Guest Editorial: Can't We All Just Get Along?
Many repairers have made the mistake of going to war with insurers versus going to the negotiating table. But the loss of shop profitability is not the insurers’ fault.
By Clayton Horrocks
9/26/2008
In many articles I’ve read recently that deal with DRP shops and insurance companies, I’ve found that many shop owners have gone to war with insurers and fought their tactics rather than to the negotiating table with their concerns about profitability.
I don’t know any insurance company that demands that we repair the car the way it says to repair it (or else). Some insurers have policies in place that bring the cost of repairs down by using aftermarket, reconditioned or recycled parts. But is it their fault that someone is offering these parts as an alternative to OEM parts? I say no. If these parts suppliers can offer ways to make the bottom line better, then I don’t see why the insurance companies should not try to do that.
Regarding aftermarket parts, a burden should be put on the companies that offer the parts as same fit and quality. In other words, the parts need to be certified better before they can qualify to be put on a PXN list. The shop owners need to hit the suppliers with more accountability for the cost (retail rate, not cost rate) as a way to deal with these parts when they won’t fit properly. Some of the suppliers want you to fit the part first, but I don’t feel it’s our job to test the product when it should have already been proven to fit at least 99 percent of the time. Besides, I’m sure most shops out there are production shops that, for minor repairs, take the part directly to paint before pulling the damaged part – a method used by many to improve production.
The companies that offer reconditioned parts need to be held accountable, too. As for recycled parts, if they come in paint ready, that’s fine, but if they come in with some damage that needs to be repaired, my shop charges to repair that part at customer rate to make it paint ready.
The bottom line in my shop falls completely on my shoulders, and if I’m not making the percentages needed, then it’s up to me to negotiate with the insurance companies to get where I need to be. Satisfying our customer (the vehicle owner) is and will always be our number-one priority. Without the customer, both the insurer and the shop are out of business. If you the shop owner cannot take the time to look at all levels of efficiency and can’t work with the insurance companies in a reasonable manner, you’ll be in with the last of a dying breed. Like it or not, DRPs are here to stay, and it’s up to shop owners and insurance companies to work together as partners rather than playing the blame game.
DRP Design
Let’s first look at what the DRP was designed to do in the first place: expedite the process of getting the customer’s vehicle repaired from the time of the accident to the completed job. In my view, this is a step the insurers took to increase customer satisfaction.
There are still insurers out there that are experimenting with different ways to decrease cycle time from the initial point of a claim to a finished product, although one particular company’s tactic – tearing a vehicle down at one location for a “complete estimate” (and I use that term lightly), then proceeding to send it to a repair facility – is not logical. If you’re a fairly well-trained collision repairer, you know that seeing the way the vehicle was damaged during the accident gives you a good clue as to secondary damage and how the primary damage should be repaired.
DRPs also gave insurers the ability to handle more claims with less staff because the shops began handling the input of the information to process the claim. Is it wrong for the insurers to push these administrative duties off on shops? No, because we repairers are the most qualified to write complete estimates. Does it contribute to steering the customer from one shop to another? It’s very close, but as a repairer, it’s still your responsibility to sell the product you’re offering. The only difference is that you get the first chance to do so because you’ve been given the opportunity to process the claim.
Accountability Matters
Let’s look again at the alternative to OEM parts. To keep repair costs down and ultimately be competitive on insurance rates, insurers have been provided this alternative by companies that offer the same parts but at a lesser price. The key word here is “same.”
When I speak of holding these vendors accountable, I’m saying don’t offer the product if you can’t back it up. The only way to make these vendors more accountable is to affect their bottom lines by charging them the same as you would a customer for work you have to perform for them. I remember one particular instance concerning an aftermarket grille. This grille couldn’t be imitated because of a patent infringement of the logo. After asking a high ranking person at this aftermarket supplier why it was on insurers’ lists when it was obviously not the “same,” I was told that so many of them are sold they would never dream of taking them off the list. This is one case where the aftermarket vendor needs to be held accountable.
