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Billing in Dollar$ Makes More Cents

No longer will you have to use (and justify) the labor hour “two-fer” ratio. Labor hours become irrelevant – and so does the insurance industry’s so-called “prevailing competitive price.”

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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.

Someone once said: "The only professionals who charge by the hour are either prostitutes or attorneys. And since few, if any, collision repairers are attorneys … "

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You get the idea.

We all know of other industries that do indeed charge by the hour (i.e. plumbers, electricians, mechanics and computer service providers etc.), but should collision repairers be among them?

Think about it for a moment. Which makes more sense? Charging for collision and cosmetic repair in factors of money (dollars and cents), which consumers are more familiar with? Or using a measure for services rendered (hours and/or units) that few consumers are familiar with or likely understand?

I’m referring to charging by the "unit" and/or "hour" that most of us see on a daily basis in our estimating systems and those estimates as provided across the country by insurance claims people. But what, exactly, is a unit?

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According to the dictionary, it’s a "component or assembly of components that performs a specific function" and/or "any of the individuals or discrete parts or elements into which something can be divided, especially for analysis."

Huh!?

That makes me imagine some fictitious sci-fi movie where a space traveler makes a purchase of a glowing blue drink and the futuristic barkeeper says: "That’ll be two units please."

From our earliest recollection as children, dollars and cents have been the currency we’ve known. Imagine growing up getting five units for allowance, a unit for a cup of lemonade and seven units for mowing the neighbor’s yard?

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Now don’t get me wrong, units of measure are being used successfully in many instances, but most often as a definitive "unit" of measure for specific wares and products, such as:

Coffee: sold by the ounce, pound or container.
Gasoline: sold by the fluid gallon.
Sandpaper: by the sheet, roll or sleeve.
Paint-related materials: sold by the fluid pint, quart, gallon.
Vehicles: sold by the "unit."

A unit measurement is usually associated with an item or "widget" (a.k.a. thingamajig, thingamabob, doohickey, doodad, etc.), and this item is usually sold as a single piece or sold in bulk – and not as a service.

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So how – and why – did the collision repair industry end up charging by "units" or "hours" when estimating and billing in dollars is legal, less litigious (you won’t be charging more labor than a normal workweek can produce!), easier to sell since the consumer understands it and will eliminate the so-called Prevailing Competitive Pricing (PCP) that insurers love to exert upon everyone – regardless of the quality and/or value of the services offered?

Why It Started
Many believe charging by the hour stems from the labor manuals initially developed for the automotive mechanical repair industry, such as the "Motors Book" and/or "Chilton Manual." They reportedly utilized actual time studies on measurable processes from the replacement of spark-plugs to complete engine overhauls. The "times" provided were based upon average tools, experience and facilities employed for the specific function on a specific vehicle model with specific options.

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This made sense. You could safely assume that a process (i.e. replacement of a water pump) for every vehicle of the same year, make, model, engine and accessories would be consistent and that a labor time for the function in the labor time GUIDE could be applicable in most situations.

All the service provider had to do then was multiply this recommended guide time or estimated time frame by his desired labor rate to get the desired billing amount.

Remember, too, that the labor time GUIDES are based upon performing the listed procedure on a new and undamaged vehicle with new, undamaged factory replacement parts.

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Why It Doesn’t Work for Our Industry
But the collision repair industry differs greatly from the mechanical industry. Most every aspect of collision-related damage is unique because the direction, speed and resultant damages of an impact differ in each specific situation. No two damages are the same, ever!

To add even greater diversity to collision repair pricing are the various levels of quality available. Just like a simple re-paint can vary from an advertised $99 to as much as $5,000 or more – depending on the services and warranty being offered – the quality in collision repair workmanship and related materials can vary significantly.

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There’s no consistency in collision damage; in fact, the only constant in collision repair are the differences. My point? There can simply be no "cookie cutter" method of pricing for collision-related services.

The labor time GUIDES can and do provide a legitimate service in providing suggested labor times for replacement of bolt-on-type parts when no damage to the mounting panels exists. An example of this would be a new tail lamp assembly on an otherwise undamaged vehicle. The removal of four attachment nuts and the damaged assembly, and installation of the new factory replacement part would be a repetitive process, so the suggested labor allowance can easily be utilized in determining a "procedural price" for this specific function.

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Overall pricing would include a reasonable profit margin and take into consideration associated liabilities, while remaining competitive to one’s specific marketplace. Being competitive should also take into consideration the levels of service and quality, which is essentially the value offered.

Now, however, consider a rear-ended vehicle – and you can’t open the trunk or rear doors until you make pressure relieving pulls. Are labor times GUIDES going to take this into consideration? NO. They’re going to suggest to you their time studies for the removal of the trunk, doors, quarters and inner structure based on a new, undamaged vehicle. But how many of us has ever performed repairs on a new, undamaged vehicle??

