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Glass Work: Profitability

Because of the complications involved – hiring, organizing production, insurer involvement and discounts, etc. – most shops opt to outsource glass work. But is this willingness to give it away a detriment to profitability and to achieving a competitive edge?

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Why do most body shops prefer to outsource auto-glass work?

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According to Glenn Sculthorpe – the second-generation owner of the 50-year-old Tilton Body Works in Lakewood, N.J. – it’s a matter of having (or not having) proper production organization and skilled technicians.

And Sculthorpe would know. He’s handled glass both ways over the years: in-house and outsourced.

In fact, he’s still doing it both ways. His main facility – and primary cash cow – uses outside vendors to do glass work, while his newer location – a much smaller facility located two towns over – does glass work in-house.

Though Sculthorpe would prefer his main shop do glass work internally to improve quality control and service and to capture additional profits, he

doesn’t have a skilled technician to perform glass replacement in an efficient, economical manner. Sculthorpe also admits that even if he did have a glass-skilled technician, it’d be difficult to keep the tech properly organized to ensure that he’s performing the glass work and his primary duties effectively over the long term.

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So why does it work at the second location? For a couple of reasons. Sculthorpe’s secondary location does only 25 percent of the sales volume as his main shop, with fewer technicians who work together as a team – routinely sharing the repair actions on a single job. For glass work, however, the technicians understand who’s to do what, when they’re to do it and how the glass process is to be performed. The techs in this small team also understand each others roles and capabilities, so when glass work is needed, it’s clear that the team’s glass-skilled technician will perform the task.

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Management also doesn’t have to make any workload or work scheduling decisions to make this happen. So, dead time based on vendor availability or vehicle transport is eliminated, and team members have real-time, accurate information on when to continue the rest of the vehicle’s repairs.

Sounds simple enough, but if it were really that easy, Sculthorpe would being doing glass work internally at both of his locations, wouldn’t he?

Let’s take a closer look at Sculthorpe’s operations – along with the pros and cons of in-house glass work, including an in-depth look at glass pricing. Though the search for new profit centers isn’t new in the autobody industry, bringing glass work in-house isn’t for everyone.

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What Went Wrong
Because of his prior problems trying to manage glass-work scheduling and workmanship, Sculthorpe is reluctant to attempt doing glass work internally at his larger shop again. He says he just wasn’t able to effectively manage the glass-capable technician’s daily workload between glass work and his regular day-to-day duties.

Another challenge: Sculthorpe has used bodymen to replace glass, but says that glass-capable bodymen usually ended up doing less-than-optimum work. Why?

Two probable causes, he says:

  1. Starting and stopping on a job is a distraction. The tech’s metal-repair quality and productivity varied based on the volume of glass work needed – the more glass work there was to do, the harder it was for Sculthorpe to get the technician back to his normal metal productivity and quality.
  2. When the tech did glass work on jobs that weren’t his, the glass installation had a higher problem rate. Although Sculthorpe pays techs hourly – not flat-rate – so there’s no disincentive to perform glass work, there’s a motivational hurdle of some sort that has to be overcome in order for a metal tech (or any other tech) to do quality work installing glass on a part-time basis for the whole shop while, at the same time, still being expected to perform his primary duties in an effective manner.

I contend, however, that if Sculthorpe had metal-repair teams in the main shop like in his second shop and each team had one qualified glass-capable technician, then he’d have the same results in both shops. I also think that because most shops have found it easier to outsource glass work, the current generation of bodymen are less confident in their ability to perform efficient, quality glass work and are also less receptive to learning an added job skill.

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There are some, on the other hand, who have the skill but don’t want to use it. Sculthorpe’s journeymen metal technicians at the main shop admit that they prefer not to do today’s stationary glass work. They say it takes more skill and focus to remove and properly install today’s windshields, back glass and other urethaned or bonded stationary glass than it did for windshields on older cars.

“The sheet metal of newer car bodies is so tightly wrapped around glass and the moldings are bonded or sealed to both glass and car … that there’s a greater risk of vehicle or glass damage during removal and installation,” says Bill Lewis, lead metal tech at Tilton’s, who’s been at the shop for 12 years and has more than 25 years autobody experience. Lewis adds that his boss also is less tolerant than he used to be when it comes to rework and redos.

