– Thomas Ferry, painter, Ketchikan Auto Body,
“Why are autobody shop rates at the bottom of the barrel compared to all other trades – mechanical, plumbing, electrical, aircraft, boat, woodworking, etc.?”
– Thomas Ferry, painter, Ketchikan Auto Body,
A reader from Alaska asks why the collision repair industry is in the crapper “dollar wise” compared with other services and skilled trades.
Good question. I’ve spent a lot of time considering this, since I began in this industry in 1963. Of course, a lot of us who are good at what we do don’t necessarily get involved just for the money. The money is actually secondary to the primary reason we repair collision damaged vehicles -the opportunity presented itself and we thought we’d like to do it or we knew we’d be good at it. If you do something only for money and don’t like what you’re doing, chances are good that you probably won’t be very good at it anyway.
So, am I saying that most of us in the collision repair industry are here because we like what we’re doing? Yeah. That’s a pretty safe bet.
That said, there are many tough conditions and obstacles to put up with and surmount that aren’t present in other businesses that we accept as part of the package if we want to be collision repairers. One of these is the disparity in our hourly labor rates compared to that of other service providers. I’m talking here mostly of the skilled trades, those services that take several years to learn and become proficient at.
An easy one to make a comparison to is the automotive mechanical repair industry. We compete basically for the same employees, require many of the same skills, work on different parts of the same cars, have the same customers, etc. But that’s about as far as the similarities go. Mechanical repairers operate in a free enterprise, free market atmosphere, as do all of the other skilled trades.
Yup, that’s right. I’m saying that good ol’ American standard, the free enterprise system, determines the rates of the other skilled trades and services – but not ours.
For example, recently in one of the mechanical trade magazines, it showed that $52.23 was average per hour door rate for the mechanical repair industry. On the other hand, the June 2003 issue of Bodyshop Business showed that the average for body/refinish labor is $40 per hour.
Performing my own unscientific survey for my local Seattle area, I found my own shop charging $46 per hour for body/refinish labor while independent mechanical repairers around me charge an average of $75.80 per hour.
Hey folks, even those mechanical repairers tell me that they think our level of knowledge and skill required to competently repair today’s collision damage vehicle is equal to or surpasses theirs in making mechanical repairs. Not only that, but we offer lifetime warranties that mechanical repairers won’t touch with a 10-foot pole.
What the hell makes their work worth so much more than ours? Oh yeah, I guess that was what our Alaska reader wanted to know, wasn’t it?
Well, it’s not a new story, and please don’t go and take the situation out on your local mechanic. He likes you, and he really doesn’t have a damn thing to do with it anyway. In fact, with extended warranties on drive trains becoming more common, he may be joining us in our boat sooner than later – so save a little room for him.
How We Got Here
In 1945, a little old bill titled the McCarran-Ferguson Act came onto the floor of Congress. I’m simplifying this for the purpose of brevity, but the thrust of this bill was to stop corporations and industries from conspiring together to commit unfair trade practices – little things like price fixing, creating shortages to create demand, and other novel and creative economic strategies that tend to enhance the fortunes of the giants of the industry while depleting the bill of fare on the dinner table of the average citizens. In other words, those little ploys that tend to give capitalism a bad name.
As I got the story (from several long-retired body shop owners), the debate on the floor raged on long and wearily, dragging on into the “wee hours.” To remove a last barrier of settlement, the insurance industry offered to agree to the entire act if their industry, and theirs alone, was granted an exemption from it.
The weary legislators were lobbied with undeniable logic, until it became quite clear that this exemption would be the best thing for America since the Declaration of Independence. It passed and has become as firmly lodged in American economics and jurisprudence as the Grand Coulee Dam is in the great Columbia River, perhaps more firmly. So, no industry can sit down at a table and discuss rates or prices – except for the insurance industry.
EDITOR’S NOTE: While West’s “story” about how the insurance industry’s exemption to the McCarran-Ferguson Act came about is interesting, it’s important to note that the insurance industry was not on the floor of Congress during the debate and did not “offer to agree” to anything. The McCarran-Ferguson authorizes states to regulate insurance and provides the insurance industry an exemption from the federal antitrust laws for various activities, but only if such activities are regulated by state law. Stephen K. Halpert, professor at the University of Miami School of Law, says this legislation specifically exempts the “business of insurance” from federal antitrust laws, as it’s regulated by state law. Section 2 of the Act provides, in pertinent part:
(a) The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.