Another way to hold aftermarket parts suppliers accountable is to not offer products that don’t fit properly. They shouldn’t expect shops and insurers to pay daily to test the product. Even though they tell you they’ll pay for the labor to replace the part with another, try to get your money without disrupting the repair process and cycle time. The insurers are looking closer at the cycle times, and it’s only a matter of time before they find fault in the aftermarket parts procedure. My shop holds them accountable and will continue to do so until they get it right.
Recycling centers are a big part of our industry and have made great advancements, but they still need to deliver quality products that are paint ready. If they aren’t paint ready, the centers should pay for work performed the same as any other customer would. In one conversation I had with a major recycling yard, I explained that when I get a quote on a used part, I expect it to be paint ready. If that part arrives and needs two hours worth of repair, expect to give me credit on that part for the two hours at customer door rate. There was a pause on the other end of the line before he said, “But Clayton, I can’t compete with those companies that list parts that aren’t the same quality as ours.” I proceeded to tell him that was fine because I look at it this way: If a 2004 Chevy truck door is worth $550, it should be advertised for $550. If a company offers it for $250 because it has some quality issues, let them sell it to me for $250 then find it will take $180 to get it paint ready. I bet they’ll figure out quickly whether that door was good enough to offer or not. As far as I’m concerned, there should be a wholesale price guide for used parts to standardize the estimating process.
Reconditioned parts vendors are also responsible for delivering a good product and will also be held accountable for the product if it fails to meet standards. One vendor in particular heard from us after a repair failed on a bumper three weeks after the customer drove the vehicle home. When I asked the vendor to pay the rental, labor and materials, they said it wasn’t their policy to pay rental and they would only pay the labor and materials cost. I proceeded to tell them it wasn’t my policy to inconvenience the customer without a rental and I would not cost out work that was no fault of my shop. I also told them that if that was their policy, then we would use a company that has a policy that backs up its product. I think a company that has policies like that will eventually be found on the “closed due to no business” list.
The Blame Game
Now we get into the negotiation process with insurers on labor rates, paint materials, frame rates and other items. As most shop owners know, we have come to an impasse. In the past few years, a lot of factors have been considered when figuring out the cost of running a shop and the rates charged for repairing the vehicle. I suppose that’s why I see so many articles about shops blaming someone else for their loss of profitability. I would say the fault doesn’t lie anywhere but with them.
Let’s talk about the “magic numbers.” I prefer to call them profit margins. The margin for labor gross profit is between 60 and 63 percent. The margin for paint material gross profit is 30 to 40 percent. The margin for parts gross profit should be 30 to 35 percent if you include recycled parts. Sublet work will average 3 to 7 percent. If these margins aren’t being met, then it’s time to figure out why.
If you don’t have inconsistencies with efficiency, it’s time to let insurers know you need an increase. Don’t make the mistake of asking for an increase just because you want to live high on the hog. You have to have increases to sustain the structure that meets the marketplace. If the profit margins I listed still don’t allow you to achieve the bottom line you’re looking for, then you’ve bitten off more than you can chew or you expect more out of this business than a good living.
There are a lot of areas that will need negotiating that have been hurting the bottom line such as cost of primers, block sanding, bolts and fasteners, stripes, alignments, etc. Shops need to take the time to look at the estimating guides to see what was missed in the repair process and therefore needs to be negotiated as an additional cost of repair. If the market area doesn’t call for it, then how can you expect insurers to pay for it? In other words, the market area has to establish a need for paying for something for that something to become a part of the repair process.
Efficiency = Survival
The future of the collision repair industry relies upon the suppliers to be efficient so the shops can be efficient so the insurers can be efficient. If the chain breaks down, it needs to be fixed. So take responsibility and do what’s needed so we can all be happy in the profession chosen for us or by us.
Clayton Horrocks is manager of Morse Chevrolet in Overland, Kan. He can be reached at (888) 820-0938.