Some shop owners developed heavenly relationships
with insurers in 1997; other shop owners sat around complaining
that insurers are the Antichrist; and a select few – which included
frustrated shop owners and fed-up consumers – quit praying for
miracles and started taking action against insurance companies
that were making their lives hell.

• One such fed-up consumer was David Kalmback. Kalmback filed
  a $3,133.28 diminished value claim against Nationwide, which insisted
  on the use of aftermarket sheet metal to repair his vehicle –
  and won a judgment for $2,995.89. Nationwide is appealing.

• A shop owner in Florida wrote a $5,800 estimate for a damaged
  1993 Lexus, which didn’t quite match up with the insurance company’s
  estimate for $2,680. Unsure of what to do, the shop owner called
  the Florida Commissioner of Agriculture & Consumer Services.
  Turns out the car owner was the commissioner. Strangely enough,
  when the insurance company found out who the vehicle owner was,
  an adjuster visited the shop and prepared a "supplement"
  to his original estimate, increasing the amount the insurer would
  pay from $2,680 to $6,300 – $500 more than the body shop’s estimate.
  The Florida Commissioner of Agriculture & Consumer Services
  is investigating the incident.

• Tammy Snider and Michael Avery, on behalf of themselves and
  all others similarly situated, are the plaintiffs in a Class Action
  Suit against State Farm that’s set to go to trial Feb. 2, 1999.
  The plaintiffs allege that State Farm violated the terms of its
  policies and breached its contract with its policyholders by using
  non-OEM "crash parts" to repair their vehicles.
• After paying towing charges, being authorized by the car owner
  to do a tear down, and ordering and receiving parts, a shop owner
  received an unexpected call. The caller was the car owner, who
  said he no longer wanted his car repaired at the shop. Why? He’d
  been advised by the insurer’s inside adjuster that the shop was
  incompetent and, therefore, the insurance company wouldn’t "guarantee"
  repairs. The shop owner called the insurance company, which denied
  all accusations, and told the insurer he would release the vehicle
  pending payment of charges. The shop owner wanted reimbursed for
  the tow and advance charges, for the normal daily storage rate
  and for the tear down the customer authorized. The inside adjuster
  then told the customer that he (the customer) was responsible
  for the charges. The customer disagreed, and the shop has yet
  to receive payment or release the vehicle. The shop owner plans
  to legally apply for a mechanic’s lien to secure the title, and
  his message to the insurer was loud and clear: "You steer,
  you pay."

These few examples demonstrate that the relationship between insurers
and repairers (and insurers and consumers) in 1997 was, at best,
strained. "I have no choice but to work with insurance companies
– I want to stay in business," said one shop owner. "Everyone
needs to eat, pay their bills and pay their employees."

That’s not to say that all insurers and repairers were at odds;
but, unfortunately, many were. With the insurance industry becoming
such a major player the past few years, many shop owners fear
that control of their businesses is slowly slipping into the hands
of insurers. "If you want to be on our DRP, you have to do
this, this and this. …" "We don’t pay for that operation.
…" "We only pay $25 an hour for labor. …" "We
want aftermarket parts used on this vehicle. …"

Still, despite the potential problems, 44 percent of the shop
owners surveyed chose to be involved with DRPs in 1997 – some
because they feel they have no choice. "We don’t have the
luxury of having more work than we can handle," said one
shop owner. "We need the volume."

Interestingly, the larger the shop, the more likely it was to
be involved with DRPs: 97.1 percent of the shop owners making
$1 million or more a year were DRP shops; followed by 70.3 percent
in the $750,000-to-$1-million-a-year range; 56.3 percent in the
$350,000-to-$749,999 range; 31 percent in the $250,000-to-$349,999
range; and 13.6 percent in the up-to-$249,999 range.

Of the 44 percent who were involved with DRPs, 71 percent said
they’re better off financially because of DRPs. But when asked
if their profit margins have increased since DRP affiliation,
only 32.3 percent said yes, while 13.5 said profit margins have
decreased and 54.2 percent haven’t seen a change.

How can 71 percent say they’re better off financially when only
32.3 percent of them have seen increases in profit margins? Because,
according to some respondents, the higher volume of repair work
makes up for stagnant (or falling) profit margins.

Does the higher volume of repairs also make up for the concessions
given to insurers? It would seem so, since 58.8 percent of our
respondents give concessions to be part of DRPs.

Compromising the labor rate is the most frequently given concession
(41.2 percent do it), yet 58.6 percent of our respondents said
they believe the surveys insurers take of labor rates in a market
area aren’t accurate and 79.9 percent said that insurers shouldn’t
have any control over or input regarding labor rates charged by
body shops. Regardless, many DRP shop owners are still willing
to compromise their labor rates to get the work – and the larger
the DRP shop, the more likely it is to compromise its rates. Nearly
64 percent of shops making more than $1 million a year have compromised
their rates, as opposed to 42.15 percent of shops making $249,999
a year or less.

