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Ask the Expert: How Do You Combat Labor-Rate Suppression?

We raised our labor rates at the beginning of the new year, but the insurers are telling our customers we’re over-charging and they will need to pay the difference “out of pocket.” What should we do to combat this?

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Barrett has authored numerous industry trade journal/magazine articles, including several cover stories for BodyShop Business. Having grown up in a family-owned collision repair business and owner/operator of two successful collision repair facilities; his ongoing efforts as industry speaker and repairer coach-consultant are geared toward educating professionals and consumers to achieve equally successful resolutions to automotive-related property damage issues. Such issues include proper and thorough repair, reasonable repair profitability for repairers as well as equitable claim settlements for both claimants and the responsible/paying parties. ADE offers numerous professional services nationwide.

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Q: We raised our labor rates at the beginning of the new year, but the insurers are telling our customers we’re over-charging and they will need to pay the difference “out of pocket.” They’re making us out to look like crooks and thieves. What should we do to combat this?

A: Labor rate issues are difficult for repairers to combat simply because the insurer is usually the first one to educate the customer…and they choose how they want the customer to be educated! You and others then must defend yourselves from such assertions and innuendos. Furthermore, some insurers have written into their policies that they owe what they determine to be “prevailing competitive pricing” and/or “practices.”

I encourage our ADE repairer coaching/consulting clients to not concentrate so much on the hourly labor rate but instead focus on the listed processes and materials within their repair plans (estimates). Much greater profits can be attained through charging for needed (but often overlooked processes), which are much more easily explained and attained than mere labor rate differences… and with a whole lot less friction!

Some examples that may apply are:

  • Pre-and post-repair scan of on-board systems
  • Pre-wash and pre-cleaning of vehicle
  • Fill-sand and feather (aka “block and fill,” etc.)
  • Back-mask jambs
  • Cover exterior for three applications (body repair, prime and refinishing)
  • Cover interior areas and exterior trim and glass to avoid welding, grinding, and/or refinishing damages
  • Mix time for inner colors (i.e. Elpo primer)
  • Splatter/mist inner paint as OE (robotic overspray as often found at inner quarters, trunk floors, etc.)
  • Removal of pinstriping (paint, vinyl graphics/pinstripe, etc.)
  • Removal of remnant adhesive (vinyl graphics, pinstripe, side moldings, etc.)
  • Properly accounting for and assessing accurate charges for hardware (i.e. nuts, bolts, clips and fasteners)
  • Repair of rocker pinchweld flange from frame machine anchoring
  • Matching of texture of applied finish, seam sealers, caulking, sound deadening, rocker guard-schutz, etc.
  • Road test
  • Clean for delivery
  • Re-application of applied seam sealers, caulking, sound deadening, rocker guard schutz, etc., and many more often overlooked or omitted processes required in the proper restoration of a damaged vehicle.

As a shop owner, I would also take a serious look at how you’re being compensated for your body- and refinishing-related materials. This is an area that far too many shops are being shorted and one that can provide a huge boost to bottom-line sales and overall profitability. Using a paint calculator or invoicing system such as PMC Logic can provide a well-documented and proven time-tested enhancement in this profit area.

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Once a repairer commands writing proper and accurate repair plans and provides a service commensurate with others who offer the same level of service, quality and warranty, they can then move on to other issues in need of reconsideration, including labor rates.

The first step in determining an appropriate labor rate for one’s operation is to first determine what your actual hourly cost of doing business is. Only when you know how much it costs you to operate your company per hour can you determine what you would need to charge to cover the cost and earn a reasonable profit. Caution…this is a shocking eye-opener for most!

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