Operations Profile: Business Savvy - BodyShop Business

Operations Profile: Business Savvy

With all the issues facing today’s shop owners — increased insurer involvement, diminished value (DV) and aftermarket (A/M) crash parts to name a few — it’s tough to run a collision repair business. Making it even tougher is that a lot of shop owners used to be technicians. Today, however, they need to be business savvy to operate successful and profitable shops.

Already faced with difficult issues, many shop owners are wondering what more will be asked of them by insurers and how they’ll continue to please increasingly critical customers. They question how other shop owners are running their businesses and dealing with day-to-day issues.

This year’s Operations Profile answers a lot of those questions, including "Are shop owners turning work away?", "Are they compromising their labor rates?" and "Is Elvis really dead?" (I just threw that one in to see if you’re paying attention.)

What effect do alternative crash parts have on the following procedures relative to OE parts?

 

CAPA-certified

A/M Salvage

Increase administrative time

88.3%

88.4%

Decrease administrative time

11.7%

11.6%

Increase installation time

88%

76.8%

Decrease installation time

12%

23.2%

Increase paint refinishing time

91.5%

84.5%

Decrease paint refinishing time

8.5%

15.5%

Increase total cycle time

89.5%

82.3%

Decrease total cycle time

10.5%

17.6%

Which insurers refuse to pay? Respondents listed Allstate, State Farm, Progressive, Geico, Farmers, Natiowide, USAA and Liberty Mutual most often. Many respondents were less specific and simply said "all."

• 100 percent of respondents say vehicle owners have an unequivocal right to know when A/M crash parts are used to repair their vehicles.

• 78.3 percent of shop owners say it’s the body shop’s responsiblity to inform the owner when A/M or salvage parts are used.

• 95.1 percent say they educate customers regarding their rights.

• The average shop writes 24.8 estimates per week.

• 67 percent of written estimates are converted to jobs, which translates into about 16 jobs per week.

• 41 percent of respondents say insurers reduce times on estimates less than 25 percent of the time.

Things are looking good! Compared to last year, 52.2 percent of respondents say the average number of jobs performed per week has increased.

Though 55.2 percent of all shops polled are concerned about DV, only 47 percent of DRPs are concerned while 60.3 percent of non-DRPs are concerned.

Those who are concerned cited the following reasons:
• "I don’t like some non-DRP shop criticizing my body work for monetary gain."

• "Any time you have a rush job, it cuts quality."

• "This is another area where the insurance companies are using shop owners as scapegoats and not taking responsiblity."

• "Pre-accident condition doesn’t call for A/M parts."

Those who aren’t concerned cited these reasons:

• "I can’t say I know what the term means."

• "That’s between the vehicle owner and insurance company."

• "If a vehicle is repaired properly, there’s no loss of value."

Of those shops using …
• OE crash parts, 88.3 percent of their repair orders include them.

• A/M crash parts, 67.4 percent of the repair orders include them.

• non-CAPA-certified crash parts, 30.2 percent of their repair orders include them.

It’s not surprising then that shop owners say OE crash parts fit the best: 95.2 percent provide an acceptable fit. On the other hand, respondents reported that only 55.5 percent of CAPA-certified A/M crash parts provide an acceptable fit and 45.7 percent of non-CAPA-certified A/M crash parts provide an acceptable fit.

When CAPA-certified parts don’t fit well, 70 percent of respondents say insurance companies never pay for re-fitting the parts, while 10.3 percent say they pay half the time and 2.8 percent say they always pay.

Of those shop owners who responded yes, an average 2.5 jobs per week were turned away. Why are 62.5 percent of shop owners turning away work? Some of the reasons listed include:
• "Too busy."

• "Don’t have enough technicians to do the work."

• "Customers ask to save their deductibles."

• "Insurance payments are too low to perform the necessary repairs."

• "Jobs aren’t profitable."

• "Vehicle owners want less than an excellent repair."

• "Some repairs involve too much work."

• "Anticipate collection problems."

Of those shops polled, the average posted labor rate is $36.52. Those same shops report the average "prevailing" insurance rate in their area is $35.62.

Why are 47.1 percent of shops compromising that labor rate? Some respondents noted:
• "That’s all the insurance companies will pay for and changing that requires ‘going to war.’ "

• "Because of contract, DRP work."

• "To get the job we had to accept the insurance rate, which was $2 less."

• "A customer had no insurance coverage and we felt sorry for him."

• "We lowered the rate to compete with other shops’ estimates."

• "Business was slow."

• "The car was a near total, so we reduced the rate to save the job."

• "We needed the work; my employees have to feed their families."

Will diminished value (DV) have a positive or negative effect on the industry?

This year, 48.1 percent of respondents say DV will have a negative effect, which is almost identical to last year’s figure (48.6 percent). However, 18 percent of this year’s respondents say it will have a positive effect and 33.8 percent say it will have no effect. Last year, more than 27 percent said it would have a positive effect and 24.3 percent said it would have no effect.

Why do shop owners feel the way they do?

Positive:
• "It will force shops to perform correct repairs or leave the business."
• "Insurers will have to pay to return cars to pre-loss condition."

Negative:
• "Insurers will push the problem on body shops."
• "If DV is considered, it could total out cars that could be repaired."
• "You can’t return a car to pre-loss condition."

No effect:
•"If you repair a car properly, DV isn’t an issue."
• "Most insurers will factor that into their costs."

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