A collision repairer in the Birmingham, Ala., market where State Farm’s online parts ordering and bidding process is being tested is claiming that 40 percent of the area shops on State Farm’s Select Service program have dropped the program due to their unwillingness to participate in PartsTrader.
Those shops reportedly did roughly 70 percent of the State Farm jobs available in that market, and State Farm is reportedly scrambling to find other shops to fill the vacancies.
George Avery, claims consultant with State Farm, confirmed that some shops in Birmingham have dropped the program, but could only say the number of shops was less than 20.
“I don’t know the exact number because local management is still talking to these shops, but some have officially discontinued their relationship with us,” says Avery. “Our biggest concern is that these shops, in some cases, left us without even trying [PartsTrader]. We’re a little concerned about someone making a decision like that based on outside information that may not be accurate.”
Avery says out of the four pilot areas where PartsTrader is being tested – Birmingham, Grand Rapids, Mich., Tucson, Ariz., and Charlotte, North Carolina – Birmingham is the only area in which some Select Service shops have decided to discontinue their relationship with State Farm.
Avery denied that State Farm is “scrambling” to find more shops, citing the overcapacity situation that currently exists nationwide.
“There are a lot of quality repairers out there, but we only need so many,” he says. “With the capacity situation as it is, it’s just a matter if shops are needed. Frequency is way down, so management has reevaluated each market area to determine if they need to add anybody as a result of who has left us.”
Richard Sands, manager of the collision center at Tameron Honda, said that dropping Select Service wasn’t easy as it represented $2 million in sales. But he viewed the new parts ordering process as one that would negatively impact his parts profits.
“We’re a high volume wholesaler on parts,” says Sands. “Our take was that, with the volume we do, it would have taken three additional employees to keep up with it. To remain profitable in the wholesale parts division, it just didn’t look like a program that would work for us.”
Sands admitted that he had not worked with the PartsTrader program but based his decision on things he read and talking with repairers in other test markets.
“We see eventually that we’ll be out of the parts business, and parts will be direct ship from State Farm,” says Sands. “I think that’s probably State Farm’s long-range goal. Dealers and/or shops will be cut out of the parts business altogether.”
Mike Capps, owner of Oak Mountain Paint & Body, also dropped out of the Select Service program due to what he views as further intrusion into his business.
“[State Farm] has come in with this program under the guise that it will streamline parts ordering when it’s all about them taking over control of parts and taking the profits,” says Capps. “State Farm has been in business for 100 years, and parts has never been disputed. So why now in the worst economic times for small businesses? Taking parts away from independent shops and putting the profit in their pocket is nothing but corporate greed.”
Like Sands, Capps has not actually used the PartsTrader software, but says using it isn’t necessary to know that it’s bad for his business.
“All the big, quality shops that were on Select Service had enough sense to look at [PartsTrader] for what it was,” says Capps. “With all the proof we had from New Zealand, there was no wondering what this was going to be and no trying it out. Fifty percent of the shops in New Zealand went out of business, and the shops now are making a 10-percent handling fee on parts.”
Even though State Farm accounted for 30 to 40 percent of his repair work, Capps is not worried about not being on the program anymore because he feels he’ll still get business from them.
“Just because you’re not on the program doesn’t mean you lose that business,” he says. “Last week, I had 12 State Farm jobs on the board, and only two were through Select Service. The agents are still going to send their customers to the shops that do the best work. Plus, my profit margin will be back up because I’ll be able to charge for storage, markup on sublet, tow bills, etc.”
Aside from profit, Lloyd Bush, owner of Bush Auto Collision Repair, feels the new parts process is actually less efficient and will increase cycle time, which is why he also ended his relationship with State Farm.
“All it’s going to be is an administrative nightmare, and it will increase the amount of time the car will be in the shop,” says Bush. “And if its only purpose was to speed up parts ordering, [State Farm] would have never gotten into a bidding war on parts.”
Bush believes he would have to hire another person just to man the PartsTrader program, as would his parts vendor.
“At the end of the day, we made less money and my parts vendor made less money because both of our administrative costs went up because we had to spend more money on more people, and the only one to profit out of this is State Farm,” he says.
More information:
SCRS Updates Membership and Industry on State Farm Parts Bidding Process
SCRS Interviews New Zealand Collision Repairer on PartsTrader
