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One Voice – Body Shops’ Business Climate

Body shop profits are being squeezed like never before, but not all repairers agree on the proper fix. One thing most repairers do agree on, however, is that more of them will have to do a better job of working together in order to effect change.

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Jason Stahl has 28 years of experience as an editor, and has been editor of BodyShop Business for the past 16 years. He currently is a gold pin member of the Collision Industry Conference. Jason, who hails from Cleveland, Ohio, earned a bachelor of arts degree in English from John Carroll University and started his career in journalism at a weekly newspaper, doing everything from delivering newspapers to selling advertising space to writing articles.

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The business climate for the collision repairer is more challenging today than it ever has been. Some blame insurance companies, others blame themselves and still others blame market conditions and the laws of supply and demand.

And then there are those who chalk up body shops’ woes to a combination of all three of those factors. Wherever the blame is cast, the situation is what it is and repairers need to find a way to survive this tough stretch. Because things will get better, and those left standing will certainly reap the
benefits.

As the leading trade publication in the collision repair market, BodyShop Business felt an obligation to publish a series of articles examining the current crisis body shops face with the goal of educating repairers, coming up with potential solutions and, hopefully, inspiring those repairers to take appropriate action and change the situation for the better.

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This article is the first in a four-part series we’ve given the hopeful title of the “Industry Unity” series. In it, we pick the brains of the leaders of the collision repair industry’s four main associations to get their thoughts on why repairers are suffering right now, how they got into this predicament and what needs to happen short term and long term to improve their situation. Later on in the series, we’ll examine the tensions between insurers and repairers and what, if anything, can be done to level the playing field, plus dissect the legislative process as it relates to repairers trying to enact laws and figure out what works, what doesn’t and why.

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Name: Dan Risley
Title: Executive Director
Association: Society of Collision Repair Specialists (SCRS)

BSB: Body shop owners unanimously agree that they’re worse off today profit-wise than ever before. How did we get here?

Dan Risley: “There are several reasons the industry is in the current condition that it’s in, a condition that has SCRS members and non-members alike clamoring for change. One of the factors is the imbalance of supply versus demand. There are too many shops and not enough work. This imbalance gives the insurance industry leverage over the collision repairer. Once the market corrects itself and there’s a downsizing in the number of shops, you’re going to see some of that comeback into balance. It will become a more level playing and negotiating field.

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“Further supporting the concept of overcapacity is the frequency in which repairers are told by an insurance company that there’s a shop down the street willing to do the work for ‘X’ dollars. The reality is that the insurance company is probably right. The shop down the street doesn’t have any work and is willing to repair the car for less just to keep the doors open. The shop may even be willing to do the work at a loss because it keeps its staff working.

“Second, the insurance company’s input and direction as to how a car is repaired obviously has contributed to the poor relationship between repairers and insurers. In many instances, you have an insurance company’s staff appraiser (who has never repaired a vehicle, some of whom are directly out of college) dictating how the car should be repaired or refusing to pay for required repair procedures, even though those operations will be performed by the collision repairer. The insurance company needs to allow the collision repairer to make the decision as to the best way to properly repair the vehicle. While checks and balances are necessary, dictating the repair methodology even in those instances in which repairers provide supporting documentation to validate their desire to repair the vehicle in a specific manner is stepping over the line. There are countless examples where the collision repairer was told to either use a specific type of part or repair/replace a part in a specific manner that directly conflicts with the vehicle manufacturer’s recommendation and/or specification. This raises the question of liability. Repairers need to contact their insurance carrier and ask, in the event you knowingly repair a vehicle that contradicts the vehicle manufacturer’s recommendation, would your liability insurance cover you in the event of a subsequent accident and failure of the original repair?

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“Last but not least, collision repairers have lost sight of who their customer is. While there are positive attributes of direct-repair programs (DRPs), the advent of the DRP has assisted in the paradigm shift of the insurance company being viewed as the customer. The vehicle owner is the collision repairers’ customer. He or she should be deciding which parts are used. The customer should be the one dictating whether he or she wants a panel blended for color match purposes. The insurance company is responsible for paying the claim and making the customer whole for the loss. Collision repairers need to reflect on their current business model. How do you market your business? Who’s the intended audience?

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“Who’s your customer? Once you’ve established who your true customer is (the vehicle owner), many of the industry’s ills will be resolved.”

