MSO Profile: CARSTAR Auto Body Repair Experts

Aug. 28, 2014
On its silver anniversary, CARSTAR Auto Body Repair Experts continues to expand its massive network.
David Byers

While there are an increasing number of large, multi-state MSOs in the collision industry, CARSTAR Auto Body Repair Experts remains the biggest fish in the pond. With 440 locations in 31 states (plus 10 Canadian provinces), the company is the biggest MSO in North America. Last year, the company reported $641 million in revenue, up from $603 million in 2012, and in 2014 the company repaired its 4 millionth vehicle, a 2009 Nissan Altima. The company performed the repairs gratis as part of its 25th anniversary events.

And CARSTAR just keeps growing. According to the company, revenues are expected to exceed $650 million for 2014, thanks in part to the rough winter and severe storms that occurred earlier in the year. With the uptick in new car sales, CEO David Byers says he expects to see an increase in new vehicle repairs and customer-pay work on newer vehicles. The company has also continued to invest in new technology and training to repair vehicles that use advanced materials.

CARSTAR Auto Body Repair Experts

Leawood, Kansas
Headquarters

440
Number of shop locations

31 
Number of states reached (plus 10 Canadian provinces)

25
Years in business

4,000+
Number of employees

BASF
Paint supplier

$641 million
2013 revenue

www.carstar.com

Byers attributes CARSTAR's continued growth in part to the deep relationships the company has established with insurance carriers. "The vast majority of the work comes through insurance carriers, and as MSOs work more aggressively with the carriers to provide incremental service, I think we are getting more and more business that way," Byers says. "Our KPIs, because we're owner-operators, tend to be in the top tier of MSO performance, and increasingly carriers are demanding that level of KPI performance to drive more work to the stores."

Franchise advantage
CARSTAR was launched in 1989 in Kansas City by former 3M employee Lirel Holt as a network of independent shops that relied on standardized repair processes and best practices, and leveraged its multi-location structure to negotiate better terms with suppliers and insurers. Wicklunds CARSTAR in Liberty, Mo., was the first franchisee. By 1990, there were 100 stores in the network, and the company expanded into Canada in 1994. CARSTAR passed the 400-store mark in 2012, and that same year, insurance repair revenue alone exceeded $320 million.

The company's expansion has had some ups and downs. Byers, an experienced franchise business executive, was named CEO in 2011 to replace chairman and CEO Dick Cross. After he arrived in 2004, turnaround expert Cross aggressively revamped the company's approach to its franchise model to provide more consistency. CARSTAR lost some franchisees during the transition, but grew rapidly afterward. During his tenure, Cross also orchestrated the purchase of a majority stake in the company by Champlain Capital Partners in 2008.

Unlike most of the other large MSOs that operate company-owned stores, CARSTAR is a franchise business, another factor that Byers says contributes to the company's financial health.

"There is one very clear-cut advantage, as far as I'm concerned, and that is in a franchised network you have the owner-operator's blood, sweat and tears in the business," Byers says. "They provide a level of customer service and caring about the business that I think is impossible to replicate outside of the owner-operator network."

As an MSO, CARSTAR is able to provide more of what Byers called incremental services to the insurance carriers, including nationwide warranties, faster cycle times, more accurate estimates, accelerated I-CAR certifications, standard operating procedures for repeatable outcomes, load leveling, call centers to streamline customer interactions and drive closing ratios, self-management of KPIs at each facility, and advanced reporting and analytics capabilities. "There is a whole series of things that MSOs can provide to insurance carriers that it is difficult for the independents to do," Byers  says. "That's a lot of added value that MSOs are fortunate enough to be in a position to deliver, and I think it's increasingly difficult for independents to provide that level of detailed service."

The company has also been able to partner closely with 50 major vendors, which allows them have access to products and services at discounted rates.

Insurance relationships rest on KPIs
To maintain the relationships CARSTAR has with insurance carriers across the country, Byers says each shop focuses on KPIs like cycle time, days of rental, and estimate accuracy based on both carrier requirements and internal efforts to drive out costs.

"The carriers are so engaged in the analytics today of the business, because that drives customer satisfaction and cost control," Byers says. "We have an open-kimono approach, and we make all of those analytics available. We provide all of that data so we can make sure we're meeting or beating the carriers' expectations."

