Shhh. We’re not supposed to talk about this.
Yet nobody in the collision industry is satisfied with it. Even some insurance adjusters I talk with admit that it’s too low.
So if everybody seems to agree that it needs to be changed, why doesn’t it change? And how can we change it if everybody is afraid to talk about it?
What the heck am I talking about? Your labor rate, of course.
I think everybody in the collision industry knows why our labor rates are so low: We’ve given insurers control over them.
But why? Why are so few collision repair shop owners willing to take a stand? How long can we sit around and blame the insurance industry when it’s the collision industry that sits back and allows it to happen?
The insurance industry has done their homework. They know that the collision industry is highly fragmented and that most shop owners aren’t “joiners” who seek help from others – especially from local competitors. This creates a perfect business situation for the insurance industry. Because most shop owners have no relationship with one another – on a local or national level – it makes it easier for the insurance industry to pit shop owner against shop owner, using fear and intimidation to influence them as well as customers. How many times have you been told, “Down the Road Motors doesn’t charge for that” or something similar? They like to make shop owners jump through hoops for the promise of a larger volume of work. Insurance companies also insist that you use a certain estimating system and then tell you they don’t pay for procedures their “recommended” system clearly states you should charge for.
I could go on for 10 pages about insurance companies and their tactics, but in the end, the collision industry is still responsible for the problems it now faces. The insurance industry didn’t take anything from us. We gave it to them. And a lot of us practically begged for the chance to give it to them.
Now we’re all paying the price.
And the labor rate issue is just a large part of a larger problem. (But we have to start somewhere, right?). If you raise labor rates and then allow insurers to continue dictating your P-Page items, you’ll still struggle to increase profits. Shop owners who allow any outside entity to dictate their prices are asking for disaster. Anybody who disagrees should take a long, hard look at the collision industry compared to 20 years ago.
So what can we do to regain some of that control and to get labor rates more in line with where they should be?
Plenty … if the industry is willing to work together.
Love Thy Neighboring Shop Owner (At the Least, Quit Undercutting Him)
Too many shop owners and managers sit in their offices wishing that it were easier to get paid for what their techs are doing and that they could raise their door rate to increase their bottom line. Stop wishing and raise your rates, folks. I’ve seen shop owners destroy their nerves trying to crunch numbers and squeeze out more profit – while their labor rate goes unchanged for years. When asked why they don’t raise their rates, most give pretty close to the same answer: “It’s not that simple.”
Too many shops are willing to accept a low labor amount out of fear of losing work to the competition, and too many shop managers cater to the whims of the insurance industry in the interest of keeping plenty of work in the shop. But what good is all that work if you struggle to show a profit on half of it? Of course, plenty of shops have no problem showing a profit on the low rate because they take so many shortcuts during the repair process.
Back to this fear of losing work to the competition – and how this “I’ll do anything to win the work” attitude is slowly destroying the industry. Suppose you employ five metal techs and two paint techs. Each tech is on his own to repair the cars you assign to him, each tech wants to make as much money as he can for himself, but you still want them to work together as a team. Why? Because they’ll make more money as a team. With increased levels of communication and cooperation, your techs will increase their paychecks and your profits.
It’s somewhat of a contradiction, actually. As much as every shop owner likes to see that communication and cooperation take place in his or her shop, many shop owners will do nearly anything to take work away from the shop owner down the street or across town. Why doesn’t the collision industry work together? Why is there so little communication between any given shop owner and his nearest competitor?
Early on, shops were no more competitive than any other industry. There was always competition for available customers, but it was more respectful and fair. One reason for this was that most shop owners were once techs – who, at one time, possibly worked together or were maybe classmates in their school days. They were more friendly with one another. Insurers drove a wedge between fellow shop owners with DRPs. One shop owner with an empty lot sees the other guy loaded to the gills with work. In order to get some of that work, he has to offer deeper discounts on better quality work than the other guy.