BSB: Is the solution that all body shops should dump DRPs?

Risley: “SCRS believes that repairers should make their own decision as to whether a DRP is good for their business. Although DRPs have been the subject of criticism, there are many repairers who have built successful businesses around them. Regardless as to which side of the fence you sit on, you would be hard-pressed to find anyone who would argue that the current DRP model doesn’t need to be changed. Collision repairers need to unite more than ever on an issue that’s seemingly causing some division. If repairers truly want to see change, DRP and non-DRP shops need to find common ground and work together.

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There are a lot of examples of changes that have happened recently that benefit all repairers. In New Jersey, legislation was recently passed that allows repairers to itemize their paint and materials. In California, we’ve seen movement as to how the prevailing market labor rate is established and what insurers need to provide to substantiate it. In Rhode Island, they’ve successfully changed the way the prevailing market labor is established. This includes removing DRP shops from the calculation. These are just a few of the examples that both DRP and non-DRP shops can collectively pursue. Repairers aren’t going to be successful lobbying for changes with insurers or regulators if they’re at odds with each other. ”

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BSB: Is the industry’s fragmentation also a reason why body shop owners are struggling so much today?

Risley: “Yes. The lack of unity is one of the reasons. The industry needs to unite and use the strength that comes in numbers to facilitate positive change. SCRS has seen a dramatic increase of new state associations forming as opposed to years past. The bottom line is that many repairers are seeking help and are quickly realizing that they can’t do it on their own. State associations are extremely valuable resources to this industry as well as SCRS, and if repairers are supporting them they’re only contributing to the current state of affairs.

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“State associations are only as good or as effective as the members within them. To modify a quote from former President Kennedy, ‘Ask not what the association can do for you – ask what you can do for the association.’ Those are compelling words that should inspire repairers to take action and work as one.”

BSB: Do you see any benefit from the national associations merging?

Risley: “No. SCRS, ASA and AASP have realized a lot of positive results by virtue of the three national associations working together. Seemingly, it has a far greater impact and carries more weight when three diverse groups (that compete with one another) are supporting one cause.

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“On a state level, we’ve seen a similar situation pay positive dividends. In Missouri, you have three state associations (which have different national affiliations) uniting where they’ve been able to find common ground. This unity has caused legislators in Missouri to not only take notice but
take action.”

BSB: What do you feel everyone in the collision repair industry needs to be in total and absolute agreement with in order to start making positive changes?

Risley: “The vehicle owner is their customer.”

BSB: In what time frame do things need to
turn around?

Risley: “I don’t think you can set a time frame. What we did yesterday sets that tone for today. We’re paying the price for the changes we did and didn’t make in previous years. Regardless as to what changes the collision repair industry makes in the near future, there will eventually be a market correction where supply and demand intersect. As accident frequency continues its downward trend and the number of total losses continue to rise, there will be fewer repairable vehicles. If you couple that with the equipment, tooling and training required to fix many of these newer vehicles, many shops won’t have the capital to make the necessary investments to repair these cars.”

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Name: Darrell Amberson
Title: Director, Collision Operations
Committee
Association: Automotive Service Association
(ASA)

BSB: What are the reasons you feel collision repairers are facing a crisis today?

Darrell Amberson: “The biggest factor is supply and demand and the overcapacity issue relevant to the number of jobs available to us today. All the factors seem to center around that. You can talk about the consolidation effort and the aggressive lowering of pricing, but that’s all relevant to supply and demand.
“I do believe we’ve given too much control to insurance companies, but I think that’s also relevant to supply and demand. There’s an element of desperation out there. You look at consolidators that have cut deals with insurance companies in order to try to get market share. If they had an easy time getting market share, would they attempt to cut such deep deals? You can say we shouldn’t accept some of the insurance companies’ demands or offer the kind of price concessions we do. And that’s true, we shouldn’t, and when we do we’re bringing problems upon ourselves. But if it weren’t for the supply and demand situation, there would be no need to do those things.”

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BSB: Is the solution that all body shops should
dump DRPs?

Amberson: “I would advocate dumping bad DRPs but not getting rid of the whole DRP concept. I believe shops should pick and choose what’s right for them.