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A Stand-Alone Profit Center Vs. Part of the Shop

Some body shops out there have taken their glass-work capabilities and local customer demand and created stand-alone profit centers – performing glass repairs in direct competition with independent and franchise retail auto glass companies. A notable example is the autobody consolidator, ABRA Auto Body & Glass. Like other major glass companies, ABRA provides both glass-claim services and mobile glass-work services.

The search and experimentation for new profit centers isn’t new to the autobody industry. Many body shops have successfully ventured into theft repairs (steering columns and locks), trim and upholstery repairs, bedliners, paintless dent repairs and rental car services as a means to increase revenues.

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But as I see it, a stand-alone profit center – or glass business – that needs to generate sales beyond the body shop’s collision repair demands presents the same challenges to the shop as having to coordinate (between the other repair-processing stages) and receive quality, cost-effective vendor services. While I think a stand-alone glass business could be profitable to the owner, it would provide little advantage over an independent vendor to the body shop operation.

Although the overall business may profit from an independent glass company and the collision repair shop may even receive preferential pricing and service, there’s no guarantee. For a stand-alone glass operation (or any stand-alone business) to be successful, it must be able to generate customer demand and volume far beyond what the body shop itself could provide.

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Because of this, management of the stand-alone business must treat the body shop like any other customer. And without some sort of preferential treatment to the shop, shop management will merely be dealing with another vendor – with no resulting gain.

It’s here that a dilemma is created: profitability for the stand-alone glass business versus enhanced value for the body shop. And when I’ve seen a shop owner force the stand-alone business to give preferential treatment to shop demands, customers of the stand-alone business usually suffer.

So, if you want your production operation to improve and become more profitable from glass work, keep glass work under the same roof as your body shop. If you still want a separate glass-work profit center, then make sure you train body shop technicians to do glass work too – and sell glass to the body shop at cost.

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Benefits of Internal Glass Work
In my view, internal glass work offers opportunities for a body shop to:

  • Increase gross margins.
  • Improve production management.
  • Control repair quality.
  • Provide employee opportunities to increase skills.
  • Provide career path opportunities for employees.

Still, outsourcing is a continuing trend in all industries. Outsourcing simply means hiring someone to do a job function that you can’t do efficiently or profitably. Or hiring someone who can do it “cheaper, faster and better” than you.

Before outsourcing, however, determine if the job function is part of the value-adding services that your customers are paying you for. For example, restoring vehicle damages, transporting the vehicle and customer service are key processes that define a body shop’s service offering. On the other hand, work actions like bookkeeping, building maintenance and payroll processing are non-value-adding to the customer’s repair job and are, instead, key processes that support general operations and the business organization.

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Ideally, to control products and services whose sales and delivery determine shop profitability and competitive position, a shop should perform as much of the customer value-adding processes as possible. This controlling trend has been evident over the years as repairers have internalized such job functions as frame repairs, paint mixing, wheel alignments, air conditioning service, etc.

Still, other repair processes continue to be outsourced to vendors, such as custom striping and graphics, complex mechanicals, window tinting, theft repair, trim and upholstery repair, etc.

When considering which outsourcing functions to bring back in-house, first look to those where vendors provide mobile services and come to your shop to perform the necessary repairs. After all, if the vendor can carry tools and supplies in his car, then you at least know that a large overhead investment isn’t necessary. Next, assess the skills and supplies needed. And finally, look at labor and supply efficiency. Can your employees be trained to do the job as efficiently (cost, quality, consistently) as the vendor, and can you gain efficient access to the necessary work or job supplies like the vendor can?

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USAA Responds to Glass Shop’s Pricing Questions
A Southeastern glass-shop owner wrote USAA, wanting to know about their pricing procedures because they’d short-payed his claims. Below is the response from USAA Insurance.

“Dear Mr. ‘Smith,’

This will respond to your letters of August 29th, 2001. Thank you for allowing us time to provide you with the information regarding USAA’s glass pricing structure. We have forwarded the copies of your invoices to Safelite and/or Quest for processing.

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In February of 2001, USAA observed that glass service and pricing should be paid in a fair and consistent manner, based on a thorough understanding of the glass market and knowledge of the effects of locality, availability and competition in the area. Therefore, USAA analyzed pricing data from glass markets across the country to guide its claim handler in reviewing and approving a repair estimate. We used Safelite’s ‘Price System Survey’ for this purpose.

