Friday, 30 November 2007 17:00

FOX Collision Center Letter to the Industry

My name is Todd Fox. I am 43 years old and the president of FOX Collision Centers, Inc. I operate 18 auto collision repair facilities and satellites that serve a four state area. Our annual sales top $28 million. I have been in the collision repair business since I was barely eleven years old, when I swept floors in my parents’ body shop. I witnessed the “Cowboy and Indian Days” when body shop owners and insurance personnel were adversarial, rude, and, at times, eager to cheat each other out of anything and everything.
In 1989, I purchased my parents’ body shop in Wichita Kansas. As an eager and hardworking young man, I expanded the body shop from 12,000 square feet to 22,000 square feet in less than a year. At the same time, I observed with interest the emergence of Direct Repair Programs (DRPs). Collision repair shop owners and insurance companies joined forces to create DRPs to serve our mutual customers, while honoring the belief that both collision repair operators and insurance carriers should make a fair profit. Though everyone was skeptical of DRPs, they proved to be just as the insurers advertised (at least in the beginning). They claimed, “We want quality work, and happy mutual customers at a fair price…NO CONCESSIONS!”

It was under these conditions that I opened my second shop. And, for the past 16 years, I    have awakened each morning at 4:30 a.m., without an alarm clock, excited to go to work, build my business, and live the American dream. I am proud of the businesses my team and I have built since 1991. Very proud!

But, during the last two years, I have seen my dream turn into a nightmare. Insurance carriers have leveraged their economy of scale to implement concession-based DRP contracts, and forced collision repair businesses to offer the cheapest and quickest repair possible, many times sacrificing quality, safe repairs. Insurance carrier concession-based DRP contracts now list pages and pages of requirements that are imposed on us.

When I refer to concessions I don’t mean only labor discounts, part discounts, paint caps, and 0 mark-ups on sublet items, but also and more importantly, I refer to concessions on the quality, integrity, and safety of repairs. And these contracts, which we used to call agreements, are far from agreements. We, who repair the cars, have never agreed to do business like this. The contracts contain a list of their requirements, along with a few sentences telling us how we will be paid and when.

Many in our industry, at the time DRPs were conceived and implemented, alleged that they were going to be dire for the future of the collision repair industry. At the time, I believed that customers, state insurance departments, legislators, and the insurance carriers themselves would ensure that DRPs were never used as a tool to suppress the collision repair industry or steal our profits. Was I wrong!

We use to joke that someday a customer would drop a car off in a big parking lot and never know who repaired it or how well! Well, we all know that now happens routinely. I worry that soon a health insurance carrier will adopt this idea. A patient will check into a big building where an insurance representative administers anesthesia. Once the patient is unconscious, he or she will be transported to a surgeon (within a 45 minute radius) who has assured the insurance representative that he can get the patient in and out quickly. Very quickly! And even though the surgeon does not agree with how the insurance representative tells him to perform the low cost operation, he does exactly what he is told to do. The last thing the surgeon wants to risk is to anger the insurance representative and have his business reduced or eliminated. The surgeon assures the insurance representative that he will complete the operation quickly and cheaply. The surgeon knows the operation must look cosmetically good from the outside! The inside? Well, who’s to say if it’s cheaply and poorly done? The patient won’t know…at least not right away.

Under the new DRP system, the focus is on cycle time (how fast we get the vehicle in and out), severity (how cheaply we complete the repair), and customer satisfaction (fast repair ime and cosmetic good looks). How much time is spent on evaluating and ensuring the integrity and safety of the repair? And those repair shops that try to ensure that everything has been done to make the car safe for the protection of the customer and their families that trust them, get frowns and disapproval from the insurance carriers’ auditors when costs and repair times increase.

How many concession-based DRP repair programs make sure that frame rails and structural components are sectioned and replaced properly; ensure that air bag sensors are all replaced per the vehicle manufacturer? How many DRP repair programs encourage and check that seatbelts are replaced according to the vehicle manufacturer? The insurance carriers are careful to say that these concerns are up to the body shop. But how many of us have heard, “All I can say is the other shops that are doing the best on our program {the DRP program} do not replace all those air bag sensors and wait the extra time to order the seat belts. Are you sure you need to do all that?” The implied criticism is that you are doing repairs that are too costly and take too much time. Sometimes the criticism is not implied, but blatantly stated. For example, how much time does your DRP auditor spend making sure vehicles are repaired correctly and safely? When I asked about that, I actually had a DRP auditor tell me that we needed to ease up on our quality control efforts because it was impacting our “Cycle Time Measurement.” He went on to say that, “Quality is not one of the key DRP measures in ranking or monitoring the shops.” And, therein is the problem!

For the most part, this is exactly what has happened in our industry, although several insurance carriers are still operating DRP programs that do not ask for concessions and use their DRP program to benefit the customers. To these carriers I say “Thank you” and hope they will continue to demand integrity, ensure safe repairs, and show mutual respect for auto repair business operators in their DRP programs.

