Perhaps the most family-oriented business in Australia, apart from milk bars and market gardens, is panel beating.
It’s always been the most fragmented of industries: thousands of (usually) blokes bashing back cars into shape and re-painting them, operating small suburban repair shops that scratch out a living in the tight space between rueful or aggrieved drivers and cost-conscious insurance companies.
Until now. A few years ago the two dominant insurers, Suncorp and IAG, decided the time had come to tidy up an industry that was, they had come to realise, an extension of them.
Suncorp chose to become part of it, by buying control of a panel beater owned by a visionary named Jim Vais called Capital SMART, and pushing consolidation that way, while IAG decided to stay away from ownership (for the time being) and to encourage a chosen few families to drive consolidation (see my previous article on this subject — Australia’s four great panel beating families, May 21).
After that article was published, I was contacted by the manager of a WA-based business called Car Craft Group, Noelle Simons, who said words to the effect of: “Oy, what about us?”
Car Craft, it turns out, is a large buying group of family-owned panel beaters in and around Perth that is in the process of going national.
It represents, in a sense, the circling of the wagons by the small panel-beating families against the four whooping, war-painted ‘consolidators’ — AMA Group, Gemini, SmashCare and Capital SMART, riding horses supplied by Suncorp and IAG.
“How’s that going for you?” I asked Noelle Simons last week. Well, they have just lost four of their largest members to Gemini, the Perth-based consolidator owned by the Hopkins family, Andy and Tim, and alarm bells are ringing.
“We’ve always resisted buying smash repair shops ourselves, and providing our members with an exit. This is an industry that has never run well under centralised management, and is always best under family ownership and management.”
I put it to her, and her chairman, Wayne Phipps of Wayne Phipps Smash Repairs, (10 Loton Ave, Midland WA), that this is changing now: Consolidation is happening and centralised management is achieving lower costs and prices.
They agreed, reluctantly, and acknowledged the board and management of the Car Craft group of family repair shops is rethinking its strategy.
They are already changing the structure to accommodate an expansion into South Australia.
Four years ago, Car Craft expanded into Queensland when its previous general manager, Dean Taylor, went to live in Brisbane for family reasons.
He suggested to Wayne Phipps that they try setting up Car Craft in Queensland and, through cold calling and old-fashioned shoe-leather, managed to persuade 14 local panel beaters to join up.
Like the members of Car Craft WA, the Queenslanders have equal shares in the business, except that Car Craft WA has one A Class share, which gives it effective control.
The South Australian expansion, now underway, is being done via a merger with an existing 27-year-old buying group, so control from Perth was out of the question, and there are no A class shares this time.
But the good news is that the SA structure should provide a model for future expansion into NSW and Victoria, which would make the Car Craft group by far the largest network of smash repairers in the country.
In fact, it’s already the biggest, with about 80 members, but because it is simply a buying group of individual family-owned businesses, it doesn’t get the full economies of scale available to other consolidators like Gemini and AMA Group.
Car Craft negotiates discounts on parts averaging about 10 per cent, of which 2.5 per cent is retained by Car Craft to run the business. Anything left over is invested in real estate, or paid back as a cash dividend.
However, the pressure on costs from IAG and Suncorp is now such that the 10 per cent discount on inputs is not enough: operational economies of scale will be needed to compete with the rapidly growing corporate operators.
That’s the next challenge for Car Craft. To provide an internal exit mechanism for its members, so they don’t have to sell to the consolidators, and at the same time create operational economies of scale.
They may be forced to consolidate into a single company, but they’re a long way from that decision at this stage.
This is a collection of fiercely independent family operators, giving up that independence to join together in a single company would not only be hard to swallow, but hard to digest.