News: Consolidator Report
Total losses are often regarded as a loss to a body shop. But the fact is the loss is your customers’ and doesn’t have to be borne in any sense by your business.
Something that too few body shops focus on is the total loss as a profit center. Why would shops be so concerned about cars they won’t be repairing?
The fact of the matter is that the total loss is a financial loss borne by your customer and the insurance company liable for the loss, not you. The total loss is really an opportunity for a service sale, one that many shops have found to be more profitable than the repairs of those cars deemed worthy and repairable by insurers.
If you take a look at the growing percentage of cars that are totaled – ones that leave your shop and are destined for the salvage yard – you might get a feel for the opportunities that exist in that department. With the cost of replacing front and side airbags exceeding thousands of dollars in some cases, it’s no wonder that so many cars are wiped by the insurance companies. Add to this the strong salvage market and the free rein the salvage rebuilders have in the U.S. to place the totals back into the stream of commerce and you may get the picture more clearly.
Where does this leave the body shop? It makes the shop the custodian (for a limited time) of the salvage, and anything one does to preserve its value is recoverable. However, getting to the mindset that will enable one to profit off total losses may involve some rethinking of the general perceptions in the industry.
Business = Making a Profit
As a business owner, one must reap a profit from every minute a paid technician or employee of the business spends working. One should carefully document every task involved in the administration and care of a total loss vehicle. Even though you’re not going to repair the cars, you’re still selling a service to your customers, which brings us to the point of the market value of the various tasks involved in totals. Every move of the vehicle qualifies for a charge, such as the instance when the car is brought inside for the insurance adjuster to evaluate the damage. This is particularly true with those vehicles that won’t operate under their own power. A body shop exposes itself to a workman’s comp claim when employees have to push a dead vehicle around the premises. Even when you use one of those cute little tractors to push a car, there’s an opportunity to sell service.
Steps taken to preserve the salvage’s value are always billable. As it’s both the insured’s and the claimant’s duty to mitigate damages, a signed authorization from a customer is all that’s needed to create legitimate charges, such as covering a car on which the glass is broken to prevent damage from the weather. Ultimately, the car will be sold at auction, and a waterlogged interior won’t do much for its value.
Storage is a strong opportunity for profit. In fact, there are some body shops that can cover their entire monthly rent on the proceeds from it. This is particularly true for those shops with towing operations in their businesses. The storage charges are subject to what’s usual and customary in the market area, although special circumstances may apply, such as the security measures a shop may be obligated to provide when the secured storage area is in a high-crime area. In that case, one should factor in the cost of closed circuit television cameras and any outside security service one may choose to contract.
Bob Juniper, owner of Three C Auto Body in Columbus, Ohio, has always regarded total losses as a key profit center in his business and has passed that philosophy down to his manager,
“We charge for administration fees, car cover, hazardous waste cleanup, solid waste disposal, et cetera,” says Jackson. “We break down every part that we disassemble, rough access pull, prep and pack the vehicle up, conduct mechanical evaluations and suspension inspections, as well as inside as opposed to outside storage. Of course, there are markups for tow charges, and additional costs if we use any kind of cutting tools to gain access.”
Asked what reaction the insurance adjusters have about Three C’s total loss charges, Jackson says, “Initially, they did give us a hard time, but they’re getting used to it. We have to get paid for everything we do. A lot of them complain about the admin fees, but this is definitely a charge for real work. It can run anywhere from $25 to $125…to be honest, it’s generally around $125.
“Anytime we have to move a disabled vehicle around, we charge at prevailing labor rates of $46. We don’t actually charge for the estimate. [At our shop] The preliminary estimate is free.”
This is an important point to keep in mind. That is, if your shop advertises “free estimates,” then it cannot charge for at least the preliminary estimate in the settlement of a total loss claim. However, any labor spent determining the damage, tearing down the vehicle, moving the car, putting it on a lift, etc., is recoverable.
Jackson elaborated on the charges his shop makes. “Hazardous waste is $10. Solid waste depends on how much we discard, which is around $25. The thing I would want to emphasize is that we break down the various parts we disassemble. We actually do it based on the book time, which we cut in half.
“Also, if we have to do any kind of detailed mechanical or suspension evaluations, we charge at a mechanical rate of $70 per hour. When we’re covering a car, the charge is based on the degree that we have to use the tech, typically an hourly labor charge.”
Inside vs. Outside Storage
Storage is an issue that requires some examination by a body shop. If your outside storage rate is X dollars per day, the inside rate will typically be billed at a much higher rate. In determining the inside rate, one must first figure out what the overhead costs are per square foot by factoring the monthly rent for the production or storage areas, adding for the cost of utilities, insurance and any fixed expenses, and then dividing it proportionately. Remember that inside space is typically used for production and that a stored vehicle will pre-empt an income-producing job. That is, the stored vehicle is preventing production of income in the space it occupies, so one must recover what’s being lost when billing for storage.
There are times when inside storage must be used in order to preserve the salvage vehicle’s value. Or, in the case of a working job that becomes a total loss due to the discovery of hidden but serious damage, one must recover the inside storage while production is halted in anticipation of the insurance adjuster’s inspection. In this situation, one calculates the inside storage rate for the days a vehicle is in the production area and then reduces it to the outside rate once the vehicle is moved to the lot.