Having a centralized insurance department within the company has also helped streamline interactions with the hundreds of carriers that write policies, both national companies and regional carriers. "We're seeing the insurance carrier moving to a more centralized environment, and that allows them to set specific performance metrics that shops need to deliver against," Byers says. "The carriers can call one person at CARSTAR, and it streamlines the process for them. If there is an issue with a store, we have the manpower to go deal with it. We also have a nationwide warranty, and the ability to stand behind the product no matter where the car winds up in the U.S. Carriers appreciate that warranty system."

Targeted expansion
CARSTAR's expansion efforts have primarily been driven by population density, and building out existing markets. "We're focused on markets where we already have a presence today, and are continuing to build a presence there," Byers says. "We do some selective expansion into important new markets. California is a good example of that. We have so much presence already, unlike other MSOs that are still building out in certain regions of the country. We have most of the major urban centers covered in the U.S."

When new stores join the network, they go through a 90-day integration program. "New franchisees have to take classes and be trained on a whole series of metrics and processes to ensure they are delivering against our core measures," Byers says. "At the end of the integration period, we test the store and make sure they are adequately meeting or beating those criteria."

Each store uses the CARSTAR Solution, which is the company's version of Mitchell RepairCenter, along with a standard estimating platform. That solution, which was rolled out in 2012, has eliminated dual data entry and allowed the company to maintain information in a corporate data warehouse to better manage KPIs.

"We publish each store's performance to every store in the network," Byers says. "You can see how all of the stores are performing against all of the metrics, and the stores are incentivized to perform better than their network neighbors."

CARSTAR has also embraced parts procurement automation as much as possible. "Where we can automate parts processing, what we've found is that we secure a better part at a better price, with less likelihood of the store returning the parts than before," Byers says. "That's a testament to the industry getting up to speed and offering automated parts procurement capabilities."

Shops in the network also have to maintain their investment in repair technology and training. "Shops have to have the capital structure that allows them to invest for the future," Byers says. "They have to have the right kind of technology in the shops, the right kind of human capital. Larger shops that have that capital structures and are able to do that are seeing a return in terms of incremental business."

CARSTAR has a company-owned R&D facility where it tests all new procedures and equipment that go into the network. Standard CARSTAR operating procedures are centralized under the EDGE performance program, the proprietary operating system for the stores that provides a roadmap for meeting KPI goals, and includes hands-on coaching and support. "That maps out the hundreds of aspects of running the business that must be maintained at each store," Byers says. "We've found that drives those repeatable outcomes over time."

CARSTAR has a thorough checklist the integration team uses to evaluate prospective new stores, and every store is regularly evaluated to ensure they are meeting the company's goals. Regular evaluations also ensure that any new best practices in place at top performing stores can be deployed across the network. "We have a whole group of what we call area directors of operations that travel the country every day to review operating procedures," Byers says. "They identify where stores are outperforming on the metrics and bring that information back to evaluate. We use our R&D facility to see how we can take those ideas that have been leveraged that at that store and monetize that across the system."

The future looks bright Byers says the arrival of private equity in the collision industry via the acquisition of large MSOs like CARSTAR has brought a number of changes, some positive and others potentially negative. There's more capital available, but the current acquisition boom has to be carefully managed.

"The biggest challenge with a lot of these acquisitions that are fueled by private equity is their ability to successfully integrate the acquisitions," Byers says. "Integrating different cultures and operating structures is a tall order. It will be important to see how the consolidators are able to aggressively and appropriately integrate those new acquisitions."

For CARSTAR, Byers says the company's biggest challenge moving forward will be identifying the right independent shops that will be a good fit for the network on a long-term basis. "We look for stores that already have the basic core competencies and KPI delivery, and that have the ability to invest for the future," Byers says. "Those stores are places where we can help accelerate existing growth."

For the industry as a whole, he sees independents having a harder time competing effectively, while consolidators may struggle rapid expansion.

"The biggest opportunity for CARSTAR is leveraging all of the consolidation in the industry," Byers says. "If you're an independent, you have three choices. You can go it alone, you can sell to a consolidator, or join a network. We're the only materially large network in the U.S. right now. We want to leverage that consolidation to make sure the best of the best are joining our network over time."

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