Once vocal about expanding its collision repair presence, auto retail giant AutoNation Inc. instead will now sell nearly a quarter of its body shops to Caliber Collision under an arrangement it says will deliver a greater return.
The Oct. 12 agreement, set to close in the fourth quarter, includes selling up to 17 body shops and a “long-term” deal for AutoNation to sell parts and refer work to the locations purchased by Caliber, the dealership group said. Financial terms of the deal were not disclosed, nor were the locations AutoNation plans to sell. Caliber did say 220 AutoNation employees would join its company as part of the deal.
Analysts said they don’t expect AutoNation will exit the collision business altogether, but one told Automotive News that arrangements between retailers and third-party shops could represent the future of auto body repair for dealerships. Three Mercedes-Benz dealerships in the Northeast generate more than $1 million in annual collision center revenue because of innovative deals with local body shops.
Focus Advisors Managing Director David Roberts, a Caliber co-founder who sold the company in 2008, said the deal raises the prospect that the nation’s largest new-vehicle retailer and largest auto body repairer have “figured something out here.”
AutoNation CFO Joe Lower said the retailer would continue to perform collision repair in-house and noted the company, by year’s end, will have acquired four auto body shops through dealership group acquisitions.
“We are clearly not exiting the business,” Lower told analysts on Oct. 21. But he said AutoNation, after a strategic review, felt it could generate better results at up to 17 stores by selling them to Caliber and working out a different arrangement with the rival.
Vincent Romans, another collision industry analyst, said he expected AutoNation to keep operating body shops that represent opportunity and profitability. The facilities being sold to Caliber “were not necessarily the highest-performing shops in their network,” said Romans, founding partner of the Romans Group in Golden, Colo.
AutoNation’s collision business, in general, has been a laggard in its recovering parts and service business, Lower said. “We do anticipate as miles [driven] continue to improve that that will fully recover,” he said.
In fall 2016, AutoNation said it wanted to expand its 70-shop portfolio by at least 18 facilities over two years. But the company only had 72 auto body shops prior to the Caliber deal, after selling three through the first nine months this year. It acquired one collision center as part of the Peacock Automotive Group purchase during the third quarter, and will add three more with the purchase of the Priority 1 Automotive Group, announced on Oct. 21.
However, at the end of 2020, AutoNation had 138 locations able to produce collision estimates before sending the vehicle elsewhere for the repair, Romans said. AutoNation exited the aftermarket collision parts business, which had been part of its brand extension strategy, in 2020.
AutoNation ranked fifth across all collision businesses and first among all public and private dealership collision networks in terms of 2020 revenue, according to the Romans Group’s most recent annual industry estimate.
Romans said he expected AutoNation’s 2021 collision revenue would retain its No. 1 ranking among all dealerships.
AutoNation, of Fort Lauderdale, Fla., ranks No. 1 on Automotive News‘ list of the top 150 dealership groups based in the U.S., retailing 249,654 new vehicles in 2020.
Forming a strategic partnership with third-party repairers in each of AutoNation’s major markets would likely prove more fruitful for the retailer than building a collision network, Roberts wrote in an email to Automotive News. Dealerships that refer business and sell discounted parts to preferred collision providers would receive “more gain with less pain,” he said.
“Our read is that the AutoNation sale to Caliber signals a recognition that they are each better off focusing on their core businesses — and gaining synergies from one another’s scale advantages,” Roberts wrote.
Caliber, founded in 1997, has almost 1,400 locations in 39 states. Most are body shops.
Romans said he hasn’t seen a broader trend of dealerships dumping their collision businesses outright. But he said he’s seen a slight uptick in auto retailers allowing third-party collision companies to operate out of the dealership’s facilities under the third party’s brand or a cobranding arrangement.
“Dealership collision repair is really a specialty and outlier business for many,” Romans said in an email. “It’s getting harder for dealer body shops to be profitable today.”