Joe Morella is the CEO of Puget Collision, a large consolidator originating from the Pacific Northwest but growing quickly. He recently made a guest appearance on The Collision Vision podcast, hosted by Cole Strandberg and driven by Autobody News, to talk about how joining a franchise and taking on a private equity investor helped him grow Puget Collision, and give insight on what spurred his success as an owner in the collision repair industry.
Founding Puget Collision
Morella got his start in the collision repair industry in late 1999, when he began working with what he called the first regional MSO in Washington State. It expanded to six locations before it was sold to another larger MSO.
Morella later worked for a large national MSO until 2020, when he opened his own repair facility, Six months later, his shop joined Fix Auto USA. In 2022, Fix Auto’s parent company, Driven Brands, offered Morella the chance to buy 10 of its corporately-owned stores in the Northwest, which became the springboard for what is now known as Puget Collision.
Today, Puget Collision operates 53 stores in the CARSTAR and Fix Auto franchises in Washington, Oregon, Idaho, California and Colorado, employing about 600 people.
Morella said he took a leap of faith when he agreed to join Fix Auto, which at the time only had 47 stores in the nation and was struggling to gain a foothold in the Northwest. Today, it operates more than 200 locations.
“I was able to open up the Oregon market, the Idaho market, the Colorado market for this organization,” Morella said. “It really was a true education in every sense of the word on what it takes to scale a business in our industry.”
Morella said he also saw how much power MSOs have in the collision repair industry. “There's a reason why consolidations are at an all-time high,” he said.
The relationship with Driven Brands benefited his business too, as he went from an independent shop to part of a large network that shared resources and provided a level of protection and support as Puget Collision grew.
“Being in that system was the catalyst for our revenue growth when I had my one location,” Morella said. “We more than doubled our sales within that first year, because it allowed us to bring in some really large DRP partnerships that just weren't available to me as an independent during COVID. That allowed me to explore and open more locations.”
When Puget Collision began expanding into other states, having the national brand recognition of CARSTAR and Fix Auto helped establish relationships with insurance companies.
Private Equity
To start growing Puget Collision in the years following the pandemic, when bank loans weren’t easy to get, Morella found a private equity firm to invest, Eagle Merchant Partners, based in Atlanta, GA.
“That was really the only opportunity to put the financing together and make this work,” he said.
That required giving up some equity in Puget Collision, but Morella said that was a good decision in the long run. “Owning some of a much larger stake is certainly a lot better than owning everything of a smaller stake,” he said.
The first quarter post-acquisition was key, as was having a strong operational “playbook” to guide it. “If you can't deliver that first quarter, it's going to be hard to ask for more funding to grow the business,” Morella said.
“Our model on acquisition is really focused on buy, build, integrate. Let's make sure that our playbook is fully instituted and then buy again,” he said. Growing just for the sake of being greedy is not the right philosophy -- “That's a recipe for disaster if you ask me.”
Business Culture
His time working for a large MSO taught Morella a business’ culture can change as it scales. He started his first shop so he could build his own culture and maintain control of it, one that gives its employees autonomy and the room to take chances and make mistakes.
“We want the store leadership to operate in the best interest of that store,” Morella said. “I don't really subscribe to one-model-fits-everything. because we have different personnel, different size stores, different mix of work. We rely upon our store leaders to know what's in the best interest of their location.”
Scaling Your Business
Strandberg asked Morella what advice he had for people who own two- or three-location independent shops and want to scale their business in their region or across multiple states.
The playbook is important, but having the right people to help a new acquisition’s employees adapt to it is the biggest key.
“We're not talking just for a week or two, but we're talking for a month or two months,” Morella said. “Let’s make sure we're side by side with them, and bring that business fully into Puget, fully integrated into our organization.”
When Puget first expanded into California and Colorado, Morella’s team spent six months at the new acquisitions to ensure they had fully adapted to Puget’s playbook.
“Those stores are operating great today,” he said. “That gave us the level of comfort like, OK, now let's go execute on the next rounds of acquisitions.”
Morella estimated about half of the shops Puget has acquired have needed to be updated, in terms of equipment, technology or repair processes. It has sometimes been difficult to get those shops’ employees to see the revenue growth potential and get on board with the changes.
Owners also need to have a high-level understanding of where their business stands and then figure out a plan to get it where they want it to go.
“Do you know what your sales per square foot are? These are things that the industry wants to know. Are you investing in equipment? Are you investing in OEM certifications? Do you have legitimate profit and loss statements?” Morella said.
Morella learned a lot from the owner of the first MSO he worked for in 1999, who was in his shops with his employees every day.
“I don't forget who I serve,” Morella said. “I serve someone who's just like me, who gets up every day and worries about how to pay the bills and take care of their families and do what's best.”
Trends Shaping Collision Repair
Morella said it’s no surprise the industry is seeing mass consolidation as many independent owners age out.
Since collision repair doesn’t have a “big boom or bust scenario” because it’s close to a B2B industry – shops work with auto insurance companies – it is appealing to private equity investors.
“There's a steady stream of revenue and work in process and business growth that is attractive to [private equity], so they've deployed capital to the MSOs that want to grow and prosper,” he said. “I would say in 10 years, we're probably at maybe four to six MSOs left. Certainly in 20 years.”
Morella also predicted more national MSOs will follow the lead of The Boyd Group, which owns Gerber Collision & Glass, and go public. He expects Caliber to do so in the next 12 months.
“At that size and scale, it's going to continue to drive more consolidation,” he said.
AI estimating is gaining traction. “It’s fairly accurate,” Morella said. “I wrote an estimate in 90 seconds, and I'd say it was probably about 85% accurate.”
He doesn’t think it will replace estimators, but act as a tool to make them more efficient. AI can’t have an interaction with the vehicle owner like the estimator can, Morella pointed out. “That takes another human being to express what's occurring,” he said.
Using new technology more in repairs also helps attract young people to the industry, he said.
Key Takeaways
If you want to stay in the collision repair industry long term, explore the franchise model. “You need assistance growing your revenue or growing the footprint,” Morella said.
If you are planning on selling in the next five years, get your shop ready. “Understand what the needs of the industry are going to be when you want to exit. Don't wait till the end and just say, OK, I want to sell it," he said.
Abby Andrews