“One person I have a lot of respect for is Mike Anderson of Wagonwork Collision Center in Alexandria, Va. He’s not anti-DRP, but he doesn’t have any. He has chosen that particular path, and he has a business model and a marketplace where he makes it work, and to that I say more power to him. He has enough customers, focuses on high-end work and is aggressive with pricing practices and what should be included in the estimate.

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“But what works well for one shop may not work well for another. There may be some shops out there that want to work for that low-priced insured, and if they build a business model around that, more power
to them. It may mean they can’t offer the level of quality or education that other shops offer, but can we say that it’s wrong for someone to build a business around that if they can do it successfully? Not necessarily. There’s probably a place for the Earl Scheibs and Maacos. Is it something I want to do? No. But each business operator needs to decide what he or she wants his or her own business to look like.

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“Even though it’s a difficult decision, we as shop operators have our own right to be on DRPs or not on DRPs. If you have one you don’t agree with, you can leave it. No one’s forcing you to be on it, although the alternative may be agonizing. I know because I ended three not
long ago.”

BSB: Do you see any benefit from the national associations merging?

Amberson: “I would be shocked if all of them could evolve into one. Could some merge? I think that’s conceivable, and while that wouldn’t solve all of our problems,
it would help with many of them because you would
have that much stronger of a bargaining position to get
more change.

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“We can get some things done as we are now, but one of our more significant issues is that we don’t speak with one voice. If we did, we could get a lot more done. We probably look at each other sometimes and wonder why we even have three different organizations when we feel the same way about certain things and do some of the same things, but that’s not something you change overnight. It takes the work of many people to implement a change like that. But I firmly believe that if we were united, we would be much stronger. We’ve seen evidence of that with the creation of the Database Enhancement Gateway. And I know it carries more weight because it represents so much more of the industry given that it was put together by the three largest trade associations.”

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BSB: What do you feel everyone in the collision repair industry needs to be in total and absolute agreement with in order to start making positive changes?

Amberson: “I don’t know if there’s any one thing, but overall, collision repairers just need to all have the energy and desire to make those positive changes. You talk to any group of collision repairers about feather, prime and block, spot paint/full clear or steering, and you’ll probably find that they mostly agree on those issues. But getting those issues changed is what’s so difficult. To get everyone to stand together and exert influence, you really need a trade association to lead the way and get the individual shop operator to ‘stand up’ just as the CARSTAR people described. But in the marketplace, that’s just not happening. To some extent, you understand why. That element of fear and desperation is causing people to not take action, and as long as that continues, nothing
will change.”

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BSB: In what time frame do things need to
turn around?

Amberson: “Well, for those shops that are closing now, disaster just struck. It’s upon us now. The issue is significant now, and the number of shop closings will continue. Also, I expect that another consolidator or two will go down in the next few years. The reason is evident when you examine the numbers and the market conditions. Some consolidators have set themselves up with capital investments and, with margins having shrunk so much, investors will most likely not see the return on the dollar they would like and will only tolerate no return on their investment for so long.”

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BSB: Who do you believe is the true customer of the collision repair shop?

Amberson: “Is the insurance company the customer? It’s part of the customer equation. But the vehicle owner is the true customer. Still, we all have to play in the same sandbox, and I think we’re all better off getting along and trying to find solutions together.

“What do we spend on administration work between the shops and the insurance companies? How many staff do we have? How many hours do we spend negotiating what’s included and what’s not, and trying to move this item up or move this item down on an estimate? When you think about it, none of those steps has anything to do with fixing the car. I know I’m talking about a dreamy solution here, but if we could eliminate a lot of that activity and make things more efficient and minimize some of that cost, we could all make ourselves more efficient and have a lot less aggravation. To do that, you almost need the cooperative effort of both the insurance company and the repairer.”

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Name: Tony Lombardozzi
Title: President
Association: Coalition for Collision Repair Excellence



BSB: What are the reasons you feel collision repairers are facing a crisis today?

Tony Lombardozzi: “I go back to 1955 when I started. Back then, we used to call the local dealerships for parts prices, and most of the services were priced in dollars. For example, we would call and say, ‘I have a ’55 Chevy Bel Air and I need a headlight bezel, how much is that?’ And they would give you the price. Then you would use your experience to price the job, say, repair the fender, $50, refinish it, $50, materials, $5. And that would be the price.