I don’t know that shop owners ever really worked together on issues a lot, but I know they didn’t work against each other so much. When I lived in Lakeland, Fla., it was common for a shop owner or manager to call another to ask about a vehicle he wasn’t familiar with. If news came through the rumor mill that so and so was charging $XX per hour, shop owners would raise the rates on all non-DRP work – and eventually follow up with a raise on their DRP rates. There were always those few shops that accepted $6 to $8 less per hour than everybody else, but the poorly equipped caves they worked in ran off most customers. The fight for DRPs started going on about the time I moved to Tampa and, for years, I just thought it was one of the differences between a smaller town and a bigger town. Not so. In the collision industry these days, there’s a frighteningly thin line between competition and backstabbing.
Join an Association
Some communication is starting to take place on the Internet. Several industry-related Web sites have bulletin board pages where issues are discussed. Collision industry associations are also holding meetings all over the country where some issues are covered.
But how many members does each association have in a given area and how often do these members contact one another outside of the association’s scheduled meetings? The various associations should be pushing for more communication between members, and association members should be contacting other shop owners, urging them to get more involved in the collision industry as a whole. In order to foster unity within the collision industry, each and every shop owner must extend his industry involvement beyond the walls of his shop.
If you’re not a member of a collision industry association, find one that you’re comfortable with and join. More association involvement on a local level increases the need for local meetings, which will increase communication on a local level.
Increased communication leads to increased unity. Even if you’re not comfortable joining an association, you should maintain a communicative relationship with as many of your nearest competitors as possible.
Like your techs, you and other local shop owners are all in business to make as much money for yourselves as possible. Is it possible that, like your techs, you could all make more money simply by improving communication lines?
Suppose two shop owners are having lunch and one says, “Insurer X won’t pay for any P-page procedures because they claim nobody else in town charges for them,” to which the other shop owner replies, “That’s funny. Insurer X has been paying me for all P-page procedures.”
Would this be helpful information? Absolutely.
Would it be illegal information? I don’t think so. According to the April 1999 BodyShop Business article, “Addressing Antitrust,” written by attorney Susan Martin:
“Agreements to actually do something get closer to antitrust violations since they affect a larger percentage of the market. It’s unlikely the courts would find an antitrust violation if two small body shops in Pasadena, Texas, talked about how XYZ Insurance Company had never paid them what they were really worth and how they should just ‘work slower’ on that company’s jobs. Why? Simply because the few jobs they got from XYZ each year would have no overall impact on the market.”
I’m not suggesting any discriminatory behavior toward one company, but I do suggest that shop owners communicate with one another about what they’re getting paid for. People I spoke with in the industry said there’s nothing wrong with two shop owners discussing rates or procedures as long as there’s no suggestion or agreement to raise rates. But these people weren’t lawyers. My advice: Contact an attorney to be certain.
Labor Rates and Tech Retention
If increased profits alone don’t motivate you to raise your door rate, then you should consider doing it for the survival of your business. “Since we’re giving you XXX amount of work every month …” is a reason insurers whose DRPs you’re on expect a discount, but what about all the other insurance companies? Should you offer the same rate to companies who offer zero referrals? I wouldn’t. Raise your rates for the benefit of the collision industry as a whole.
There’s a steadily growing, industry-wide concern about the shortage of qualified collision repair technicians. One solution that everybody seems to agree with – but isn’t trying out – is to charge more for your services so you can afford to pay more for the skilled laborers who perform those services.
When a young trainee enters the collision repair business, he spends his first year or two listening to horror stories told by the veterans he works with. The apprentice learns about hard-hit wrecks the boss wouldn’t total, free work, parts delays, insurance delays and various other delays that make it difficult to earn a decent paycheck. By the time the trainee is eligible to take the ASE test, he’s already considering another line of work.
Most young people won’t stick it out for years if a job doesn’t have a promising future. Young people these days are well aware of the opportunities available to them, and they know they have time to back out of one career and to pursue another with a better future.