With all this compromising going on, are DRP shops concerned that
they’re also compromising repair quality? Not particularly. While
60.9 percent of DRP shops were concerned with the issue of diminished
value (39.1 percent weren’t concerned), 75.3 percent said they
weren’t concerned; they believe they can return a car to preaccident
condition and the car suffers no loss of market value due to the
repairs done under the DRP arrangement.

This confidence seems somewhat misguided considering that 81.6
percent who purchase aftermarket crash parts said they do so because
they feel pressured by insurance companies – not because they
think they’re the best parts for the repair. Which leads to the
question: How can shop owners say they’re not compromising repair
quality when they’re purchasing parts simply because insurance
companies want them to? (It should be noted, however, that aftermarket
crash parts are used on only 23.8 percent of repairs. Why? Because,
oftentimes, shop owners willingly purchase the parts, demonstrate
to adjusters the parts don’t work and then use OEM parts. Still,
on the 23.8 percent of repairs on which aftermarket parts are
used, are they used because shop owners want to use them or because
insurance companies want shops to use them?)

Regardless of whether or not they’re involved with DRPs, 64.5
percent of our respondents said they’ve been told by an insurance
adjuster/company that they’re "the only one who charges for
that." If we break that out into DRP shops and non-DRP shops,
DRP shops were more likely to be told they’re the only one: 76.9
percent of DRP shops have heard that line, as opposed to only
56.5 percent of non-DRP shops.

What were the shops asking to be paid for? Examples given include:

Hazardous-waste removal

Masking

Color matching

Color sanding

Blend time

Buffing

Trial fit trimming of welded structural panels prior to welding
in place

Paint and materials

R&I parts for paint

Diagnosis

Road test for safety

Clean and prep for delivery

Detailing

Feather edge and fill

Sound deadener

Weld-through primer

R&R times for glass

Seam sealer

Towing charges

Prefit time on aftermarket parts

Pinch-weld repairs

R&I moldings, door handles, emblems

Mechanical labor rate for mechanical items

Bench set-up time

Four-wheel alignment

Corrosion protection

Handling fees for returned aftermarket parts that didn’t fit

Bolts, fasteners, etc.

Despite being told they were the only ones charging for that particular
operation, most respondents weren’t discouraged. In fact, 49.3
percent always charged for the operation anyway – "Ask and
you shall receive," said one shop owner – 16.4 percent still
charged for it 75 percent of the time and 19.4 percent charged
for it 50 percent of the time. On the other hand, 9.7 percent
of our respondents charged for the operation only 25 percent of
the time after being told they’re "the only one," and
5.2 percent never charged for it at all.

Even after being told they’re "the only one," a whopping
93.8 percent of respondents continued to work for that insurance
company. Why? Reasons varied, but the most common reason was:
"What choice do I have?" Also troubling was how many
shop owners responded that they’ll somehow "make up"
the money elsewhere in the job.

Comments included:

"Alone, I can’t change it, so I have to go along with it."

"Business isn’t booming, and I need as many chances to
sell my business services as possible."

• "They need us, we need them and we’re able to compromise."
• "I’m still in the growing stages of my business and can’t
  afford not to do work for them."
• "I don’t consider it like I’m working for the insurance
  company. I work for customers. The insurance company just pays."

• "It’s work, and we’re slow."
• "Shop owners should look at everything and hold their
  ground. Some insurance companies cut costs and don’t look at the
  end result. DRPs aren’t the problem."

• "There are other ways on some jobs to make up the difference."
• "I’m not losing a $5,000 job over $10."
• "They’ll overpay on something else, and I’ll use the
  money as I see fit."

• "It’s a matter of survival."
• "It’s fun to play the game. I win 95 percent of the time."
• "The insurer is too big to ignore."
• "We collect what we can and move on."
• "I proved it was needed and done, and I got paid."
• "I now itemize materials to get paid for them."
• "We still do the jobs as specified and don’t charge the
  customers. But we explain to them the practices of their insurer."

• "The adjuster puts time elsewhere."
• "They eventually pay."

This leads to an interesting point: 49.3 percent of our respondents
still always charged for the operation in question, and 93.8 percent
of respondents continued to work for the insurer in question.
So, charging for the operation in spite of what the insurer said
doesn’t appear to seriously affect the relationship between shop
and insurer. It would seem that the shop owners who don’t charge
for work performed are only hurting – and underpaying – themselves
because insurers are still working with the shop owners who do
charge.

"I didn’t back down and went to bat for my customers and
my business," said one shop owner, who recently began always
charging for work performed. "I ended up receiving payment
for my time, parts and work – and respect for standing my ground."

Maybe that’s the one lesson to be learned here: Shop owners need
to respect themselves before they can expect respect from anyone else.

Writer Georgina Kajganic is editor of BodyShop Business.