(b) No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act, specifically relates to the business of insurance: Provided that after June 30, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, shall be applicable to the business of insurance to the extent that such business is not regulated by State law.”
Halpert points out, however, that acts of boycott, coercion or intimidation and agreements to engage in these actions remain subject to the Sherman Act.
“Whoa, whoa, wait a minute,” you say. “What’s that got to do with us?”
At my shop, about 90 percent of our work is paid for by insurance. I’m guessing yours to be about the same. So we sure as hell aren’t going to live very well without them, are we?
Now just like every other profit-making business in the world, the insurance industry has only three option available to increase profits:
- Increase sales – Hence, all the advertising on TV trying to suck you in.
- Reduce costs – Oh yeah, this is where our primary question begins to get answered.
- A combination of both more sales and reduced costs.
Where We Are
Now, let me see if I’m conveying that little glimmering light of a message to you in an understandable way. As collision repairers, it’s illegal and in violation of federal law for us to meet and plan how we might increase our hourly door rate to meet rising costs.
However, the industry we derive 90 percent of our income from can quite legally discuss anything they want to, including cost controls. Hmm …
If there’s any doubt in your mind, let me erase it. WE ARE completely controlled by the insurance industry. It’s a fact of life.
Cost shifting and fraud are the additional fall out from this issue. It’s not uncommon for insurers to point the “fraud finger” at us, while asking for discounts on labor and parts. At the same time, we must continually upgrade equipment and invest in training for the ever-changing automobile. This has driven increased efficiency (a good thing) but has also inspired some cost shifting and fraud, which short changes the consumer (a very bad thing).
Question: As automobiles become more sophisticated and more difficult to repair, how does our industry compete for the more discriminating, intelligent individual who’s required to repair them, with the ever-widening gap in labor rates between our industry and the other skilled trades?
Question: Is the commission/flat rate system of pay a service to our industry, or is it a cop out for real benefits, real wages … and real management? A hard question, but with the growing disparity between our hourly rates and those of other skilled trades, something has to give. Oftentimes, it’s quality.
Question: Where does diminished value come from? Insurers are going to say they pay for proper repairs, and I’m sure that most think they do. But the question remains, with such unequal and disparate rates, are they inspiring poor repairs?
Our Own Worst Enemy?
Now think about this, and I think the primary question of why there’s such a difference in hourly rates between the collision repair industry and other skilled trades will be answered.
Our whole industry is made up mostly of small, independent businesses. We’ve got some consolidators and insurer-owned shops that we might think of as large, but in the overall picture – as compared to the entire industry – they, too, are miniscule. So we’re just an industry made up of many independent entities, and we cannot by law, work together when it comes to establishing prices.
While the public purchases other skilled services (mechanical repairs, electrical, plumbing, carpentry, etc.) based on competitive, free-market pricing, their collision repairs are, for the most part, paid for by insurers.
The insurance industry, on the other hand, is quite different than other industries. While it’s made up of many businesses, they’re all quite large by comparison to collision repairers – so there are less of them.
One U.S. insurer holds about one quarter of the automobile insurance. Cost control is important to any business and certainly no less so to insurance, and insurance has the legal ability to discuss, as a whole, any measures to control costs.
Keeping hourly rates low is one component of cost control for the insurance industry. Of course, there are many others as well, which create additional challenges for us.
Now when a new shop owner comes on the scene after making considerable investment and with substantial financial obligations, he’s obviously looking for ways to meet those obligations. When the local insurance office calls about the rate survey, does the new shop owner quote a rate that will realistically compete with the local industry or does he quote a “hoped for volume” rate?
Does this happen? We can’t legally know, but the insurers let us know when they announce the prevailing rate.
Last Question: Is there something wrong with this picture?
Absolutely. One of our biggest downfalls has always been our inability to communicate to one another – legally – regarding this issue.
Writer Mike West, a contributing editor to BodyShop Business,has been a shop owner for more than 30 years and a technician for more than 40 years. His shop in Seattle, Wash., has attained the I-CAR Gold Class distinction and the ASE Blue Seal of Excellence.
*For an article written by Charlie Barone – who’s of a much different opinion than Mike West – click on the article titled, “Who’s Really in Control?”