Thursday, 20 June 2013 15:00

Stop Obsessing about Parts Profits When You’re Not Managing the Profit Centers You Have

Written by Insurance Insider

Body shops continue to wring their hands over insurance companies imposing their will on their business and profit margins. Shops contend that insurance companies have no right meddling in their business. I can understand shops wanting to protect their profit margins on parts. And who wants anyone telling them what to do and how to do it? For those of you who are married, you know what I am talking about.

Thankfully, I learned early on in life that taking orders was something I wasn’t good at. Thus, I am happily divorced, and the only person I take orders from is the guy who does my annual review at work.

Wouldn’t it be great if all of you could divorce yourself from the death grip that direct repair programs have on your business? Unfortunately, most of you reading this won’t say no to insurers, or can’t. Direct repair programs should be regulated because of their addictive qualities. The addiction might be stronger than crack cocaine. Not that I can speak from experience on that.

 

It’s been interesting to watch from afar as shops complain about State Farm and PartsTrader, even if they’re not in a State Farm Select Service contract. The general message and outcry seems to be about profit margin. Why does it take an insurance company to introduce a new program for you to raise a ruckus about profit centers?

Think about it: There are things that are within your control today that impact your bottom line that you don’t manage. If you spent a little less time fighting the evolution of technology in parts ordering and instead focused on managing your business, you might have a few extra dollars in the bank.

Did someone ask for an example? Here’s one: paint and materials. Paint and materials are one of the many profit centers in a shop. At least it should be a profit center. There are some shops that report 30% profit on paint and materials while others cry the sky is falling. If you are losing money, why haven’t you taken action? Paint and materials shouldn’t be a losing department for your business. It should be a profit center similar to labor, parts, storage and sublet.

So now you complain that your parts profit margins will erode as a result of State Farm’s PartsTrader requirement. And your response is outrage, and combative, desperate cries for help even though you still say “yes” to State Farm. It’s important to note that you still will make a profit—just potentially a few dollars less. Please also note that this is going to happen with or without your approval. As you’ve probably heard, State Farm is rolling it out nationwide.

So how does this relate to paint and materials? I would like to know what your response is if you are losing money on paint and materials or making low single digit profit? What are you doing about it? Outrage? No. Combative? No. Desperate cries for help? No, again.

Why do shops raise hell about potentially losing money on parts profitability when the profit centers they do have control over are ignored. This is something you have direct control over. We as insurers don’t have a direct impact on your profit in this area.

I’m aggravated by the lack of management and operational excellence that would benefit everyone in the supply chain. So let me suggest a few solutions to a problem you don’t think you have. Why would your enemy help you be more profitable? Because if you are successful, everyone in the supply chain wins, including the consumer. And besides, I like to lead by example. Give me a solution over a sob story any day.

I’ve never worked in a shop, so you might not find these recommendations valid, but here they are. I suggest you could improve your profit on paint and materials by:

• Reducing employee theft.
• Implementing standard operating procedures to reduce waste.
• Creating an incentive plan for your painters and manager that gives them a bonus if you are profitable.
• Tracking the amount of waste (if you don’t measure it, you can’t manage it).
• Invoicing separately for non-paint-related materials
• Tracking your costs better.
• Negotiating a better discount with your jobber.

I’m sure there are more but I don’t think you want any more insurance company intrusion into your business. Or anything taking up time that you’d rather spend complaining about PartsTrader.

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