do.
Resiliency
Right now things look bleak for Todd Fox. I have heard many say that he can never come back in the body shop business. I believe he can and is already making plans to do so.
You can see it in his letter.
“We “Step Down” in Order to “Step-Up”
I call on fellow collision repair operators to recover and rehabilitate your businesses even if it means starting over!
Watch for and participate in a new web site, www.BodyShopRehab.com coming soon.”
I’m not saying what he did was right, I am only pointing to a requirement for success. If you experience rocky roads in your business and have to admit defeat, can you see the light at the end of the tunnel? Can you look far enough ahead to a time when you’ll start again and bounce back?
One more thing. When you do build a business and you have employees, always pay them first, especially if you are the only one who works there. Nothing sells a news story like outrage and notoriety. Todd created both when he failed to make paying his people part of his exit strategy. I’m sure he’d be the first to tell you being chased across 5 states by a reporter and camera crew is no fun at all.
Till next Time,
Tim Olson