Operations Profile: Negotiation Strategies
With less jobs to choose from, some shop owners got pickier while others negotiated everything but their first born
By Georgina Kajganic
6/1/1998
Some shops in 1997 were willing to negotiate
just about anything - except for maybe their first-born child
- to get repair work, while other shop owners were totally, completely
non-negotiable. Why? Said one shop owner: "Recently, after
I wrote an estimate for a potential client, he showed me one of
my competitor's estimates that was $11 an hour under the going
labor rate in my area. I'd love for someone to show me how to
make money by price cutting. The ironic part is that the adjuster
paid my labor rate, so I ended up making $11 more per hour than
the DRP shop would have."
This shop owner said that he may not convert
all his estimates into jobs (who does!), but the jobs he does
get are at his posted labor rate. Period.
But it's not that cut and dry for many shop
owners.
The average number of estimates written in
1997 was up slightly (from 21 in 1996 to 22.9 in 1997), and the
percentage of estimates converted to actual jobs held steady at
61.8 percent; but, the average number of jobs performed weekly
fell from 16.7 in 1996 to 14 in 1997. For reasons such as this,
many shop owners are going after more work, even if it's not as
profitable, to make up the difference. And, although the average
ticket price rose about 8.1 percent in 1997 - from $1,551 in 1996
to 1,677.30 in 1997 - it didn't make up for the decrease in jobs.
It's not all that surprising, then, that 34.1
percent of our respondents never turn away work, while 62.6 percent
do. Shops that do turn away work, on average, turn away 2.5 jobs
per week, citing reasons such as, "It wasn't worth the aggravation,"
"Can't agree on price or parts used," "Customer
was shopping to save deductible," "Wanted cheap work
done," "Proper repair method not being adhered to by
one of the parties," etc., which leads to the question: Do
shops that never turn away work bury deductibles and perform substandard
repairs? Sometimes. And sometimes shops that turn away work also
compromise their ethics. The fact is: If shop owners never compromised
their ethics, problems such as poor-quality repairs and insurance
fraud wouldn't exist.
Besides the compromising of ethics, the average
posted labor rate in 1997 of $33.91 per hour was also compromised
when need be. In fact, about 53.5 percent of our respondents -
DRP and non-DRP shops - said they've compromised their labor rates
to get work. Why? Comments from shop owners included:
- "Fifty percent of mass insurers pay only $30 per hour."
- "Some insurance companies won't pay frame or mechanical
rates."
- "Another shop was $1 less per hour."
- "To compete with insurance-referral shops."
- "Insurance companies dictate maximum wage per hour for
the area."
- "I'm a DRP."
- "Some insurance companies refuse to pay area rates."
- "To retain DRP accounts."
- "Insurance-company intimidation. 'Our way or no way.'
"
Once shops get the work, the average shop has 6,804 square feet
of production space (up from 5,431 in 1996) and 11.6 bays in which
to work (down from 13.4 in 1996). Of these 11.6 bays, 6.5 are
devoted to body work, 2.9 to prep work, 2.6 to mechanical work,
2.3 to painting, 1.5 to detailing and 2.7 to various activities.
When performing the repairs, about 42.8 percent of a shop's labor
hours is spent on body work, 15.6 percent on measuring and straightening,
32.3 percent on painting and 9.3 percent on mechanical repairs.
About 15.3 percent of our respondents said the times allowed for
these operations (the time specified to perform tasks as identified
by the information providers) are accurate. About 70 percent said
the times are sometimes accurate, and 14.4 percent said the times
are never accurate. Many shop owners said they think information
providers are trying to please insurers rather than determine
actual times for operations, which forces repairers to bicker
with insurance companies regarding how long an operation really
takes.
Once the actual repair is underway, shops replace with new parts
46.7 percent of the time, repair the damaged parts 23.8 percent
of the time, replace with aftermarket parts 16 percent of the
time (up from 11.8 percent in 1996) and replace with used (salvage)
parts 13.5 percent of the time.
Why the increase in aftermarket-parts usage? One reason could
be that 91.4 percent of our respondents said they think insurers
will always or sometimes direct customers away from their shops
if they don't use aftermarket parts. Only 8.6 percent said they
think insurers will never direct away customers.
When it comes to using aftermarket parts, 70.4 percent of our
respondents said it's the shop's responsibility to inform vehicle
owners that these parts are being used, while 29.6 percent said
it's not the shop's responsibility. (During the past year, shop
owners have gotten better at informing customers of parts options
prior to repairs; and, when informed, many customers request OEM
parts rather than the non-OEM parts specified by the insurer.)
Strangely enough, 27.5 percent of our respondents said it's the
insurer's responsibility to determine the type of parts to be
used in a repair. Yes, the insurer. Not the trained, experienced
technicians who know how to repair the vehicle to preaccident
condition, or even the vehicle owner who has to live with the
repairs afterward, but the insurance company. Perhaps some shop
owners have developed this attitude because they're tired of arguing,
tired of being in the middle, tired of informing customers of
their rights, tired of conflict. Unfortunately, allowing insurers
to determine parts usage is like allowing a receptionist at the
doctor's office to diagnose patients. She's clueless as to what's
best for the patient. She knows something is broken, but she doesn't
know the right way to fix it.
She couldn't possibly know - she's not the doctor.
Writer Georgina Kajganic is editor of BodyShop Business.