A capacity crowd of more than 400 heard State Farm Claims Consultant George Avery and PartsTrader CEO Rob Cooper give an overview of the very controversial parts procurement system at the CIC in San Antonio.
Avery, who is also the incoming Chairman of the CIC starting in January, has endured some harsh criticism since the details of the PartsTrader program were first announced. Avery and Cooper outlined the program for the few unaware of it, and explained State Farm foresees shops ordering all their parts (recycled, aftermarket and OEM) from a single provider, PartsTrader.
Avery attempted some comic relief by joking that he had a button made up saying, “I Love My Job, I Love My Job, I Love My Job,” but questions and comments from approximately 20 members of the audience made it clear that while electronic parts ordering was understood and largely positive, there was significant apprehension about insurance companies intervening and/or controlling the process.
Avery said misinformation about the program is widespread, and much of the concern is based on speculation and rumors from individuals who have not tried the product.
“We only have 158 stores on the pilot that are actually using the program,” Avery said. “So there’s a lot of people out there that are starving for information. That information comes from a variety of sources. It comes from your friends, it comes from associations, it comes from me, perhaps in the press, and of course press releases and blogs.”
“We give [repair centers] $3 billion to purchase parts annually,” Avery said. “We handle 35,000 claims per day. We are a mutual company, which is owned by the policyholders. We have a moral and legal obligation to make sure that money is spent in a prudent manner. We are not interested in short-term gain for our customers. We are interested long term for our customers.”
Avery said that State Farm did not expect a dramatic decrease in cost of repair or dramatic changes in cycle time, “but it probably will happen.” He said that State Farm is not a company that routinely asks repairers for discounts on repairs.
“We did not expect open arms,” Avery said. “We know change causes ripples. We know we are getting into your business. However, in a previous test with OEConnection, we maintained the repair facilities’ parts margin. We know how important that is.” He added that “there is no standard platform for parts, and we think it will benefit the insured.”
Avery said that after putting out a request for proposal and selecting PartsTrader, they spent over a year developing the format. “We asked repairers, dealers and suppliers to help us build this tool, and they did. We just concluded our feedback phase last week with repairers and are evaluating that now.”
He also stressed what the insurer did not expect:
• “We didn’t expect e-mails, calls and faxes with misleading information.”
• “We didn’t expect press releases mentioning non-Select Service repairers who we didn’t have contact with.”
• “We didn’t expect to lose 17 facilities in one pilot area who never tried [PartsTrader].”
• “We didn’t expect statements from Select Service shops that never used [PartsTrader].”
Avery emphasized that State Farm is still in pilot mode, concluded the feedback phase from all the pilot shops during the week of July 9–13 and are now in an evaluation phase.
Avery concluded his presentation by saying, “It boils down to trust. Those who repair cars make a decision about who they want to partner with. State Farm is driven by the customer. Those who fight to maintain the status quo will become irrelevant fast. I don’t think we were number one for 90 years by beating up our business partners.”
“Good businessmen and women need to speculate,” Avery said at one point. “They need to look forward to determine what the next step is. What’s dangerous is to speculate on faulty information, or misinformation.”
PartsTrader CEO Cooper followed Avery with a brief presentation showing how the program works. He said he understood the skepticism of the industry, but wanted to assure repairers that PartsTrader’s interests were in the right place.
“We’re 100 percent committed to making this product the best for parts procurement, and making it a win for repairers,” said Cooper.
Cooper then ran through a demonstration of the product and commented specifically that:
• The suppliers in the system are in there because the repairer invited them to join.
• They have integrated with the three information providers (CCC, Mitchell, Audatex). The files they get from them are EMS, but they convert them to BMS. Therefore, they’re not seeing any information that is not directly applicable to parts.
“The two functions of PartsTrader are parts sourcing and ordering,” said Cooper. “You can do direct order now if you want, but if you do have time, the expectation is that you’ll get quotes. But it’s completely under the repairer’s control.”
About 20 repairers, association leaders and consultants spent the next 90 minutes questioning and criticizing State Farm’s pilot program. None of them spoke in favor of the program.
Aaron Schulenburg, executive director of the Society of Collision Repair Specialists, was the first person to address Avery and Cooper. He said other parts vendor companies chose to compete by providing a value proposition, and let the customers choose to use their service based on merits and value.
He emphasized that the backlash against PartsTrader isn’t about the product so much as it is how it entered the market.