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“Eventually, a guide was published that was really a parts number service. How that ever became the ‘collision estimating guide’ is beyond me. It’s exactly the same publication it was back when it first came out in the 1950s. We have allowed a third-party entity to control this industry’s pricing and rates. If you look at how it was done years ago, we set our own prices based on experience and based on what we thought we needed to make a profit and take home a paycheck. There was no way a third-party entity could control that because my repair cost of $60 compared with someone else’s of $50 was reasonable — unless that third party had a method by which it could convert the dollar figure to hours using the labor rate. And that’s when the system began to take over.

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“Now, insurance companies are very patient. They set a goal and can wait for a long period of time. ‘Factory times’ began to be published, but instead of the factories telling the information provider what the guide times should be, they would call them and ask what they were, which made them bogus. Once the insurance companies established a book that could give us guide times and they could push to control the rate at which we multiplied those figures, they could control the marketplace.

“So as the squeeze got put on over the past 35 to 40 years, and made the last 10 years especially difficult, profit margin has disappeared to the level where most people are just breaking even unless they lie, cheat and steal. So now people are looking for a way to change that process.”

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BSB: Why do you feel it’s so important to bill in
dollars, not hours?

Lombardozzi: “It’s very simple. There are only two things insurance companies can use to control this industry: the information providers’ information and the use of labor rates. Unfortunately, in some states, because body shops got involved in legislation, shops must charge by the hour. But if you’re not in one of those states, what’s the easiest way to get away from being governed by book times and labor rates? Bill in dollars. The consumer can understand, ‘OK, the shop needs $100 to repair this fender, $250 to refinish and, in the process, it’s going to use $100 worth of materials so here’s what the repair is going to cost.’ That’s better than, repair fender = 4.0 hours, remove and install wheel opening molding, remove and install headlight, et cetera.

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“It was always drilled in our heads that the more lines you wrote, the more you would be able to get paid for. And, in some instances, that worked very well for a while. Then the squeeze came on: we don’t pay for this, we don’t pay for that. So when I bill for my services at my shop, I may put down: repair door, $150, refinish, $475, then a price for materials. Somebody might ask what that includes, and I’ll say it includes going back to the way the factory did it, i.e. taking all the moldings off because that was how it was originally painted. I don’t have to list 25 lines to explain one thing, the cost of refinishing. There’s no law that says I have to. If you include all those items in your price from experience, you should know that they’re all included. If someone owns a body shop and has to depend on those guidebooks for labor times, he or she is in trouble.”

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BSB: In what time frame do things need to
turn around?

Lombardozzi: “The way this industry is now, I figure there are 18 to 24 months to totally turn it around. Will everyone do the right thing? No. But they can’t say, ‘Because you don’t bill by the hour, you’re wrong,’ just because other shops are doing it that way. Or, ‘Because you charge and itemize your paint and material rather than using a rate times hours number of refinish hours, you’re wrong.’ There’s no such thing as when an insurance company says, ‘We go by what a majority of the shops do.’ That’s a crock because you don’t need a majority to change a specific area or community. If you have 10 shops in a five-mile radius, and three bill by dollars and the other seven bill by the hour, who’s right or wrong? Those are just different methods, and each shop has its own cost of doing business.”

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BSB: Do you see any benefit from the national associations merging?

Lombardozzi: “First of all, CCRE is not an association. It’s a coalition. Basically, it’s a consulting business comprising independent collision repair shops that want to see change. I can’t discuss how many members we have, but we would give SCRS and ASA a run for their money as far as members who are ‘true’ collision repairers.

“I don’t know if merging is the answer. SCRS was a breakoff from ASA to begin with when John Loftus was on ASA’s board of directors. He broke away because he didn’t feel ASA was doing anything for collision repair people. For a while, Loftus was pretty good at putting insurance companies on the spot. Then, he retired and the board went in a different direction and now SCRS is just like ASA. These associations need money from everyone because they’re very costly to run. Without NACE, ASA would probably fall on its face.

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“CCRE has a membership fee of $1 a day. That allows a repairer to become part of a network and consult with other like-minded people. We have a private discussion board where questions are asked. We try to be self-sufficient with the seminars we put on. These seminars are very successful and draw many people from all over the country. The word is getting out now that ASA and SCRS can’t help this industry. The only one that can help that truly represents independent shops is CCRE. Therefore, these other associations cannot be effective.”

BSB: What do you feel everyone in the collision repair industry needs to be in total and absolute agreement with in order to start making positive changes?