The survey is based on actual invoiced claims from 600,000 glass claims, or 37 percent of all replacement claims processed for the insurance industry. These claims were processed for over 400 insurance companies, ranging from the largest writer to many smaller regional and local ones. These claims were serviced by over 20,000 auto glass shops, which were serviced in 2,542 counties across all 50 states in the U.S. (out of 3,141 total counties). All counties in the U.S. were classified into five groups.

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Safelite utilized an objective methodology with credible external sources. The federal Office of Management and Budget (OMB) classifies counties based on population, density and socioeconomic relativity into Metropolitan Statistical Areas (MSA’s). The OMB ranks MSAs into four categories, A, B, C, D, based on population estimates published by the Census Bureau.

A – MSA with population of 1 million and more.

B – MSA with population of 250,000 but less than 1 million.

C – MSA with population of 100,000 but less than 250,000.

D – MSA with population of less than 100,000.

E – Safelite added “E” for rural counties with population less than 15,000 because the OMB doesn’t rank the rural counties.

A replacement-glass invoice typically includes charges for parts, labor and kit (installation supplies). To create uniformity for price comparison, the sum of these three components was used. However, the amounts used for glass price do not include the molding, sales tax or policyholder deductible. The glass industry uses list prices published by National Auto Glass Specifications (NAGS) as the basis or the glass price. There are over 14,000 parts in the glass business, ranging in list price from $90 to over $3,000. Please be aware that the NAGS list price greatly exceeds the actual cost to the glass shop, as volume discounts are received from distributors. For that reason, glass shops normally invoice showing a discount off of the NAGS list price, which still incorporates a profit component. This is called the Net NAGS Discount. For example, a part with a $600 list price and invoice amounts of Part $300, Labor $40 and Kit $20 (total glass price of $360), results in Net NAGS of 40 percent ($360/$600).

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For each county type, the survey stratified prices (based on Net NAGS Discount) for the lowest 30 percent and each 10 percentile up to 100 percent. Based on the discount patterns, the survey identified a range of discount levels that would be widely acceptable by the majority of shops.

USAA did not choose the “lowest possible price” or the “highest possible price” for any given area (MSA). Instead, USAA selected an above median price for each MSA. Every quarter, Safelite’s “Price Survey System” is updated, and USAA reviews its price selections on a quarterly basis to determine whether any revisions are indicated. The NAGS list price is also adjusted quarterly and typically results in a price increase. Since our price selection is applied as a percentage off of NAGS, it would move with the list price, unless we make a revision.

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Beginning April 25, 2001, USAA began utilizing this new pricing structure countrywide for replacement and repair glass claims:

Pricing Schedule effective April 25, 2001 (except Minnesota)*

Windshield Tempered

County A 53% 55%

County B 53% 55%

County C 43% 45%

County D 35% 37%

County E 25% 27%

Above percentages are off current published NAGS list prices.

Repairs = $60 for one chip and $10 for each additional chip,

maximum 3 total.

Labor = $40 (Windshield and Tempered).

Kits = $20; High Modulus = $65 or 2 for $125.

Moldings = Precision List.”

The letter closed by reiterating how Safelite handles the claim and that they believe “glass service in any given MSA should be paid in a fair and consistent manner based upon fair market pricing data.”

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*Not sure why they excluded Minnesota from their pricing structure.

Reprinted courtesy of NAGC Update, December 2001.

Purchasing Glass
In terms of internal glass-work profitability and based on my conversations with a local glass vendor, non-glass supplies and the associated equipment needed to install windshields can be purchased by a body shop for the same price as retail auto-glass vendors pay. Getting the same wholesale price for the glass itself, however, may be a challenge to shops. And this could be a problem, considering that the local glass vendor I interviewed said that profit margins from the glass itself are important in attaining acceptable overall job profitability.

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As far as glass-dealer costs for glass, neither the glass retailer nor wholesaler was willing to give me specifics on negotiated wholesale glass costs to the retailer. When I pressed, they both said it would be reasonable to generalize a wholesale glass price in the neighborhood of 75 percent off the NAGS list – for a wholesale cost that’s 25 percent of NAGS list prices. Again, this price or discount off NAGS list is negotiable and varies by individual shop and local market. (See sidebar, “USAA Responds to Glass Shop’s Pricing Questions.”)

So, in order to make an acceptable profit on internal glass work, a body shop has to be able to purchase glass at wholesale rates that are the same or close to those negotiated by local retail glass shops. Problem is, some wholesale glass distributors may not even be willing to sell glass to a body shop – in order to protect his customer base of retail glass shops. The glass distributors I interviewed did say they’d be willing to sell glass to body shops, but only if it didn’t create friction with their primary customers: glass retailers.