“SCRS and our members aren’t opposed to [PartsTrader] for the sake of opposition. We don’t have an issue with electronic parts ordering, [our members] already do that. We believe there are a large number of solutions out there that already incorporate electronic parts ordering. We don’t oppose efficiency and process improvement… we don’t oppose innovation.”
“What we do stand in opposition [to is] when insurers mandate solutions that don’t bring solutions to anyone other than themselves and the benefit isn’t derived or understandable by anyone other than the person mandating it,” he said. “For a company who has promoted open platforms in other areas, who’s taken estimates from all three carriers, who’s worked hard to make sure the repairer had the opportunity to use whatever systems and processes and solutions they wanted, this is a step backwards for [State Farm].
“Companies here choose to compete: here’s our product and here’s what it does,” said Schulenburg. “The real issue here isn’t that PartsTrader has a solution; it’s about how it came to the market. The largest insurer hired [PartsTrader] to come up with a solution for them – that’s the problem.
“We won’t refuse [the product] for the sake of refusing. We don’t oppose innovation. We have yet to see the benefit for repairers being forced to use it. When insurers mandate solutions where there is no tangible benefit for anyone but themselves, I think it’s a step back for State Farm. It appears you entered into the market knowing what you wanted to do regardless of repairer feedback. The need doesn’t seem to be there on the repairer side, but it does seem to be there for insurers.”
Dave McBroom, president of the Florida Auto Body Collision Alliance and also representing the Florida Automobile Dealer Association, said bluntly that the program is a failure.
“I’ve spent extensive time with shops and vendors, some involved with the pilot program and some not, that are trying to make a decision on what to do,” he said. “I’ve spoken to many who have said it is inefficient, cumbersome, creates additional work, and requires additional personnel at shops and at vendors. Most are losing gross profit dollars. Some refuse to participate in the bidding process. Used parts bidding is a total disaster. This is not good for this industry.”
Dan Hunsaker, owner of Dan’s Paint and Body in Tucson, AZ, introduced himself as a “Select Service-aholic.” He said his shop was one of the first to pilot the program four months ago, and since then he has realized it doesn’t work.
“I feel like the donkey that got dumped into the Kentucky Derby,” said Hunsaker. “It’s not efficient. How can I improve on a one-click efficiency? I currently electronically upload my parts order. I have my vendors. Everything is done instantaneously. Now I have to wait for an hour and monitor the program. My big problem is that my parts guy is on that [PartsTrader] screen six hours a day off and on. That represents $50,000 a year out of my pocket to administer that program.”
Hunsaker concluded by saying, “It’s sad that this has happened. In our industry, [State Farm] was the one insurer we could count on. Now, we don’t trust State Farm like we did.”
Ron Reichen, a Select Service shop in Beaverton, OR, drew applause when he told Avery, “ I don’t go down to State Farm and say I need to evaluate your underwriting department because I see a lot inefficiencies. The reality is: Leave us alone. You guys sell insurance. Let us repair cars.”
Rick Starbard, president of the Alliance of Automotive Service Providers of Massachusetts (AASP/ MA), as well as president of AASP National and owner of a Boston area body shop, said “When insurers meddle in relationships between us and our customers, they cause irreparable harm to our industry. This product is redundant. We can do everything shown today through our own management systems. We survive on parts profits. What we get for labor is peanuts.”
Stating that the new parts program would negatively impact repairers’ parts profit, Starbard continued, “In a state like mine, we survive on parts mark-up. I suggest repairers run this agreement up the flagpole with their accountants.”
Tony Passwater, president and owner of AEII Consulting, said the program is not needed because the parts procurement model in the United States is efficient and repairers have trusted relationships with existing suppliers. He also said that although it is only a pilot now, it could evolve into a big problem for repairers, likening it to the evolution of the direct repair program model.
John Mosley, who wrote a personal letter to Avery in May to express his concerns over the parts program and thank him for unifying collision repairers over their opposition to it, was at the CIC meeting representing Alabama repairers. He said he had continued confusion over the program details even after Avery and Cooper’s talk.
“I’m still as uninformed and confused as when I got here,” said Mosley. “Is this something that we’re going to have in all states? Have you already signed a contract?”
Avery responded, “To me, there’s a difference between a test and a pilot. You test something to see if it will work; you drill a pilot hole before you’re going to drill. So a pilot does suggest that your intent is to continue to move, but you have to make sure that pilot hole is in the right place and is right. We’re going to continue to work the pilot in the four pilot areas and fix these things that are clearly deficiencies, and then we will evaluate whether that will be something company-wide for Select Service repairers.”