Top, Body, and Upholstery Repair Shops and Paint Shops

Industry Snapshot

For almost as long as there have been cars, "scratch and dent" shops have been in business to rejuvenate them. Not long after cars became affordable for most of the public, car owners began looking for ways to "jazz up" their vehicles to suit their individual tastes. Such customizing uses the technology and expertise of the body and paint shop to convert mass-produced cars, vans, and trucks into special-use vehicles.

Although the operations must be physically separated, many body shops also have onsite painting facilities. Generally, these shops strive for a craftsman image, emphasizing quality rather than speed of delivery. Consumers, however, chronically placed auto repair shops in general, and body shops in particular, high on their complaint lists. Franchising, therefore, was an important segment of the industry, combining the small, personal craftsman image with the impact of nationally recognized and trusted trademarks.

According to Dun & Bradstreet, there were an estimated 58,909 top and body repair and paint shops in 2008, employing 265,911 people. Together, they shared more than $16.59 billion in annual revenue. Most firms in the industry remained relatively small, employing fewer than 10 workers, many of which were owner-operated "mom-and-pop" shops.

Background and Development

In 1937, the price of painting a car ranged between $85 and $350 and took from six days to two weeks to complete. Then came the assembly-line paint job, pioneered by Earl Scheib Inc. of California, offering the same job for $19.95 and same-day service with a three-year guarantee. Scheib's technological innovation led to a basic division in the paint and body shop industry that continues to persist.

Small shops provided detailed precision work using high-grade materials and tools developed for the modern automobile. In the 1980s, the major auto manufacturers switched to unibody construction and metallic paint finishes. Consequently, frame straightening and quality paint application began to require specialized equipment costing hundreds of thousands of dollars. Those shops, which could not afford the massive capital investments in this technologically advanced machinery, became noncompetitive.

In 1987, more than 3,000 converters supplied specialty vans to car dealers and individual buyers. However, the product was often unacceptable to consumers, prompting Ford, General Motors, and Chrysler to establish "consignment pools" of preferred converters. That policy and increasing competition for a dwindling market share drove the number of active converters down to between 300 and 600 by the early 1990s. This number was predicted to decrease even further as larger, better-capitalized conversion firms, such as the Starcraft Corporation, forced out the craft-shops through intense price and service competition. Firms manufacturing for the consignment pool are classified under SIC 3716: Motor Homes.
Assembly lines also provided quality work by specializing in repainting and confining their bodywork services to surface preparation and minor repairs. During the early 1970s, MAACO Enterprises Inc. of Pennsylvania combined the best of both systems with its franchising concept. Instead of creating a chain of company-owned shops, MAACO used its name and national image to tie together a system of 553 independently-operated facilities in 1999. A 1997 issue of Entrepreneur magazine ranked MAACO number one in auto appearance services. MAACO claimed it painted and repaired more vehicles than anyone else in North America. In March 1997, MAACO painted its 10 millionth car in a special promotion commemorating their 25th year in business.

Other firms, like One-Day Paint and Body and Econobake followed. The national clout of these chains and their access to sophisticated tools and training forced many of the marginal craft shops out of business. These franchise operations are covered in SIC 6794: Franchises, Selling, or Licensing.
As the cost of new cars escalated, increasing numbers of Americans were extending the life of their current vehicle with a little paint and body filler. According to the 1998 Statistical Abstract of the United States published by the U.S. Census Bureau, automotive repair shops of all kinds took in $65.3 billion in 1997, up from $62 billion in 1996. In 1997, car owners spent $19.8 billion on auto body repair and paint services, nearly one-third of total industry revenues, up from $18.7 billion in 1996.

Increased environmental protection legislation brought additional challenges to paint shops in the 1990s. Paint and body shops were primary sources of air and water pollution and contributed significantly to toxic waste stocks. To address this problem, the industry attempted to reduce and recycle waste thinners, solvents, and paints. The Federal Clean Air Act of 1990 mandated a reduction in volatile organic compounds (VOCs). Consequently, paint shops had to invest in a major retooling of their facilities. The industry warned that it possibly would not be able to meet the new standards, and if it could, prices would soar and quality would plummet. Paint shops were faced with higher handling costs for chemicals, particularly for disposal, in addition to increased retooling and re-education costs. Major assembly plants had been able to reduce their VOC emissions by 60 to 90 percent over the decade preceding the Clean Air Act, thanks to multi-million dollar investments in ever-changing technology, but small shops lacked the capital to invest in those innovations. In 1990, the switch from oil-based to water-based paints began successfully, but painting processes still produced toxic sludge that often ended up in waste dumps. Studies in the early 1990s found that up to 40 percent of sprayed paint was wasted in this manner.

