Thursday, 27 August 2015 23:07

Tim Ronak Discusses Creating Returns on Shop Investments at CAA Glendale/Foothill Aug. 13 Meeting

The California Autobody Association Glendale-Foothill Chapter met Thursday, August 13, 2015, at Brookside Country Club, 1133 Rosemont Avenue, Pasadena, CA 91103.

Chapter president Daniel Panduro began the meeting. The speaker for the evening was Tim Ronak, Senior Services Consultant for Akzo-Nobel Automotive Coatings. Ronak said the term "senior" refers to his 21 years with the company. His topic for the evening was "Considerations in setting your shop's door rate, and creating a return on your equipment and training investments."

The essence of the evening's presentation was that no one is setting a door rate that will adequately get a return on today's necessary investment in new equipment and up-to-date training. He passed out a free disc for everyone with his PowerPoint show including the California Department of Insurance Labor Rate Surveys, April 2015, and "Getting Paid for Investing in Facility, Equipment and Training." He also made the generous offer to provide the disc to anyone who wants one. Simply call 949-289-3357, or e-mail timothy.ronak@akzonobel.com

Ronak provided a series of templates whereby a shop owner can put in the investment made and the estimated time required to recoup the investment and see the amount that must be added to a retail unit door rate price to recoup that investment. He separated the investment into facility upgrades, new equipment needed (and generally required) and specific training needed to operate the new equipment. He pointed out that the one element that has significantly changed is the length of time required to capture a return of investment. For example he showed that an acetylene welder was useable for 35 years. The MIG welder that replaced it only had a useable life of 20 years.

Then the spot welder that came next had an even shorter useable life because of refinements that required a different welder for different materials, then one for special voltage and soon another with other variables. The ROI on one isn't recovered before the next required tool must be purchased.

Useable life on many similar tools could be as little as a year or two or a month or two.  A rivet gun costing several thousand dollars might be used as little as three times a year.  How long would it take to recover the investment? Tim says the $155,000 investment needed to get set up for aluminum is unlikely to be regained before aluminum is completely replaced with other materials. And the facility cost of dedicating a bay to aluminum that could stand idle much of the time should also be charged against the ROI. And the tech sent to train on aluminum tools and processes that only gets used 20 percent or less of the time -- how long would it take to regain those training investment costs if only charged against actual application time? Perhaps you begin to see how far you are from collecting anything toward the cost of your investment.

So how should the retail door rate be increased to cover the ROI? One man suggested $20 or $25, and that is really only per unit, not hours. Estimating systems calculate rates per unit, not hours. A unit is the average time an average technician spends on an average procedure. But how applicable it that when your technician must be significantly above average and the procedure demands a level of technical skill far above average? Is the book time even close to the reality of what is demanded? And if you do charge a slight premium for a special procedure, a special technician and an especially dedicated part of your facility, does that even come close to covering the investment costs? When you consider that you may have already given the customer a discount on an already discounted wholesale rate that you give insurance companies, and that you may have accepted a credit card for payment already costing you a few percentage points, you are even farther from collecting anything toward the cost of your investment.

Ronak also discussed Insurance Labor Rate Surveys and some new rules that put more teeth in the surveys. For example insurance companies must now compare rates using an arithmetic mean. At the end there may be some semblance of reality in the survey. But as Ronak points out, it's all about having a true retail door rate differential from the wholesale rate negotiated by insurance companies. And that door rate must be high enough to compensate the shop for the huge investments in equipment, training and facility upgrades. When Ronak began putting real investment costs and recovery times in the template he provides, the effective door rate will probably increase by $90 a unit or more. And even if the shop owner decides to just break even and make no profit, it might drop to $80 a unit. This is the reality on what is needed to make a genuine return on investment.

So if no one will pay this real door rate, what is a shop owner to do? Ronak notes that if the new equipment is used infrequently, it would make more sense to simply rent it, or share the cost with other shops. Investments that are never recovered will gradually destroy the viability of the entire shop.