Thursday, 31 March 2005 17:00

Shops and associates speak about state of industry

Written by Dick Strom

Most of the following quotes about the state of the collision repair industry were sent to me over the past year by shop personnel. Others were gleaned from industry periodicals. 

Economic blackmail

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Strom

"The motivation behind insurers restricting access to their DRPs is that of 'economic blackmail.' The 30% to 40% of repairs performed by insurers' through DRP shops, many at higher billing cost than what non-DRP shops would have charged, effectively reduces the prices charged on the remaining 70% to 60% of repairs (those done by non-DRP shops), which should be significantly higher, if not for non-DRP shops fear of charging anything over the supposed 'prevailing rate' set by DRP shops at quantity discounts.

"This more than makes up for the additional cost insurers know they are paying out for work done by their DRP shops. Thus, the biggest benefit of an insurer using higher cost DRP shops is in the use of fear, uncertainty, and doubt on the non-DRP shop. DRP programs save real pay-outs by insurers, not due to the benefits of the DRP system, but by unfairly controlling non-DRP costs." (an East Coast shop owner)

Who benefits?

"Once several paint company subsidiaries [networks] begin to contend for insurers' claims processing business, these networks will be forced into fierce competition to reduce any and all claims costs. This is inevitable, but who benefits from this arrangement, the insured or the insurer? And who will bear the brunt of this increased competition, the insurer or the shop?" (a glass shop owner with lots of experience dealing with glass networks)

Numbers game

"I used to believe that if I gave a discount of 5% I'd encourage the movement of more units, thus increasing my profit. But the facts of profit and loss are as follows: At a 25% Gross Profit, to make up for a 5% discount you need to handle 25% more merchandise, and do 18% more dollar volume just to break even. If you discount 8% you must handle 47% more merchandise and do 35% more dollar volume. If you discount 10% you must handle 67% more merchandise and do 50% more dollar volume. If you cut your profit by 12%, you must handle 92% more merchandise and do 69% more dollar volume. If you cut your Gross Profit by 15% you must handle 150% more merchandise and do 112% more dollar volume.

"But for the grand finale, if you cut your Gross Profit by 20% you must handle 400% more merchandise and do 300% more dollar volume… just to break even. Very few industries actually get away with discounting to make a larger profit, especially considering the added liability that comes with each additional job. Remember, that profit is not a dirty word." (a well-known automotive industry spokesperson)

Not such good hands

"In retrospect, since the introduction of DRPs we've all faced growing demands and controls from insurers. Most shops signed DRP contracts as a result of buying into the idea of their becoming symbiotic for the common good of the consumer. Shop owners were persuaded to work with insurers, on a low-profit-high-volume basis that insurers implied would be profitable and time saving.

"But time has told a different story: DRPs have cost us our independence through limitations dictating how shops will repair vehicles, the promotion of imitation parts, and insurers determining the (lack of) value of our skills and efforts by insisting on usage of database information controlled by insurer interests.

"Insurance companies are not 'consumer friendly,' and no longer provide security and protection to consumers. Insurer programs are driven on the 'for profit' basis, using every available avenue to fill their own coffers with premium dollars that are turned into profit dollars for their industry leaders, while minimizing insureds' interests. I'm encouraging everyone to support the collision trade associations that have proved themselves unrelenting in helping assure a positive destiny for the collision industry." (a Midwest shop owner)

Compromise consumer interests

"Because repairers don't have organizations that mandate national or state compliance standards, insurers are able to set caps, limit repair hours, and simply refuse to pay for necessary procedures - to the detriment of consumers. Shops' loyalty belongs to the customer, however, and without a knowledgeable repairer who demands to be paid to perform all work necessary in effecting a proper repair, customers may end up with a butchered vehicle, or one that should never have been repaired.

"The consumer protection statutes demand that we use our knowledge and skill to serve our clients and customers. Giving away our professional judgment to serve the actuarial whims of insurers compromises our customers' interests, is unethical, and ultimately violates the very purpose of those statutes. Never forget that your primary obligation is to the customer. After all, if there is a problem with the repair, the customer will sue you, not the insurer." (comment of attorney Erica Eversman in 12/03 Hammer and Dolly)

Getting priorities straight

"For schools to not recognize the importance of vocational studies verifies the fact that they are brain-dead. I once proposed to ASA that they develop a video describing the benefits of working in the collision industry, videos that could then be sent to high school guidance departments across the country. Instead, ASA decided the money would be better-spent hiring guys like Joe Sanders and paying Randall a big salary to be a figurehead. But I still believe it is something positive ASA could do for the industry." (a Southwest shop owner)

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Value of industry publications

"I'll give you another reason why OE Direct parts is bad for the collision industry: The only connection that many shop owners have with the rest of the collision industry is through reading columns such as yours, John Yoswick's, and regional news reported in publications such as ours and a dozen other such across the nation.