Environmental regulations also made companies legally liable for toxic contamination in waste containment facilities. One of the largest companies in the industry, Earl Scheib, faced two such lawsuits in 1992 for solvents dumped at landfill sites during the 1960s and 1970s. Clean-up costs for these violations reached an estimated $988,000.

Chrysler Corporation began using a method developed by Haden Environmental Corporation of Troy, Michigan, to combat toxic waste produced by auto paint. According to Ward's Auto World, the process recycled the over-spray into a powder, which was then used for under-body paint on Dodge trucks.

Automotive manufacturers introduced water-based paints into their assembly line process with reasonable success in 1982, but these paints required a high-temperature "bake," making them impractical for most aftermarket paint shops. In 1993, Imperial Chemical Industries PLC (ICI) of Britain began preparations to market a new version that eliminated the need for high temperature treatment. The acrylic polymer compound produced an excellent film at 60 degrees Celsius. In England, the new paint commanded a premium of only 5 percent, but in Germany and Italy, it increased the price of a can of paint by as much as 30 percent. Some U.S. paint shop operators estimated that the paint and associated equipment could increase their costs between 10 percent and 40 percent, but their main customers, the insurance companies, were not responding quickly to the suggestion of an increase. According to ICI, tests on the process in Germany and Italy found that no major equipment or retraining investments were necessary. Moreover, the system was expected to improve conditions for painters by making the work environment healthier and cleaner. A water-based paint produces 72 percent less VOC emissions than the industry's standard solvent-borne metallic paints, which contain as much as 85 percent solvent. By some estimates, metallic paint spray accounted for one-half of all industrial solvent emissions. Powder coatings emit zero VOCs, and were the fastest growing product in the paint and coatings industry.

Acrylic powders were used in the late 1990s in primer surface applications. In 1992, General Motors started using an acrylic-based primer and an acrylic trim coating at its Shreveport, Louisiana, plant then started using acrylic based powder primer surfacer at two other plants. Most producers, however, were aiming to develop clearcoats. In the late 1990s, Ferro, which is one of the world's largest paint suppliers, developed a powder coating that greatly reduced waste and solvent emissions. Its sales grew much faster in North America than in Europe, where powder coatings had been commercialized for a longer period. Most primers and clearcoats were expected to eventually be converted to powder, while the color coats were likely to be converted to waterborne coatings, which retain better color consistency and depth than powder.

In addition to reducing their VOC emissions, auto body shops must also recycle and capture refrigerants whenever a car's air conditioning system is repaired or scrapped. Before topping up systems, workers are required to check for leaks. Various pieces of equipment, from leak detection gear to recycling/recovery devices are necessary to complete this process. This equipment can cost several thousand dollars when combined.

In 1996, the National Paint and Coating Association announced its coatings CARE Program, which was a progressive initiative that enabled companies to follow a common, effective management approach for their health, safety, and environmental programs. Participation was voluntary, but because the program offered expanded resources, improved communications, and opportunities for heightened industry performance in health, safety, and education, the NPCA believed that participation was vital to an organization's future. They believed that the industry, regardless of size, product, or specialty, would have to adapt to new technologies and respond quickly to keep pace and satisfy growing consumer demands.

Image also became an issue for body shops. Shedding the gritty junkyard image, new shops stressed customer service in clean, friendly environments with easy main-street access. Some firms used central major repair centers to handle the "heavy-hitters"--vehicles that needed more than $2,500 in body repairs. This practice kept the "wrecks" out of the public eye and improved the body shop's good-neighbor image.

In 2004, the total number of automotive repair shops stood at 61,049, wit employment of 252,837 people. Combined industry sales were an estimated $15.5 million. States with the majority of auto repair shops were California, Florida, Pennsylvania, Ohio, New York, and Georgia. Combined, they represented more than 34 percent of the overall market. Automotive body shops represented the largest sector within the industry with 33,855 establishments, or 55 percent of the market. Top, body repair, and paint shops numbered 11,737 and constituted 19.2 percent of the market. There were 3,221 automotive paint shops, 2,880 automotive collision shops, and 2,129 upholstery and trim shops. By 2006, there were 58,215 top and body repair and paint shops, employing 254,774 people and earning $14.87 billion.