What happens when a car is in mid-repair and
serious damage that was unknown and unforeseeable is discovered, thus rendering the car a total loss? Are you due the teardown and removal half of the R&R labor allowed for the replacement of the parts? What about the parts you purchased and edged in?
As long as you have an authorization from the customer who owns the car (preferably in writing), any charges leading up to the point at which the insurer totals the car are legitimate. This includes the parts you ordered for that job and the portion of the labor allowance used in the removal of the parts. The time it took to edge the parts for painting can be determined by the flat rate manual and added to the material costs.
If you’re involved in a DRP with the carrier settling the claim on the total, you may be out of luck with respect to the discretionary charges. Some, if not most of the DRP contracts, require that the participating shop forego the storage charges on their policyholders’ and claimants’ cars in the case of a total. The administrative charges, teardown fees and charges for parts ordered may also be disallowed by the DRP administrator. These concessions, however, come down to a business decision to be made by the shop owner/operator.
In the case of a vehicle that’s not totaled but is going to be repaired, there are at times some non-traditional services rendered that require payment. For example, a vehicle that was towed in that’s leaking fluids must have the source of the leak determined and rendered in such a way that the hazardous waste stops. This can be done by removing fuel from a tank, plugging transmission lines or draining cooling systems. Furthermore, any spillage that contaminates the ground or your shop’s floor must be cleaned and disposed of properly. These services are recoverable, even if your shop does the repair work.
Will These Charges Fly?
While creating a repair order and a bill for these services, you might be asking yourself whether or not you stand a chance of getting paid. Heck, it’s hard enough to get paid properly for those standard procedures necessary to repair a car, much less get reimbursed for these types of services. In an effort to gain some insight on what the other side was thinking, I interviewed an insurance supervisor for this article, who preferred to remain anonymous.
When presented with unusually high storage bills from an independent body shop, he says he’ll try to have the salvage vehicle moved as soon as possible to a location that doesn’t charge for storage, such as one of their DRP shops. He’ll also insist on seeing the customer’s authorization for any charges and/or confirm them with the policyholder personally.
While all charges paid by an insurance company are subject to what’s deemed usual and customary, the prevailing competitive labor rates aren’t necessarily what are controlling these charges. Your shop’s charges, like its overhead costs, are as individual as its name. So, if the closest competitor to your shop is charging X dollars per day for storage, it has little bearing on what your shop can recover for its storage of totaled vehicles. Of course, once you get into stratospheric rates, an insurance company may simply walk away and tell you to collect it from its policyholder.
Checklist of Charges
The following items are legitimate services and expenses incurred in processing total losses. It’s wise to post the charges for these services in a prominent place in the customer area so there are no questions about them later. At the moment an insurer pays a total loss claim to the insured, the vehicle becomes the property of the insurance company. Any storage charges from that point forward are owed by the insurer, and the company will act quickly to limit the expense by picking up the salvage. Previous charges were owed by the insured. However, when there are debts for services rendered to the insured pursuant to a covered loss, there should be coverage under the policy.
- Possession. It’s nine-tenths of the law, as the saying goes. The fact that the car is on your property creates a situation in which an insurer has no choice other than to deal with you. It’s not as if they can pull the car and have someone else store it for the last three weeks. So be sure your documentation is good and that your rates are posted conspicuously in the customer area. Naturally, signed authorization from the owner is your best bet. But if your customer called you on the phone and requested services, be sure to document the time of the call and with whom you spoke.
- Towing and storage paid out. A body shop is entitled to a profit on sublet charges. If your funds are used to pay a tow bill, you deserve a profit on your investment as you would any other sublet. Be careful, however, in the way you invoice for the towing. If your shop didn’t tow the car, don’t make representations that would lead anyone to believe you did.
- Non-hazardous solid waste. If broken parts, shattered glass, bumper covers or tires are left as reminders of the total loss that left your facility, you have to clean it up. You also have to bill the insurance company for this work.
- Assisting appraisers. If an appraiser asks someone to help him open a hood or hatch, this is also something for which they can expect a bill. Jacking the car and moving it inside or to a lift is also billable.
- Teardown. If your shop, upon authorization from the customer or the insurance company, tears down a wreck in order to do a damage report and the vehicle is subsequently declared a total loss, you’re entitled to be paid for your work. If materials such as oxygen and acetylene are used in the process, you should bill for that, too. Nothing is free. Hourly charges are OK, but menu pricing is acceptable too, as long as the charges are either posted or listed on the authorization.
- Appraisal writing. A detailed damage appraisal takes time. And, in most cases, it’s the time of the owner or someone in the management capacity – the highest-paid individuals in the facility. Be sure to charge for that time, too.
At this point, you may be asking yourself, “If I start charging insurance companies for these items, they’ll resent the heck out of me. They’ll steer customers away, or they could try to get back at me on the next claim. I find it works better to get along with them – be reasonable.” If this is the case, you must assess the matter in terms of what’s best for your business.
The point is, in the collision repair industry today, where profit margins are constantly being minimized by the insurance industry and more and more cars are being declared total losses, some business creativity is in order. Get what you can recover legitimately in these cases. And don’t leave these dollars on the table!
Writer Charlie Barone has been working in and around the body shop business for the last 35 years, having owned and managed several collision repair shops. He’s an ASE Master Certified technician, a licensed damage appraiser and has been writing technical, management and opinion pieces since 1993.
Barone can be reached via e-mail at [email protected].