An article in Fast Company, "The Wal-Mart You Don't Know," by Charles Fishman (www.fastcompany.com) describes how Vlasic pickles got pickled in their own juices when dealing with the world's largest retailer. Wal-Mart wanted to make a super-sized "statement" - that anyone could purchase a year's supply of the Cadillac of pickles for only $2.97 - by placing a Wal-Mart-special gallon version of Vlasic pickles conspicuously at the entrance of each of their 3000+ stores. When the negotiating dust settled, Vlasic claims it ended up making, at most, a few pennies on each of the 240,000 gallons of pickles it sold each week through Wal-Mart
This one profitless venture, amounting to an astounding 30% of Vlasic's business, made the pickle-packer's profits plummet profoundly (sorry, but this story needs a shot of humor!) some 25%. Ironically Vlasic, which had worked years to convince consumers to pay a premium for its pickles, was now at best giving them away.
Vlasic's story is painfully close to home, and instructional for collision shops, especially those deeply indentured to insurers. In their mad dash to fulfill the enormous obligation they had negotiated with Wal-Mart, Vlasic was forced to buy additional enormous fields of cucumbers, as well as purchase all the additional machinery, real estate, personnel, and the like needed to meet the enormous production-related demands associated with satisfying their giant, very demanding client. Sounds familiar, doesn't it?
Wal-Mart's mantra is to give the lowest possible prices to its customers. To achieve this, the giant asks its 21,000 product suppliers to reduce the price of their unchanged products to Wal-Mart each year, for the privilege of doing a much greater volume of business with Wal-Mart.
As a collision repairer you might consider when was the last time you were able to increase your labor and materials rates to insurers, while the costs of doing business, inflation, and other undesirable business baggage have continued to scuttle your profits? And most shops I correspond with have recently had their mechanical rates slashed to equal their body labor rate, not increased to be in line with the actual cost of mechanical repairs.
It is this relentless pressure, brought to bear by giant corporations, that has caused a growing number of U.S. companies to relocate their businesses to low-wage overseas countries.
Today, nearly 10% of all China exports to the U.S. go to Wal-Mart - imports which have doubled over the past five years.
Pickles don't grow on trees!
One former Vlasic official associated the company's experience with Wal-Mart as similar to being held under water until nearly drowned. In financial difficulty, Vlasic wanted to raise the gallon price of its pickles a mere 52 cents. WalMart wouldn't pay the increased price and allegedly told Vlasic that if the price were raised they might also remove all of Vlasic's other products from their shelves and give their pickle-supplying contract to a Vlasic competitor, several of which, Vlasic was told, were willing to produce the low-priced gallons of pickles for the privilege of being Wal-Mart's exclusive pickle-product supplier.
Again, sounds familiar doesn't it? Having broken Vlasic's will and profitability down to bare minimum, Wal-Mart was ready to deal with them on a basis of weakness. Only then was a deal struck by which Wal-Mart instead sold a half gallon of pickles for $2.79.
A recent CRASH Network reported on Farmers Insurance's revamped provisions for its COD shops which states that "a repair facility must offer the same or better pricing or other terms to Farmers," as any other insurance company.
In true Wal-Mart fashion, Farmers has begun taking a 5% parts discount from the list price of all new OEM parts; expect it to be an additional 5% to 10% by next year. Insurers don't care that favorable "pricing or other terms" certain shops have negotiated with part houses and other service providers, allowing them better price breaks, is based upon these businesses doing more volume, purchasing all their parts from these suppliers, and paying their bills on time and in full - a fact from which insurers might take a cue.
Wal-Mart and insurance companies don't seem to understand - more likely don't care - that there is a limit to the economizing a shop can do without being priced out of business or forced to diminish product or service quality.
Wal-Mart sticks to contracts
From the former Wal-Mart suppliers interviewed for the Fast Company article (those presently holding Wal-Mart contracts refused to comment), it became obvious that one big difference between dealing with Wal-Mart and dealing with insurers is that Wal-Mart keeps its word, pays its bills as agreed and on the day they promised (not weeks or months later, and not the full amount agreed to less whatever the insurer representative felt he needed to shave to make a favorable impression with his superiors), and doesn't cheat its suppliers by varying from that upon which the two parties agreed.
Though most of the insurance representatives we deal with are respectable people, "(insurer-employer) blood is obviously thicker than (shop) water." Not uncommon is the souring experience we recently had with an insurer - this time it happened to be with Farmers Insurance. We had just completed work on a Farmers' claimant's newer black Cadillac Escalade with leather and all the trimmings, while their local adjuster was away. It was already understood that the final cost of repairing the T-boned side of this vehicle would be twice the insurer-estimated $6,000 figure.
Having had some recent past problems collecting from this insurer in a timely manner and as agreed, we informed his supervisor the vehicle was ready to be delivered, but we would hold it until full payment was received on the supplement originally agreed upon with the adjuster.
A $6,000+ supplement billing, which the insurer knew would be coming, was sent to them three days ahead of time, plenty of time to review our supplement and issue payment. The supervisor, seemingly having had no problem with this arrangement, cut us a check for the full amount estimated by their local adjuster. When we had received the supplement check, we released the vehicle to the customer.
But when the local adjuster returned, we were accused of "holding the vehicle hostage" and, upon receiving our supplemental bill, he refused to pay $167.24 of it itemized for cutting and buffing the refinished areas, completely detailing the vehicle, and materials needed for these operations. Keep in mind, this was a severely T-boned black Cadillac Escalade with every available option, and though we'd taped off the side as best we could, with the doors off and replacing the quarter, a fair amount of dust covered the interior, necessitating the detail work.
To add insult to injury, Farmers originally capped our paint materials at $350 (they call it a "threshold" and would pay only our cost of materials, without any markup, on anything above the $350). Capping is illegal in my state, so after a verbal battle they eventually agreed to pay all refinish materials (though we haven't seen that check as of this printing).
For the record, I don't believe this adjuster has anything against us. In fact, I'd feel privileged to have him for a neighbor. But the frustration lies in the mantra of today's insurance companies which push their employees, whether verbally or through body language, to cut every possible corner, challenge every line item and P-page logic, and do everything possible to wear shops down in order to condition them for even lower payouts next time they come calling.
Apparently, this approach has paid off handsomely in a good number of shops, or insurers would have discontinued it. Like a dog that gets hit with a stick every time certain people approach, shops have been systematically conditioned, through years of distrust and abuse, to cower when dealing with certain insurers.
It's unfortunate that in just a few short years this insurer and certain others have lowered themselves to what they are today, from their former standing among the very best and most conscientious insurers to work with. Though I'm sure Farmers couldn't care less, two of our office employees who had been insured by them for years recently dumped Farmers out of disgust for the way this company now treats claimants, insureds, and repair professionals. One would have to wonder if Farmers' loss figures are being artificially tweaked to make them more desirable in preparation for being bought out by another insurer.
If there is a silver lining in this story it is that insurers most likely won't be shipping vehicles overseas for lower-prices, as is the situation Wal-Mart has fostered in its relentless quest for lower priced products and more profits. Presently, some insurers are shipping vehicles 100 miles or more from home, but not yet to China - at least not so far!
Dick Strom, Modern Collision Rebuild, 9270 Miller Road, NE, Bainbridge Island, Washington 98110; (206) 842-3621; e-mail: email@example.com.