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Lombardozzi: “Everyone needs to try to eliminate third-party interference. The way you do that is to bill by dollars rather than hours and use the guidebooks as part number services only. Everyone also needs to agree on who the customer is. Who do we perform repairs for? Who do we service? In most states, it’s the consumer, the owner of the vehicle. Finally, we also need to work toward being self-policing with our own post-repair inspectors.

“We have to realize that insurance companies have no business being in our business. If they want managed care, then let them begin to sell managed care policies. They screwed the health insurance industry up, let them screw up the automotive industry. But before they do that, they must explain to the vehicle owner that they’re no longer buying an indemnification policy but allowing the insurance company to be the customer and manage the repair. But, in the end, the vehicle owner may not be 100 percent indemnified.”

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BSB: Is the solution that all body shops should dump DRPs?

Lombardozzi: “I think DRPs should be abolished. As long as they exist, shops will believe the insurance company is also the customer. Many shops that are on DRP lists now want to get off them but don’t know how to do it. They’re so deathly afraid to make that move because they know it will be their demise. Insurance companies know that will happen, but they also know that for every DRP that fails, there are 10 waiting in line to get on because they don’t know business. Those shops think that if they have insurance partners, they’re going to become wealthy. But insurance companies are very smart. In a given area, they’ll control the workflow and make one or two DRP shops very wealthy. That’s the carrot in front of the horse, and the horse is the rest of the people who want to get on the list. Insurance companies don’t treat the rest of the group like the two shops they’re trying to make wealthy because those two shops are the carrot. They’re very good manipulators, have plenty of money and understand this industry better than some of us do.”

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BSB: Is the industry’s fragmentation also a reason why body shop owners are struggling so much today?

Lombardozzi: “Yes, the insurance companies look at it as ‘divide and conquer.’ They know if they can keep collision repairers divided, they can’t accomplish anything. For example, let’s say the associations are working with a particular state to get anti-steering legislation passed. SCRS says one thing, ASA says another, some support it, some don’t, and then CCRE says it shouldn’t even be passed because it has nothing to do with the repair of collision-damaged vehicles. And these legislators look at this and say, ‘They can’t even make up their own minds! So let’s just do what we want to do and forget it.’ And that’s why most legislation hurts this industry. We don’t know how to go about things right and we ask the wrong people to draw up the laws. Then, we don’t have the money to lobby, have a fragmented hearing, and the next thing you know, the legislation is passed and it’s watered down and has no effect. Most of these laws are so watered down with no penalties that they’re unenforceable. We’re always looking for some third party to help us out when we need to realize the only people who will help us
are ourselves.”

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Name: Nick Kostakis
Title: Past president
Association: Alliance of Automotive Service
Providers (AASP)

BSB: What are the reasons you feel collision repairers are facing a crisis today?

Nick Kostakis: “I think the current bleak conditions are the result of several small, incremental changes over the past several years and not the result of any major recent events. First, there continues to be excess repair capacity coupled with declining accident frequency, producing a buyer’s market that may continue for some time. Second, the collision repair market has become less and less of a free market, largely due to the influence of the insurance segment, which inadvertently or otherwise creates an artificial (discounted) market through DRPs. Finally, while both insurers and repairers have taken advantage of advances in technology, I feel the insurance side has realized more benefits from the sophisticated use of information.

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“The end result, to use an analogy, is a ‘perfect storm’ where the consumer is no longer the customer and where collision repair has become a commodity. Repairers have gradually gone from selling unique products and services to selling bags of sugar, the result being that the only way to now differentiate ourselves is through the price
we charge.”

BSB: Is the solution that all body shops should
dump DRPs?

Kostakis: “I believe that the growth of DRPs has hurt the collision repair industry more than any other single factor, but I don’t think that large-scale voluntary abstinence is a realistic solution, at least during current market conditions. You’re expecting thousands of repairers who have built high-volume-dependent operations to all line up at the edge of a cliff and agree to jump at the same time. It just won’t happen on a large enough scale to move the mountain. But that’s not to say we should stop searching for strategies that will enable repairers to regain their independence.”

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BSB: Is the industry’s fragmentation also a reason why body shop owners are struggling so much today?

Kostakis: “Certainly. At the local and state level, there are many examples of repairers banding together and achieving some significant victories. We don’t seem to be as successful at

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