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Quality Concerns
In terms of quality, the independent glass-shop owner in my area says that he rarely has any comebacks (two in five years), but notes that he never does a partial or “V” cut out of old urethane. His techs always remove all the old urethane and replace with new, regardless if it takes a tube

or tube and a half of new urethane. They also always remove cowl-vent panels and prime as recommended.

As for mobile glass services, he doesn’t believe that they can offer the same quality and safety control, especially when the weather is less than optimum. His guess, he says, is that glass technicians who perform mobile services are measured more by daily quantity and not incentized to take their time to address each windshield replacement based on its own merit.

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He says that looking at each specific job individually is important since each job can vary based on age, vehicle type, vehicle condition or prior windshield work done. And no shortcuts can be taken just to do a job

fast or in a remote location (non-shop).

Market Pricing of Retail Glass Work
Like retail collision work, local job pricing for retail auto-glass work, especially windshields, is driven largely by retail pricing rates that have been negotiated and agreed upon by retail glass vendors – through their participation in glass-claim referral networks. Sound familiar? It should. This is exactly the same manner in which body shop repair rates have been established over the years: through negotiations on “agreed repair prices” and DRP rates of auto insurers.

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Certain insurers report that auto glass pricing is based on market surveys, which then result in the adaptation of fee structure for local insurance claim management. Factors like “locality, availability and competition in the area” are used to establish “glass service and pricing … that is fair and consistent,” according to a National Automotive Glass Consultants (NAGC) Web site article featuring USAA’s self-described glass pricing structure.

When I spoke to a local glass-shop owner, he didn’t specifically discuss his cost for glass (which is calculated as a percentage minus NAGS list), but he did say that the wholesale glass distributors he’s dealt with over the years will quote prices based on the vendors potential purchase volume, number of daily glass deliveries required and proximity to the distribution warehouse – plus other variables that he didn’t understand. I assume the other variables relate to local market glass demand, which is related to population size and density (or basic supply and demand market pricing).

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This glass-shop owner also belongs to many of the popular Glass Networks (glass-claim DRP or referral network) used by insurance companies. For him, the LYNX and Safelite glass-claim networks provide him the most business. That makes sense since these two networks arguably have the greatest number of insurance companies participating in their referral networks.

Based on my research, insurer pricing for glass-company glass work is fairly uniform among the different insurance companies. Pricing for glass kits are around $20 (except for non-conductive or high modulus kits), labor for fixed glass is $40 and glass repair is $60.

The prices insurers are willing to pay glass retailers for glass (again a percentage minus NAGS list) are usually structured in a price range with specific prices based on certain local market demographic variables, such as population, population density and economic relatively. USAA pays retail glass prices ranging from a 25 percent discount to a high 53 percent discount off NAGS list. The discount percentage depends on four population categories or market types based on the location of the retail glass vendor.

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The local glass-shop owner I interviewed showed me a few of his pricing agreements with insurers, and the windshield prices he was able to charge the insurance companies were anywhere from a 53 to 57 percent discount off NAGS list prices. (Curve ball: Sometimes OEM glass is cheaper than NAGS minus 50 percent or so. In those cases, factory list is used or some discounted percentage is used.)

Because my local area here in New Jersey falls into the highest USAA population category, it’s subject to the most competitive or lowest retail pricing. Less competitive or smaller markets are likely to have lower percentage discounts off NAGS list prices or higher retail prices. (My guess is that in these smaller markets, glass distributors sell to glass vendors at higher prices, which is why insurers allow higher retail prices.)

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From what I can tell by reviewing estimates from Sculthorpe’s second shop, insurers allow body shops greater pricing flexibility than they do retail glass shops that are part of glass-claim networks. Many insurance companies – though it’s becoming fewer and fewer as they realize they can force glass pricing similar to glass shops – still allow body shops like Sculthorpe’s to use glass-replacement labor times from estimating system databases, which are much higher than the flat rate allowed to glass shops. They also allow retail glass pricing to be much higher than what they allow a glass shop to charge (i.e. NAGS minus 35 percent or 40 percent, as long as the retail price is lower than the factory retail glass price).

