"U.S. Market Toughest in the World," says Belron Chief; Gary Lubner Gives Keynote Address in Tucson

When Gary Lubner, chief executive officer of Belron (the world's largest auto glass replacement and repair company) speaks, people want to know what he has to say. That's why they filled a room at the JW Marriott Starr Pass Resort in Tucson, Ariz., to hear the message from the AGR industry's most powerful executive. Lubner gave the keynote address at the National Auto Glass Conference late yesterday afternoon.

Lubner began with a short video that illuminated the shear size of his company. Belron, it said, installs 3,000 windshields a day and does more than 44,000 mobile jobs per week. (For more information on Belron and Gary Lubner, CLICK HERE)

Lubner mentioned that each of the countries in which his company works has unique characteristics. "The Netherlands, for example, has a repair rate of 55 percent," he said, "and the Netherlands is one of our top three most profitable markets. If you don't think you should be doing repairs, you are wrong." Lubner said that France is the company's largest market right now, and the United States is ninth.

DISTANCE FROM SAFELITE
Belron re-entered the U.S. market last year after a disastrous first attempt a number of years ago when it held a minority interest in U.S.-based Safelite. "There were two reasons we did not succeed in that venture," said Lubner. "First, we had a minority stake and did not have control. For sure, this is something we will never, ever do again. Second, we do particularly well in picking partners. We didn't have the right partners. Our partners were equity parties who wanted to exit the business at a certain time, whereas we planned to be in it for a long time."

MARKET GROWTH
Belron has experienced amazing growth in the past seven years, with revenues of .8 billion dollars in 1999, $1.2 billion in 2002 and $1.6 billion last year. Lubner said this growth is based on a clear strategy of being the best and most profitable company in the industry. "We are focused on this industry and …we live by a set of values. We focus on what we are good at, and that is auto glass."

"Consumers' expectations are higher than ever before," said Lubner, who added that in Europe his company must even compete against strong dealer networks, such as BMW.

To be successful, "you have to have partnerships with key influencers of your business," he said. "Supply chains are becoming more complex and you need those partnerships to compete." He added that environmental and safety issues are becoming more critical.

U.S.A TODAY
"The United States is the toughest market I've come across anywhere in the world," said Lubner, as he began his assessment of the market here. "I know in the audience today we have large companies, regional players, insurance companies, networks, mom-and-pops, and I also know that I am going to piss everyone of them off with my comments," he joked.

He then enumerated a number of key conditions and problems he sees that are unique in the U.S.:
1. The lack of consistency. Lubner said there is very little consistency in the United States in terms of pricing, quality and any variety of other parameters. "Whenever we buy a new company and we find out what they are paying for glass, we are amazed at the differences," he said. "I think there is a lot of indiscipline [lack of discipline] in this market."

2. Insurance myopia and cash pricing. "There is too much focus by insurance companies on cost and not on services," he said, adding that cash pricing is at the root of many pricing problems in the United States "The downward pressure in pricing will continue as long as insurance prices [prices insurance companies pay for auto glass work] are more expensive than cash prices [prices consumers who pay cash get]. This is a North American phenomena," he added. "As an industry, we deliver fantastic service and it's just not fair that we are asked to do that without being fairly compensated.

3. U.S. pricing. "NAGS is clearly an issue," said Lubner. "NAGS performs a valuable role, but many believe that NAGS has lost the confidence of the industry it serves. I applaud the work the Chicago Auto Glass Group (CAGG) has done in this area thus far."

"I know how much our labor costs are. I know our material costs. I know how much fuel is going up, so I just can't reconcile that with NAGS pricing," he commented.

4. The lack of total service. "I am amazed that there are so many repair-only businesses in this country," he said. "There are few repair-only markets outside the United States."

5. The lack of strong branding. Lubner allowed that there are some strong regional brands, but little branding on a national level. "In a market without strong brands, you can't get your message across," he said, "and when you can't get your message across, you go to the 'default' to compete and that default is price."

6. The rumor mill. "You," said Lubner, referring to the United States, "are the world-champion rumor market in the world. No contest."

THE FUTURE
The company plans to grow profitably in the United States through more acquisitions, to build on its relationships with insurance companies and its suppliers, and to build on the strength of the regional brands which the company has acquired in the United States rather than combining them into one brand.
Lubner pointed out that Belron research shows that 80 percent of consumers want same- day service when they need their windshields replaced. He said that the web is becoming more important all the time in terms of marketing and communication. "More than one million people applied for jobs with us via the web last year," he added.

He said that there would be increased pressure from the insurance industry because it is more important to them that their policyholders get good service. Relationships in the future then will focus on cost and service.

From his global perspective, Lubner said that customer expectations are higher than ever while the supply chains are becoming more complex and he sees it getting even more complex. He gave the example of a Mercedes model introduced in Europe last year, which has over 80 different glass options. "Imagine what that does for a call center," he stated. Auto innovations will also require better-trained technicians. "The more complex glass installations get, the better it will be for all of us," he said.

Among his concerns, said Lubner, are increased energy costs and the increased usage of alternative modes of transportation, citing a desire to keep people on the roads in their own vehicles.

Lubner said that his company has had great success keeping their stores open all day Saturdays in France and that Saturday is now that country's biggest sale day of the week, with the implication that U.S. stores would be moving in that direction as well.

"Acquisition is the only way to grow in the United States," said Lubner, "It is an over-saturated market here. We are looking for regional leaders with a strong brand, cultural fit, dedicated people and profitability. We want businesses that act like leaders in their markets," he added, stating that he had no intention of changing the names of the companies Belron had acquired. He did not take questions at the end of the 40-minute speech.

REACTION
Reaction by attendees was almost all positive. "He said some strong things, but they needed to be said," commented Troy Mason of Techna-Glas in Sandy, Utah. "Gee, I wish I'd brought my P&L," quipped another attendee, " I bet he finds a lot of people wanting to be bought up here."

"It's hard for me to be positive because I have seen what they [Belron] have done to the market in other countries," said a third attendee, "but it was still interesting to hear."

"They are the future of this business now," added another, "It sounds like they are here to stay."