"We reach far more of the industry on a regular basis than does any collision membership group such as CIC or the state associations. If OE Direct were to become the preferred procurement system for collision parts, auto dealers would have no reason to advertise, and every regional collision media source would disappear, since we simply can not survive without advertising." (an extremely intelligent, capable and perceptive collision industry editor)

Spies in our midst

"Leaving aside all issues of steering, vertical integration, quality of work, etc, I would contend that Allstate does not really care if Sterling makes any money or not, or that there are fairly constant legal challenges to the whole concept of insurer ownership of collision shops. I think one of the principle reasons that Allstate has gone the Sterling-route is quite simply to learn more about the collision repair business, and more specifically, to generate a database of parameters for collision repair. These parameters would include everything from cycle times to optimal facility square footage, and even locations.

"The most important parameters, however, would be in defining actual repair/replace/refinish times. I can see a time in the not too distant future when there may be four primary databases utilized - CCC, ADP, Mitchell, and Allstate. Certainly, as a large customer of ADP, Allstate can influence to some degree how the databases are structured. However, ADP is still independent and part of a publicly traded company, and so can't just roll over for Allstate in every instance." (a Western shop comment)

Competition curtailed

"Everyone benefits from true market- based competition, but where is true competition if insurers can establish prices, and when claims settlement entities market their services not only on their ability to improve market efficiencies, but more importantly, on reducing claims expenses. Auditing invoices and eliminating unnecessary repairs is a valid claims settlement strategy, but the network agreements now being marketed to collision repairers, if unchecked, can go far beyond a professional and thorough audit, to reducing claims costs, warranted or not." (an East Coast shop owner)

Giving away the house

"The Allstate/Sterling shop across the street from me has experienced an employee turnover of over 100% in the past two years for a number of reasons. The production line method doesn't seem to make their top guys very happy, but their low-end guys seem to like it because they are being rewarded for learning.

"They are also having trouble with customer satisfaction: Sterling advertising gives their customers the idea they are rollovers, and that they are really doing everything possible to make their customers happy… not like Allstate. I wonder how long Allstate will let Sterling give away the house before they start tightening up, as they did with their PRO-shop program?" (a Midwest shop owner)

Market share at any cost

"Having just read your article "Collision Networks - the Next Chal-lenge," I couldn't agree with you more! After having served with ABRA Auto Body & Glass, I found ABRA to be one that will sign up with anyone if the promise of more work is brought up. I left them because I could see that their short-sightedness was never going to get them to the grand vision that they presented to me. Looking back I consider it a grand-illusion, or delusion, if you will.

"As long as these shops shy away from building businesses based on delivering a quality product at a fair price with customer service being premier, but instead continue with the idea that you can work for cheaper and make it up in volume, the collision industry will continue in its downward spiral.

"The work ethic and business tactics I witnessed were nothing short of racketeering, nothing like the free-enterprise system I learned about growing up. None of it was based on mutual benefit-mutual advantage, the basic premise for all proper business relationships. Rather, it was all about achieving more market share at any cost

"These networks you described in your article, in their many forms, were at the core of this company's marketing machine. It's frightening how steeped in 'situational ethics' the collision industry has become. We need to get back to basic values like Steven Covey points out in his book, The Seven Habits of Highly Effective People. If not, this industry will implode." (comments of a former ABRA employee)

Don't stop feeding the bears

"One of the first signs a visitor to Yellowstone National Park sees is, 'Please do not feed the bears.' Actually, the sign should read, 'If you do feed the bears, please do not stop feeding them, as bears do not understand this concept.' You see, as long as you are nice and cooperative to the bears, everything is fine. But once you stop feeding them, or run out of goodies to give them, they get downright hostile and nasty, and sometimes will rip the roof off of your vehicle.

"Luckily, the vehicle right behind you is willing to take up where you left off. You escape with some damage, but you are alive, and the next vehicle is now pacifying the bears. This all mimics so many insurance companies with their DRPs… everything is fine and dandy until you have the audacity to stop the free goodies." (Midwest shop owner's comment)

Dick Strom, Modern Collision Rebuild, 9270 Miller Road, NE, Bainbridge Island, Washington 98110; (206) 842-3621; e-mail: moderncol@qwest.net.

 

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