6% Net - 15% = Bad...Getting the Repair Plan Right - BodyShop Business

6% Net – 15% = Bad…Getting the Repair Plan Right

Our industry has a tough time getting the repair plan right when we have the car. Now some genius thinks that we’re going to get it right by looking at photos and that we can give back 15%? Still, I’m sure shops will be bidding like crazy — underutilization being the motivator,” says DCR Systems CEO Michael Giarrizzo Jr., about DingIT, an LA-based company that’s recruited 40 to 50 shops (so far) to bid online for jobs. Participating shops write an estimate based on online photos of light hits submitted by the vehicle owner, and when the consumer chooses a shop, the “chosen” shop then pays DingIT a 15% commission.

When I first heard about DingIT, I was reminded of the NRMA Insurance program in Australia, which caused a repairer revolt. NRMA introduced an online bidding program that forced shops to bid for work (light hits) over the Internet and awarded jobs to the lowest bidder. Hundreds of repairers refused to sign the contract, united and began holding protest meetings. Repairers brought so much attention to the program that a safety committee of the New South Wales government looked into it and recommended its immediate suspension, saying it would lead to cost cutting and unsafe repair practices. In the end, NRMA backed down and again began allowing customers to choose their own repairer.

Granted, there are distinct differences between the two programs — DingIT isn’t affiliated with any insurer, the consumer is choosing the shop and 75% of the jobs posted on DingIT are paid out of pocket.

The key difference, however, isn’t in the programs themselves, but how repairers responded to them: Australian repairers said, “No, we won’t be a part of this,” while U.S. repairers are not only saying “Yes,” but are willing to pay a 15% commission besides.

I’m no Donald Trump (thank God, that hair!), but I can tell you that in an industry where net profits are in the single digits, I become very suspicious as to how any shop can give away 15%. So I first went to DingIT founder Eyal Golan with my concerns.

Golan got the idea for DingIT after having his vehicle repaired a few years ago. He said he felt that driving from shop to shop getting estimates was a waste of time and that it would be easier for consumers to get estimates over the Internet. Although DingIT is currently operational only in Los Angeles, Golan plans to have it up and running in the New York City market the second quarter of 2006.

Golan, by trade, is a software engineer. So when we began discussing the legality (check your state laws) and logic of writing an estimate from photos and the lack of shop profits, it quickly became obvious that Golan isn’t versed in collision repair industry matters. “… The overall average gross profit is 38.2%,” says Golan. “Out of this, many shops are willing to pay 12% to 15% for referral of jobs that otherwise they’d never get.”

“I don’t care if the average gross profit is 90%,” says Connecticut shop manager John Shortell. “Most shops are still netting single-digit profits. Let’s say you have gross sales of $100, a gross profit of 40% and a net profit of 10%. The shop makes $10 on his $100 sale, but now he has to give $12 to DingIT before he pays any of his bills. The DingBAT shop just lost $2 repairing that vehicle. And that’s assuming the shop got its normal rates and markups. Bidding on the repair, though, the shop owner probably cut his profit margins just to get the job. Here we have shop owners going into debt just to keep busy.”

“I have major concern when a person with no experience in our industry proposes to ‘help the consumer’ and takes 15%,” says Michael Quinn, president of 911 Collision Centers in Tucson and Vegas. “I think [the founder] is ignorant of what really goes on in some body shops.”

Quinn is exactly right. Golan clearly doesn’t get it but, then again, why should he? He’s just a guy who had what he considers a good idea. It’s the experts — the repair shops — that should be telling him it’s a bad idea. Yet they aren’t.

Because I haven’t heard back from any of the participating DingIT shops that I contacted, I’m left to speculate as to why a shop would join:

A) Some shop owners are so desperate for work and such bad business people that they don’t realize they’re losing money. “It doesn’t surprise me that a shop that would bid on such work would pay a commission,” says New Jersey shop owner Matt Casiano. “These shops probably have no idea of their cost of doing business.”

B) Some shop owners will stop at nothing, including committing fraud, to bring work in the door. “There’s no way a shop can give away 15% and fix the car per estimate,” says Quinn. “This program will defraud consumers and insurers and will never catch on with ‘A’ shops.”

Problem is, there are still an awful lot of “B” shops out there, and their actions — whether malicious or simply misguided — negatively affect the industry as a whole.

Georgina K. Carson, editor

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