Emissions and other "green" regulations continued to come down harder in the environmentally conscious late 2000s. New regulations, effective in 2009 in California, would require reduction of VOCs through the substitution of lesser quality water-based coatings for solvent-based. New reduced-solvent coatings began appearing on the market in 2007 to help companies comply with the regulations.

When vehicle leasing was once again a favorable option in the mid-2000s, it represented a promising niche market for auto repair and paint shops. Lessees are required to follow certain guidelines when turning in their lease; therefore, they turn to the auto body shops to fix even small dents or scratches. Auto repair shops that offer "paintless dent repair and detailing services" were more inclined to capture the majority of the market share from leased vehicles.

Current Conditions

When the U.S. economy fell into recession at the beginning of 2008, new car sales fell off drastically as credit dried up and consumers moved to reduce spending. The body and paint segment of the auto repair industry was impacted on two fronts. First, overall, repair shops saw increased business during the late 2000s, driven by a growing number of people who were choosing to fix up their current vehicle rather than trade it in for a new car. In fact, the Clarus Research Group reported in June 2009 that 63 percent of U.S. car owners were delaying a new car purchase. However, the same study showed that a majority of Americans were also putting off repairs to save money. Specifically, although consumers were finding their way to repair shops for unavoidable repairs, such as transmission, engine, and brakes work, nonessential repairs, such as dings, dents, and paint work, were being delayed until the economic situation improved.

Second, with less disposal income available, Americans drove significantly fewer miles during the late 2000s. As a result, there were fewer auto accidents and fewer insurance claims filed for body work. However, A.M. Best reported that although overall insurance claims were down in 2008 relative to 2007, the amount per claim increased, so U.S. insurance carriers paid out $38.2 billion and $40.2 billion in 2007 and 2008, respectively. The cost increase was attributed to more complicated and high-tech auto configurations. Insurance claims remained down through the first half of 2009.

The Environmental Protection Agency (EPA) also impacted the industry when, in 2009, it announced new standards that required auto paint shops to reduce the toxins released when they strip paint or apply coatings to vehicles. According to the EPA's new rules, paint shops must limit the release of methylene chloride, cadmium, chromium, lead, manganese, and nickel--all ingredients found in paint stripper, primers, and topcoat pigments. New shops were required to meet the standards immediately; existing shops had three years to comply. In particular, the EPA was encouraging shops to remove paint by dry or wet blasting or using a paint remover that did not contain methylene chloride. Although most dealerships and franchise owners possess the necessary advanced equipment to meet the EPA guidelines, smaller, independent shops could have some difficulty complying.

Industry Leaders

In the late 2000s, the paint and body portion of the industry remained highly fragmented, but several well-known companies stood out. Caliber Holdings Corporation of Irvine, California, had 35 shops in California and another 30 in Texas. Other industry leaders included top company MAACO Enterprises, Inc., and its 500 franchise locations (which was sold in 2008 to Driven Brands, owner of Meineke Car Care Centers); Earl Scheib Inc. of Sherman Oaks, California, which targeted the budget-conscious consumer; and 1-Day Paint and Body Centers Inc., which earned half its annual revenue from fleet and wholesale customers.

Workforce

Traditionally, the industry has used a skilled work force trained by apprenticeship. The federal government's Bureau of Apprenticeship and Training worked through state and territorial agencies to promote cooperative programs with employers. Even so, the average body shop employee stayed with an employer for only two years. In 2008, 265,911 people worked for the 58,909 establishments in this industry.

Research and Technology

This technological revolution in paint plant technology inevitably impacted the small aftermarket paint and body shop. Small shops had to find capital to invest in new materials and costly equipment to remain competitive in the industry.

The "green" evolution was also progressing at manufacturer paint facilities. At the Subaru-Isuzu plant in Indiana, managers pushed for a 95 percent reduction in VOCs, rather than the 72 percent expected elsewhere, by combining the use of water-based paint applied electrostatically along with a paint-solvent after-burner. The demand for and popularity of powder coatings increased rapidly due to their zero-VOC content and durability.

Pioneering materials being used by automobile manufacturers also impacted the paint and body shop industry. Automakers, intent on reducing car weight to improve gas mileage, began using more plastic, fiberglass, and aluminum in place of steel. These materials require specialized paint application processes that had to be performed by trained professionals.

New technologies, such as laser wheel-alignment machines, hydraulic frame straighteners, and high-temperature bake ovens, were becoming common at many body shops in order to comply with the consumer demand that the repaired car would look just as good as it did when it rolled off the manufacturer's assembly line. Auto repair and paint shops were also making use of another new technology--the computer.