ABS brakes, parking sensors and speed cameras are pranging the smash repair industry: it is, in brief, another ‘technology disrupts industry’ story, like Uber and taxis, or Airbnb and hotels.
As a result of a whole range of new technology, accidents are getting rarer and, on average, less serious, and the truck barrelling over the hill towards this industry, as it were, is the driverless car, which could virtually eliminate prangs altogether.
So the industry is consolidating and changing rapidly in response to technology that is both preventing accidents and totally changing the way the cars are repaired, and there are four families driving that consolidation.
The four names are: Hopkins, Vais, Pappin and Malone. Actually it’s five men — Andy and Tim Hopkins (Gemini), Jim Vais (Capital SMART), Vaughn Pappin (SmashCare) and Ray Malone (AMA Group) — but what they’re doing is based to a large extent on family ownership and ambition.
And in the process they are dragging one of the last family-dominated cottage industries into the 21st century.
The single suburban panel beater, traditionally owned by the overalled bloke and his wife, simply hasn’t got the capital these days to supply the two insurers that control this industry, Suncorp and IAG, with the speed and prices they are now demanding.
Gemini, Capital SMART, SmashCare and AMA Group have become the four ‘consolidators’.
AMA is a listed company, 24 per cent owned by its chief executive Ray Malone (and this week it bought the fifth consolidator, Woods); SmashCare is 50 per cent owned by Vaughn Pappin with the rest owned by two executives, Martin Riseley and Mark O’Shannessy; Perth-based Gemini, now Australia’s largest smash repairer, is owned by the Hopkins brothers, Andy and Tim; and Capital SMART is a joint venture between Jim Vais and Suncorp — the Queensland insurer owns more than 50 per cent, but Vais runs it. (Actually he’s not CEO, just chief operating officer, but I don’t think there’s much doubt about who’s in charge.)
These men are the industry’s innovators, and they all seemed to have started doing it at roughly the same time, about eight or nine years ago.
The reforms and advances they initiated, in partnership with Suncorp and IAG, are bearing fruit today, although there is still some way to go (as evidenced by the story in Sydney last weekend about an elaborate scam involving crash repairers and tow truck operators taking cars hostage and demanding ‘ransoms’).
Let’s start with Jim Vais. Now 45, he left school at 14 and got a job sweeping the floor at Bernie Mack’s Motor Body Repairs (cars and motorcycles) in East Bentleigh, Victoria.
He got an apprenticeship at 15 and started spraying cars in his dad’s garage until his dad finally said: “Son, this won’t do any more. It stinks.” So Bernie, who was the Australian sidecar motorcycle champion by the way, helped him start his own shop. He was 21 and it was 1991.
Eventually Jim bought Bernie out and grew the business to six panel-beating shops.
Around 2006 he could see that the industry needed to change and realised that if he could focus on relatively minor prangs he could development a more efficient, production-line system for repairing them.
So he developed what he called SMART, an acronym for small and medium accident repair technology. Tthe ‘small and medium’ refers to the size of the accident, not the car; essentially it means the car is driveable and doesn’t need towing.
One of the keys to his system is infra-red paint curing, which dramatically cuts down the time it takes to finish the car. The result, according to Jim, is that output has tripled and the time taken to repair a car reduced from days to hours.
He took the system to both Suncorp and IAG. IAG liked it but wasn’t prepared to provide the volume guarantee he wanted; Suncorp liked it so much that in 2010 bought into his business and it was renamed Capital SMART.
For some reason neither Jim nor Suncorp would tell me what their shareholdings are, except that Suncorp owns more than 50 per cent and there are no other shareholders.
Anyway, the business now has 26 shops and in many ways Suncorp’s vertical integration has been one of the key drivers of change in the industry: it forced IAG to provide firm contracts for its repair work, and has meant that the two insurers, which together pay for about 85 per cent of Australia’s smash repairs, are effectively forcing the industry to innovate and therefore consolidate.
IAG decided not to go down the vertical integration path and buy into a panel beater (yet), and instead operates partnerships with Gemini, SmashCare and AMA, among others. The Brisbane-based SmashCare also does Suncorp’s non-driveable work.
Suncorp, through Capital SMART, is now pushing into handling bigger accidents. The company has bought Q Plus, a heavy hit smash repairer in the Sydney suburb of Riverwood, and renamed it SMART Plus. Jim Vais told me yesterday that the plan is to grow that business aggressively and expand Capital SMART fully into non-driveable repairs.
Vaughn Pappin is about 10 years older than Vais, and he also started spraying cars at home, for Brisbane car dealers. In his case it was under the house (it was a Queenslander), and it was his mum who put her foot down and told him to cut it out.
So he borrowed $30,000 on a guarantee from his dad and bought a panel beater around the corner from his home, Nundah Smash Repairs.
He built the business to five shops — three in Queensland, one in NSW and one in Victoria. Around 2007, about the same time as Jim Vais, he realised the repair process could be made much more efficient: specifically that mild front and rear prangs could be commoditised.
In 2010 Suncorp wanted to include Vaughn’s business in its vertical integration plan with Jim Vais, and for much of that year Pappin says he worked three days a week with them, putting together the strategy for Capital SMART that would bring together the Vais and Pappin operations.
In the end, Vaughn decided not to do it; he didn’t want to give up control. He still does non-driveables for Suncorp, but the driveable repairs that make up most of his business come from IAG. These days IAG provides volume guarantees, because that’s what underpins the consolidation it wants. He ended up merging with Martin Riseley’s chain of panel shops in Melbourne, doubling the size of the business.
Meanwhile the fallout from Suncorp’s and IAG’s push to consolidate the industry reached a big milestone this week with the acquisition of the Woods Accident Repair chain by Ray Malone’s AMA Group.
Woods was one of the early industry consolidators but lost its contract with Suncorp when the insurer decided to buy into Jim Vais’ business and deal exclusively with him. For the last few years, Woods has had to scramble for business from the small insurers that make up the 15 per cent of the industry not controlled by the two majors.
Woods has now finally given up and Ray Malone has been able to buy Woods’ 14 shops, and $30 million revenue, for just $2m cash up front and an earn-out arrangement based on future profits.
The vendors will eventually win because AMA will move the Woods panel shops back into dealing with the big insurers – through AMA – which will produce an instant uplift in earnings.
AMA’s acquisition of Woods was a reminder, not that anyone needed it, about who counts in this business. It’s the insurers, Suncorp and IAG.
As for Gemini, more on the Hopkins brothers another day. Short story: they emigrated from England and bought a panel shop in Perth, and like Jim Vais, Vaughn Pappin and Ray Malone, became innovators and consolidators — recipients of the Suncorp and IAG magic dust.
The only question now is whether the “Coles and Woolworths” of smash repairs — Suncorp and IAG — continue to support the four family-controlled consolidators, or decide to mop them up and go fully vertical.
That would be the ultimate consolidation: full ownership of the smash repair industry by the insurers.
And as with many family business stories, it probably depends to some extent on succession: Vaughan Pappin, Jim Vais, Ray Malone and Andy and Tim Hopkins are still all quite young, but not getting any younger.
At the moment they are all busily building smash repair empires. At some point, for all of them, it will be succession or exit time. I’m betting it will be exit.