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Sculthorpe notes that only Allstate and GE required specific glass-shop prices to be used on collision repair estimates as part of their DRP referral agreements. The other DRP insurers Sculthorpe has agreements with only require that glass-work pricing quoted on repair estimates submitted on DRP assignments be reasonable as compared to OEM retail glass prices. (Glass-work labor times and costs are allowed based on the estimating data bases and regular labor rates.)

Is In-House Glass Work for You?
Do some homework, check with your glass distributor, and investigate prices and service. If you’re really serious about internalizing glass work, consider using metal repair teams, with each team having one glass-qualified tech.

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After examining the issue, if you determine that you can make an acceptable profit, control quality, train techs, and improve production efficiency and workflow by keeping glass work in house, get started. The sooner you make the switch, the sooner your shop can start benefiting.

Writer Jake Snyder is the principle of CR Management Systems, a consulting, training and business-development company. He’s been in the industry for more than 15 years, has managed a collision repair facility, held various claims positions with Allstate Insurance Company, and performed consulting and product development for Body Shop Video’s, Business Development Group. Snyder can be contacted at (732) 886-5340 or at [email protected]

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State Farm: Broke the Law 13,000 Times?

The Minnesota Commissioner of Commerce has charged State Farm for violating Minnesota law more than 13,000 times by withholding money that was rightfully due to policyholders or auto-glass shops by paying less than “fair and reasonable market price” for auto-glass claims. by Mike Causey

In Minnesota something is being done about unfair trade practices and unfair claim settlement practices in the handling of auto-glass claims. On June 27, 2002, Minnesota Commissioner of Commerce Jim Bernstein charged State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Insurance Company with violating Minnesota law more than 13,000 times.

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According to the allegations filed by Bernstein, State Farm withheld money that was rightfully due to policyholders or auto- glass shops. State Farm withheld this money by paying less than “fair and reasonable market price” for auto-glass claims.

It’s alleged that State Farm paid the “network” price, which was “arbitrarily set” at that time to be 55 percent off the NAGS list price. The Minnesota Department of Commerce determined, through market surveys, a fair and reasonable price on hundreds of disputed claims. State Farm refused to pay the amount determined by the DOC market surveys. State Farm also told their own policyholders that they (State Farm policyholders) would have to pay the difference between their “chosen shop’s price” and the State Farm network price.

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State Farm violated Minnesota law by failing to pay a policyholder’s chosen vendor and violated a cease-and-desist order issued to State Farm by the Minnesota Department of Commerce in 2001.

LYNX, Inc., owned by PPG Industries, had a contract with State Farm to investigate, evaluate and adjust auto-glass claims, even though LYNX isn’t a licensed adjuster. State Farm has a financial investment in PPG Industries to the tune of at least $237 million, according to State Farm’s annual report.

This action is significant because at long last, a state regulatory agency has discovered that insurers are using unlicensed adjusters through glass networks, such as LYNX and Safelite, to “investigate, evaluate and adjust auto-glass claims.”

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In addition, State Farm is charged with steering customers to auto glass shops that agreed to State Farm’s pricing. This steering happened in Minnesota more than 600 times. And that’s just the number of documented steering cases.

Here’s the State Farm telephone script verbatim: “I would like to inform you that you have chosen a shop that has not agreed to the State Farm pricing structure nor the State Farm warranty. Should they not accept the State Farm pricing for your job, State Farm will reimburse you based on the LOWER of two competitive bids. What this means is that you could end up paying more than your deductible.”

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Commissioner Bernstein had this to say about State Farm’s steering tactics: “Because it’s the biggest kid on the block, State Farm thinks it can set any price it wants for auto glass and then make it hard for policyholders to choose a shop that doesn’t accept its pricing structure. I firmly believe State Farm understood the legislature’s intent and chose to do something very different. State Farm claims to be a ‘good neighbor’ but acts more like a neighborhood bully to consumers and glass shops.”

These charges against State Farm came about because of dedicated efforts of a strong association of independent glass shops in Minnesota. The glass-shop owners and their customers documented cases of steering and unfair trade practices and brought this to the attention of the commissioner of commerce. Unlike regulatory officials in most states, Commissioner Bernstein took action. Thank you Mr. Bernstein.

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Writer Mike Causey – president of Causey & Associates, a full-service government relations firm and a Registered Lobbyist in North Carolina, South Carolina and Virginia – represents consumers and lobbies for consumer rights issues. He also represents the Independent Auto Body Association (IABA) and the North Carolina Glass Association. Causey can be reached at [email protected]

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