Today more than ever we see insurance carriers use DRP programs to cut costs by     requiring an incredible amount of administrative requirements be met, while greatly reducing or even eliminating the focus on correct and safe repairs. Safety concerns have been replaced with rules about cycle time and reduced severity. (Many new DRP auditors have never heard of the “Kink vs. Bend Rule.”) Insurer concession-based DRPs have reduced their severity in the area of refinishing alone by millions of dollars by mandating spot refinish, blending urethane coatings inside panels, and applying paint caps. This is without regard for the quality and cost of the required refinishing. It has been my experience that most collision repair operators will make a correct and safe repair even when not paid to do so, because this is the right thing to do. We do it, but at the expense of an already very narrow or negative profit margin!

Eighteen months ago, although discouraged by the evolution of the modern day, concession-based DRP, I was determined to overcome the costs of the added administrative requirements and still ensure safe repairs. Even with the complexity of all the various versions of DRP requirements, I established what we call the FOX Command Center. To this day I am very proud of this centralized unit that monitors and administratively processes every step of each auto repair. The FOX Command Center is located at our head office in Tulsa, Oklahoma. It leverages technology to solve the issues that challenge every shop on a DRP. The Command Center instantly improves our key measures in all DRPs.

In addition, it allows me personally to spend more time at home with my family, instead of on the road. As you might imagine, it is a considerable expense to implement, and since profit margins are way down, the only way to make them up is in volume. Therefore, we brought in additional volume, but once we had it, many of the concession-based DRPs saw it as an opportunity to squeeze even more concessions and profits from us.
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As I built FOX Collision Centers in central US, I developed relationships with senior managers of the DRPs in which we participated on both regional and national levels. My hope was that these relationships would allow me to have a voice and make mutual decisions with insurance carriers that would benefit everyone. Ultimately, however, this has caused trouble locally. A local insurer’s management resented my relationships at a higher level. Retaliation, by local insurance personnel, led to damage, due to lies and unethical business practice.

FOX Collision Centers historically have made money. Sometimes not much, but enough for me to still wake up excited at 4:30 a.m. every morning and go to work! But, the bottom line is that the business model that supports the new DRP models does NOT work financially. At the beginning of this year, with my regional group of shops operating on the lowest gross profit margins in our history, and the next evolution of DRP being implemented by the largest insurer in North America, I asked myself, “How can my group of shops survive in the years to come?” Unfortunately, the answer that became obvious was, “We cannot!” Though ALL of our shops are busy with work and in good standing with all concession-based and non-concession-based DRP programs, I am sad to announce that today I will close all 18 of our locations. Hundreds of people will lose their jobs. I am so sorry, sad, and discouraged.

I have two young managers who, like me at their age, are anxious and excited to take on the world of auto collision repair, to grow, open new locations, and build a dream. I will work with them to help them build their businesses and counsel them not to make the same mistakes I made by giving into the pressures, false promises, and temptation of concession based, Direct Repairs’ Programs that encourage fast, cheap, and unsafe repairs in exchange for business volume. I will counsel them to return to low overhead, maximization of profit, and participation in non concession-based DRPs with the few insurance carriers who understand it is unethical to minimize our profits to benefit their bottom lines. I will encourage them to work with insurance companies who really care about making vehicles safe for customers and their families after they have an accident! I will make it my mission to inform the public, legislators, and state insurance departments about what is happening inside this industry.

Surely we are killing the profitability of this industry by participating in the concession-based
DRPs, but are we actually putting people’s lives at risk as we fight futilely for survival by submitting to the concession-based DRPS demands for faster and cheaper repairs in exchange for more work volume? Very possibly, we are. How long can we live with that on our consciences? Carstar says there is no one to blame. I disagree. We, who have blindly participated and not challenged the insurance companies, are to blame! We are like drug addicts, addicted to what we thought was going to be a good thing! Though it will be hard, we must “dry-out,”get “clean,” and take a stand. I call on fellow collision repair operators to recover and rehabilitate your businesses even if it means starting over!

Watch for and participate in a new web site,

Sincerely,

Todd Fox, President
FOX Collision Centers, Inc.

P.S. A note to other industries that profit from selling to the collision repair industry. Many paint companies brag about increased profits directly resulting from raising their prices to the collision repairer. You, the paint companies, know we cannot pass these costs on to the Insurance Carriers. (Can you say “paint caps” and “spot paint”?) When are you  going to join us in standing up to the insurers that demand (excuse me, “strongly suggest”) that we give concessions. There was a time when you told us and the insurance companies that you cannot blend clear-coat and then, all of a sudden, blending-clear showed up on the market. Who mandated or strongly suggested this? And, why did you give in?

To the OE manufacturers, why are you negotiating directly with insurance companies and giving discounts before the parts get to us or even your dealers? Who do you think this hurts? Once again the collision repairer!
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