Because I’m not solely focused on pointing out the obvious, I also added a few tips as to how shops can improve their profitability on paint and materials. One suggestion, for example, was to reduce the amount of theft in the shop.
Apparently, my tips for success were not welcomed by all readers. In fact, a few readers took me to task in e-mail responses to the column. Although they were upset with my comments, they also were astute enough to ask for help. I appreciate them taking the time to write, and I offer the following suggestions in response to some of their questions.
Here’s an excerpt from “Laura,” who wrote from a shop in a Mid-Atlantic state. “Our rates for paint materials and labor that insurance companies pay us haven’t increased in 10 years or more,” Laura wrote. “As you know, paint and material prices have increased tremendously over that period of time. What are your thoughts on this? What are our rights against insurance companies so that we may protect our bottom line?”
Your situation is one that is very familiar to shops around the country, Laura. There are a number of markets across the United States that haven’t seen a labor rate or paint and material increase in years. These areas are usually in states with regulatory issues that create barriers to increased shop unity. Unfortunately, if your shop is one of only a few in these areas requesting an increase, you will NOT get one. If you are in a market populated with unknowledgeable shops that are still operating as if it’s 1980, your shop will suffer.
There a few solutions to your problem. You can choose to remove yourself from any direct repair programs and charge whatever rate you believe is fair. Since that can be a risky endeavor, you can take a different approach. I would recommend requesting rate increases in a professional manner. Request a meeting at your shop. Explain why the increase is necessary. Show the insurer the investments you’ve made in your shop and employees. Last but not least, show them the “product” and service your customers receive that they can’t get down the street for the same price.
“Tom,” from a dealership in the Northeast, also wrote to me after my paint and materials column.
“How do insurance companies determine when the paint and materials reimbursements need to be raised on the estimates they provide” Tom asked. “Every time 3M or DuPont or PPG sends a notice that they are raising their prices, I ask them (by email or, if I can reach someone, by phone) to make sure they let the insurance companies know that they are raising their pricing.”
Insurers, Tom said, will in turn only honor a shop’s higher rate “after much complaining,” and many shops complaining. Then the insurers make it appear they are doing the shops a favor by raising the rate at a later date, all the while ‘complaining’ that THEY are losing profits. Is this how it works, in your professional opinion? It seems that the real theft here takes place from the time of the (supplier) increases to the time the insurance companies raise rates. They seem to be the thieves, not our employees, as you seem to think the problem is.”
Well, Tom, insurance companies determine the paint and material reimbursement rate by using an algorithm developed by an engineer in mathematical computations. Not! Of course I am joking. Sadly, most if not all insurance companies only raise their rates when shops “complain,” as you state above. That isn’t a joke. We aren’t in the business to give money away. Unless you ask, you aren’t getting.
We don’t receive any documentation from the paint companies. I’m sure they would provide it upon request but we really don’t care. Years ago when gas and paint and materials prices were rising like the tide after a tsunami, we watched from afar as those near the beach were swept away. Unfair yes, but it’s not our problem. We see those increases only when they are reflected in the rates shops say they need to charge us. Unless a large number of shops in a geographic market submit for an increase, we aren’t increasing our reimbursement rate.
I concur, Tom, with your assessment that we revert to pointing to employee theft or waste as the reason you aren’t profitable. Old habits die hard, but there also is a lot of truth to that statement.