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Wouldn’t it make more sense to assess a collision repair in dollars vs. the hours or tenths of hours provided by the labor time guides? Base your procedural costs upon actual experience. And if you have none, then refer to the guides but charge in dollars – not fictitious "units" or some guess-timated time a publisher comes up with.

While the original mechanical labor guides provided a useful guide for professional mechanics, they haven’t been beneficial to the collision industry inasmuch as they’ve been collectively forced upon repairers by insurers as labor "manuals" – rather than as their intended purpose: guides. Add to it the insurer’s influence on the data providers, and mandated repair labor rates and repair methodology (regardless of the quality of service offered), and you have a recipe for the demise of quality collision repair nationwide.

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Why It’s Dangerous
Charging by the hour may place service providers in a difficult position when their method of estimating and billing is scrutinized by consumers and/or governmental agencies. You may recall the recent issues involving several large automotive repair chains that came under fire for fraud when charging for more hours than was actually provided to customers.

You also may recall that not so long ago, the legal community came under significant scrutiny, and penalties and fines were levied against many across the nation for charging more hours than the work week provided. Sound familiar? This is one aspect the insurers still hold over the collision industry to further intimidate and control them.

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As an example of how this could affect you and your shop let’s look at this scenario: A nice, little old lady comes in because her driver’s door window is stuck in the downward position. Not knowing what the problem is, you tell her that your hourly rate is $40 per hour and you figure it’ll take an hour or so to figure it out – but you caution her that it may require more parts (motor, regulator, etc.) and labor once you’ve determined the problem.

She understands and agrees, signs the authorization and you assign it to a tech. He pulls the trim panel for inspection and cleans the contacts on the switch – and voila! It works! He reassembles the trim panel, brings the vehicle up front, hands you the keys, advises you as to what took place and heads off back to work.

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Feeling good to have gotten her problem fixed so quickly and without additional costs, you let her know what was found and done and that her bill remains what was quoted. But all of a sudden, you see this nice little old lady’s sweet demeanor change from an appreciative customer to an angry victim – going off on how you’re price gouging and committing fraud and are a crook for overcharging her and you’ll be hearing from her grandson, who by the way, just happens to be the local assistant state’s attorney!

Dumbfounded, you finally get a word in and say, "Ma’am, what on earth are you upset about?"

She promptly tells you that you only had her vehicle in the shop for 28 minutes, less than a half hour, and are charging her for an hour!

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Your only choices in this scenario is to either hold your ground and get full payment before releasing the vehicle or concede the point and allow her to drive off, believing she caught you in a scam and likely telling everyone she knows about your company’s unsuccessful attempt to take advantage of her.

Furthermore, she probably will tell her grandson. Remember him? The assistant state’s attorney.

Now imagine the same scenario except that you’d advised her at the onset that your company’s "procedural charge" for an internal inspection is $45. Not a bad price for diagnostics in this day and age.

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Then, after a mere 28 minutes, you come to her and say, "Good news ma’am. We found the problem to be a corroded switch and have cleaned it at no additional costs over that of the inspection fee we agreed upon."

You’ve likely won a customer for life – and she’ll likely tell her grandson about you, too. But this time, she won’t be telling him you’re a thief.

Why We’re Still Doing It
So why does the collision industry continue to use the "hourly" method to charge for services? The likely answer: It’s the way we’ve always done it.

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Another reason is the involvement of the insurance industry. The insurance industry has employed this hourly method for many reasons – one of which is that it benefits them in containing repair costs (reduced severity). They’re able to do this because the collision industry and information providers all too often view the insurance industry as their customer and fear the reprisal of insurers if they fail to adhere to the insurance industry’s desired practices. Too few repairers are willing to recognize who their true customer is and change what’s become the status quo.

Why Insurers Like It
In addition to the little old lady example – and the potential of being accused of fraud – there are also lots of other reasons to charge in dollars rather than in "units" or "hours."

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How many of us are familiar with a situation where you and the insurer disagree on the labor hours required to perform a repair? How many of you have heard the insurer’s representative say something like: "Fine then, I’ll just sit and watch your tech do the repair and time him, and then we’ll pay for the actual time it takes!"

Obviously the appraiser knows of the two-fer ratio, but his position is an attempt to intimidate the repairer to succumbing to the insurer’s offer of labor time simply because he knows the repairer can’t justify his reasoning other than it’s the "Unwritten Rule."

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Now that old numbers game rears its ugly head: What’s charged in our industry is actually twice the labor hours required but only paid at one-half the hourly labor rate that should be charged for the same processes!?

Huh? What?

Imagine trying to explain that (along with what a "unit" is!?) to a judge and jury in a consumer fraud case! Insurers understand this and have this issue in their hip pocket should the need ever arise to use it against a repairer who gets "out of line."