At a door rate of $40 per hour, how will collision repairers compete in the job market with companies like the air conditioning contractor who charges $75 per hour? The harder the insurance industry pushes for what they call “realistic” labor times, the higher your hourly wage will have to be to attract qualified techs.
And if techs can’t beat the clock, how will they make more money than they made 10 years ago? Should they start shortcutting the repair process? If they’re already shortcutting repairs, should they take shorter shortcuts? Where do we draw the line, folks?
I think the line needs to be drawn at the front door of every collision repair facility in the country. Stop allowing the insurance industry to step over that line by telling you how to run your business. It’s time for the collision industry to stop running their shops like charities and start running them like businesses.
In the interest of maintaining their own multi-million-dollar profits, insurance companies have intimidated and bullied shop owners to keep collision labor rates low. As a result, the collision industry struggles to afford a qualified work force.
When the number of collision repairmen is so low that cars are totaled at 50 percent of value, the insurance industry will begin to feel the results of its years of high pressure and questionable tactics. And at the pace techs are currently leaving shops, I don’t expect it to be very many more years before every repair facility in the country is at least one tech short of a full crew. How long will it be before the wrecks start piling up? I know people aren’t driving any better. I listen to traffic reports on the radio in the morning and afternoon, and I know I’ll always have a job available to me – if I want it.
I’ve recently seen two- to four-week backlogs in shops, and I see a lot of technicians at least 10 years older than me, tired and frustrated, with a home just a year or two from being paid off. I don’t expect half of them to stick around after the mortgage and their youngest child’s college tuition are paid in full.
When the wrecks are piling up and the few remaining techs can’t keep up with flow, you have a similar situation to the “Tickle Me Elmo” doll madness. Demand exceeds supply, so wherever there’s an expected supply, there’s a line or a waiting list. If the waiting period to begin repairs to a collision-damaged vehicle gets up to 90 days, that’s at least $3,000 added to the claim, which could easily push the cost of repair beyond the cost of replacement.
Then – and only then – will the insurance industry show any interest in addressing the tech shortage.
Charge What Your Work Is Worth
Meanwhile, it’s up to each and every shop owner to stand up for himself and his techs. How? For starters, by charging a door rate that enables him to offer wages competitive to other industries – while maintaining a reasonable level of profit for himself. It’s also the duty of each and every shop owner to turn the art of collision repair into a career that young people will want to pursue.
There’s no such thing as a retirement plan in the collision industry. No pensions. Just years of hard work for diminishing pay and a 401k plan, if you’re lucky. That’s not much to entice a young person fresh out of high school. And at an average door rate of around $40 per hour, I can’t see the average collision repair shop adding much more enticement to the package.
The entire collision industry needs a raise, and it’s up to all shop owners to get it for us. How? Where should you start? Finish this article, pick up the phone and call your nearest competitor. Offer to buy him or her lunch. Discuss collision industry issues.
As for your labor rate, raise it today. Granted, I’m not a shop owner, but if I were, I’d raise my door rate by a certain percentage every quarter or every year. Then I’d send faxes and certified letters to all insurers who regularly pay for repairs to my customers’ cars. This way, they’d have advance notice of the increase. And every time an insurer paid my new rate, I’d put a copy of the paperwork into a file. Same with P-Page procedures. If Brand X insurance pays me for an item once, they’ll pay me for it every time after that. If one adjuster pays my labor rate, every adjuster from that company will pay the same rate. And when an appraiser gives me the old “we don’t pay for that” line, I’ve got proof that his company does pay for that.
I work in a shop that averages around 900 labor hours produced per week. A $2-per-hour increase would add more than seven grand to the bottom line. If only half of that was passed on to the techs, morale just might improve – and so might production.
Writer Paul Bailey, a contributing editor to BodyShop Business, has been a collision repairman for 17 years and is an avid photographer and writer who maintains a consumer-awareness Web page in his spare time. He resides in Florida with his wife, Cathy.