By Gideon Scanlon
Too commonly, Canadians feel a sort of performance anxiety when comparing their businesses to similar ones based in the United States.
It is true that productivity tends to lag behind in Canada. It is also commonly felt that Canadian should look southward to see what their industries will look like in a decade—which isn’t always true. In fact—many of these cross-border sector performance discrepancies, including the collision sector—are defined more by geographic differences than by cultural ones.
This month, the Romans Group’s released its 13th annual white paper, A 2018 Profile of the Evolving U.S. and Canada Collision Repair Marketplace. When many repairers took a look through the short, digested version of the paper, they were in for a shock. As the paper detailed, Canada’s repair sector seems to be little more than a blip next to the U.S.
It looks bad. Possibly apocalyptic.
Judged by its dollar value, the U.S. collision repair industry is 15 times as profitable as Canada’s. Given that there are 8.75 Americans for every Canadian, Canadian businesses seem to be underperforming by a significant margin. For every dollar in business coming—however indirectly—through Canadian drivers, American repairers are bringing in $1.71.
Still, it definitely looks bad.
There are 11 American cars for every Canadian one. Judged on a per car basis, American’s still take home $1.36—still a startling number. Definitely bad, but a bit better.
Yes—there’s still a massive performance disparity, and, no, the low dollar value is no excuse. So how can the difference be explained?
Well—partly because U.S. collision facilities are much larger than Canadian ones.
As the Romans Group revealed, Americans have fewer facilities performing more work—on a per capita basis, that is. In total, the U.S. has seven times as many collision businesses in Canada. It is clear the average American facility larger in the U.S., and services more vehicles. This explains why they are so much more efficient. As businesses increase in size without exceeding demand, they are better able to more repairs more quickly with fewer disruptions. Unfettered, they are also able to drive their competitors out of business.
To put this in sharper focus, each U.S. collision facility is bringing in $2.142 for every $1.00 spent in a Canadian one. While one might expect this model to be moving northward, it doesn’t seem to be.
Today, 77.7 percent of the business of the industry flowing through Canada’s ten biggest groups—made of operators, dealer shops, franchises or wholly-owned chains, though they only account for 30 percent of the number of facilities. While that may sound imbalanced, it is hardly a staggering figure. Even in red Canada, the top 30 percent of Canadian earners report a larger proportion of all income earned—more than 80 percent of it.
So why don’t we see big, top-tier facilities dominating the market here? Were the small size of the average Canadian facility truly so inefficient, it would be fair to assume the industry was about to undergo a radical period of closures and consolidation.
They don’t have enough room to flourish—and that comes down to population density. While a big, top-tier facility might be the way to go in areas with relatively low property costs and relatively high population density, they are not very suited to either more isolated or more expensive locations.
This can be seen on a map. In both the U.S. and Canada, there are clusters of high-performing, top-tier collision facilities that are able to cluster around metropolises, just at the edge of the commuter zones. These businesses can also thrive in regionally important medium-sized cities—like North Bay, Halifax and Fredericton—or Akron, Syracuse and Boise. Elsewhere, they can be harder to spot.
Within the more expensive downtowns, specialty shops can sometimes find their niche, but mid-sized locations are hard to spot downtown. In more rural locations, small to mid-sized businesses tend to rule the roost—limited local demand being a cap on the market.
In Canada, however, there aren’t that many metropolises for these large, well-equipped facilities to dig in. There are 52 cities with populations above a million in the U.S., and 108 above half-a-million. In Canada, there are just seven with populations above a million. Figuring out the number of cities with a population above half-a-million becomes a philosophical debate about what actually qualifies as part of the greater GTA.
And those mid-sized cities? There are about 50 cities between 50 and 500,000 in Canada. The United States has about 500.
Of course—there’s the rub. It’s not just that there is ten times the number of mid-sized cities, it is that they are all placed over a landmass that is significantly smaller than Canada, to begin with. In fact, if you were to define cities by areas of population density equivalent to the GTA’s 829/km2, an area stretching from Maine to Virginia would have one mayor.
So yes, on the surface—and however deeply you scratch into it—the fact that Canada’s collision sector is one 15th of the size of the U.S.’s is a matter of concern. Nor does it mean smaller facilities are going to go extinct in a decade.
It means we are doing things in a way that makes sense within the Canadian context.
More charitably, it means we have room to grow.