Why Insurers Don’t Mind Procedural Charges – Sometimes
Insurers aren’t opposed to em- ploying "procedural charges" when it benefits them and their stockholders. Note: The following labor rates are for demonstration purposes only and are not intended to suggest a recommended or standard labor rate.

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For example: Suspension alignments, two wheel, procedural charge @ $49.95 (vs. 1.2 hours or more at a realistic mechanical rate of $78 dollars per hour or $93.60), not including the costs and liabilities associated with two people to transport the vehicle to and from the service provider if off site, or if done on-site, the cost of equipment, updates and maintenance as well as the trained tech to perform this safety-related procedure.

Car cover, procedural charge @ $5: (vs. material costs and labor to cover and uncover the vehicle no fewer than two to three times during the body repair, prep and refinishing processes. Add to this the materials, labor and liability of overspray intrusion and the costs to correct the damages. At $40 per labor hour, this would equate to .125 labor hours (not including labor). Who reading this feels that .125 (including required materials) is reasonable for this task and liability?)

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Corrosion protection, procedural charge @ $10: (vs. material costs and labor for the application of various required materials from flange coating to weld-through zinc primer). I see $10 offered on many repairs regardless if it’s a repair of an outer panel to the extensive replacement of inner and outer structure. The reality is that the labor times guides do not list these important and often safety-related processes as an included operation, and the costs for anti-corrosion materials can be considerable when you take into account the initial investment of wands and other applicator devices required, as well as the loss in materials due to partial container use, shelf-life expirations and the tremendous liability associated with the mere cost of a re-do, let alone personal safety liabilities. All for $10? There’s no doubt it’s a bargain, but for whom?

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What You Don’t See as a Procedural Charge – But Should

Now let’s look at some charges that many insurers choose NOT to provide at procedural charges:

Frame/unibody setup and measure, 2 hours @ $40 = $80. I see this on nearly every estimate, regardless of the damages – from a light corner impact to a severe frontal and rear impact, which has distorted the upper and lower unitized structural components.

Clearcoat 1.5 hours @ $40 + $33 materials) = $73. Again, I see this "flat allowance" regardless of how many panels are to be cleared.

Repair pinch weld marks 1.0 @ $40 = $40

Total: $193

Let’s take a closer look at all three of these procedures.

Consider how important the frame/unibody measurement process is in proper diagnostics and correction procedures. Also think about the initial cost of the required equipment (bench and measurement system), maintenance, monthly data (specs) and the daily space required for its use.

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Just like every other work stall, this frame-rack area should provide a daily return on investment (ROI) of the space and equipment, as well as on all associated liabilities. So how many vehicles a day can be properly setup, anchored and measured in a standard workday? How much income should be generated for the company in the 266 workdays available per year? This is purely a business decision because you can elect to give services away or to earn a ROI and cover associated liabilities.

Consider now those repairers who utilize procedural costs in place of this hourly method. Here, the repairer would take into consideration all aspects of the specific services, costs and liabilities required, and you’d see individual charges on the estimate such as: 

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  • Setup for unibody (anchor) diagnosis (includes anchor vehicle, removal of tire/wheels and data for vehicle specifications etc.) $136.87. 
  • Install lower measurement (mid to front only) $66.34. 
  • Install upper front measurement (only after lower setup performed) $54.98.
  • Repair pinch weld marks (eight areas, inside and outer) $74.67. 
  • Refinish pinch weld repair areas (includes corrosion protection and materials) $ 214.89.

Total: $547.75 

Upon individual review and knowing what equipment and efforts are involved in each process, most would agree that none of the pricing appears to be out of line. Furthermore, there are no "hours" to be concerned about or to have to justify.

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When questioned about pricing (which will rarely come from a consumer), the estimator merely needs respond: "These are our company’s procedural costs for the individual tasks listed. This pricing includes the costs, training, labor and liabilities incurred for each and allows for a reasonable profit. In return for full payment, we’ll gladly perform each procedure and warranty the workmanship provided."

Simple really, just as it should be. The only thing that should be difficult is keeping up with the technology and resources required to repair a damaged vehicle.
Give this some thought in your day-to-day estimating, when reviewing insurer estimates and when dealing with vendors and consumers. See how other industries operate and how they price their services and wares. I believe you’ll find that charging in dollars makes a lot more cents.

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Writer Barrett Smith AAM is originally from Alaska, where he grew up in a family-owned and -operated autobody repair business. Smith is president and co-owner of Brandon Paint & Body, Inc., a quality-driven independent collision repair facility in Brandon, Fla., a suburb of Tampa. Smith also owns and operates Auto Damage Experts, Inc., a service that provides independent post-repair inspections and diminished-value-assessment-related services. Smith and his wife have four children, including twin 5-year-old boys.

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