There’s no question that the collision repair business in the United States is changing, and this change is affecting everyone in the distribution chain: product manufacturers, manufacturer’s reps, warehouse distributors, jobbers, body shops and individual technicians, all of whom are feeling the pinch from a leaner business model. There just isn’t the money there used to be for all involved. Fierce competition at every level has squeezed profits, but successful firms at every step in the chain have figured out that forming a true “partnership” with their vendors does wonders for their bottom lines.
Everyone’s Feeling the Hurt
Hundreds of articles and letters to the editor in BodyShop Business describe the pressures shops are feeling when insurers demand lower repair costs, faster cycle times and written proof of shop performance metrics. Rather than add yet another lament to this pile of collision shop woes, let’s move up the distribution chain one level and ex-amine the state of the industry for paint jobbers. After all, stiffer competition and fewer collisions mean jobbers’ profit margins are smaller too.
Refinish material (paints, abrasives, solvents, sundries) are typically sold to the body shop by a local jobber. While a few past and current business models have the body shop purchasing its monthly supplies via the Internet from a distant vendor location, most PBE (paint, body and equipment) goods are sold directly from a nearby jobber and delivered to the shop on the jobber’s trucks. I’ve been in our industry for 38 years, and for most of that time deciding what paint brand to use and which jobber to buy from was decided together by the shop owner, production manager and front-line painters. Today, top shop management alone chooses the jobber, and their choice is often directly connected to upfront cash and/or big monthly discounts. These front office folks look at refinish paint strictly as a commodity and the local jobber as a necessary evil. Many times, this leaves the production managers and the painters with lots of daily problems and no one to turn to for help.
First, let’s see what those upfront monies mean to the body shop over the long haul. By my reckoning, the average U.S. shop does about $750,000 to $800,000 per year in total collision repair volume. If this fictional shop has a track record of paying its bills on time and is showing top-line sales growth from year to year, some vendor out there would like to buy its business. Let’s imagine that the technicians in our fictional shop are happy with their current paint brand. It matches well enough, is pretty quick to dry, polishes easily and generally works fine. Their current jobber also does a pretty good job. The shop gets regular weekly sales calls, several delivers each day, has access to local training and can count on prompt attention and a fair resolution when any problems arise. Here comes the new brand and new jobber with cash money in hand.
How much money? While I’m certainly not privy to everyone’s formula for investment dollars, let’s say this shop is offered $25,000 cash up front to switch paint brands and jobbers. Hey, 25 grand ain’t hay! But it’s not free, either. The shop will likely have to sign a contract that says it will buy all its supplies from this new jobber for a term of five years or until some specific dollar amount of materials has been purchased. By the way, if the shop’s growth in sales is not what everyone predicted when they signed up, the length of the contract can easily reach seven or eight years before the minimum dollars have been purchased.
As many shops have discovered, the IRS wants a cut of the $25,000, too, and all of it in the year it was received. For our purposes, the exact tax consequence is hard to determine. What were the shop’s sales, tax bracket, expenses, etc.? Additionally, many shops that took a deal like this discovered that the contract they signed was binding. The courts in most states have consistently held that if you signed a legal document on the dotted line, you’re locked in to those terms and timelines. Clearly, the purpose of any legal contract is to ensure both parties perform as specified. You can’t just decide next year that some other vendor has a better deal and expect to be released from your legal obligations.
But let’s put the IRS and the contract lawyers aside to look at just the investment money over time. The $25,000 figure over five years is $5,000 per year to secure the shop’s business. The $5,000 per year is $416.67 per month, or $20.50 per working day. The national average door rate is about $40 per hour. So, in fact, the shop has pledged its business to a certain paint brand and jobber vendor for the cost of half an hour’s labor per day. The deeper the discount deal, the bigger the check and the less the jobber can afford to provide “service” to the shop. While the lack of frequent delivery, in-shop training, inventory management and problem-solving mean little to the person paying the monthly shop material bill from the front office, it often means a real headache for the painter and a decline in overall shop production output. The $25,000 windfall sounded like a lot of money (and it is), but over five years, a $20-a-day discount won’t go very far to ensure the shop’s success. Even if this shop was so desirable that someone offered $50,000 up front, it’s still only one hour’s labor charge ($40) per day over the life of the contract.
Production Efficiency Is Key
As every single shop management program ever created tells you, success isn’t about saving material costs, it’s about increasing production efficiency. Body shops make real money by completing more work in the same time periods, not saving a few bucks on paint and sandpaper. Our fictional $775,000 shop buys about $3,875 to $4,500 per month in total paint and material (use either 6 percent of sales or $900 per tech per month). The $416.67 monthly savings from the big check is about 10 percent off the refinisher’s price. If a deal like this causes the painters to use a paint brand they don’t like or it slows them down or is hard to work with, paint shop production will decline. If all the paint and material are sold by a jobber that offers little in the way of good service (it can’t afford the staff), it’s a false economy. Help from a committed vendor partner will make the shop much more than $40 per day.
Increasing production in this same shop is a more reliable road to long-term success. About 45 to 50 percent of a body shop’s sales is typically labor time. Using a middle value of 47 percent, this $775,000 per year shop sold $364,250 worth of labor. Per month, it sold about $30,000 of labor, so a 10-percent increase in production efficiency is $3,000 more each month, $36,000 more each year and $180,000 more over five years. And while the shop must pay the techs’ wages out of the additional labor sales, there’s a corresponding increase in replacement parts sold to help, too. My shop model says the typical gross profit for the shop is about 40 percent of sales. $3,000 more sales at 40 percent gross is $1,200 more each month, $14,400 more per year and $72,000 more gross profit over five years. Clearly, a sane shop owner wants both the paint discount and the production increase. A good vendor partner can help get them there. Shortsighted front office folks often see only the upfront cash and lose sight of the benefits a good PBE jobber can bring to their net profit.
Partnership = Profitability
Savvy customers in every industry have embraced vendor partnerships for years. If the firm supplying your business with whatever it is you purchase to complete your production is focused on your success, too, great things happen. Good jobbers know that if the body shop produces more work, it will buy more paint and supplies. Good jobbers work every day to make sure its customers don’t spend any more money than necessary on paint and materials. Profitable body shop customers have money to pay their bills on time and are much less likely to switch vendors for an additional discount. A productive synergy is created when your jobber helps make your shop more profitable.
Paint jobbers fall into two basic business models: the auto parts jobber that also sells paint and refinishing supplies and the PBE specialist jobber who sells no auto parts but may also sell some collision-related product lines such as bumpers, bumper covers, auto glass, replacement sheet metal, radiators, etc. In my experience, as long as the auto parts jobber has people devoted to the collision business, both business models can make great vendor partners. Making a jobber vendor decision based solely on cash up front payment or a promise of “free” spraybooths is taking an awfully narrow view of shop success. As jobbers and paint manufacturers continue to sharpen their pencils to offer the biggest check or the deepest discount, their level of service must suffer, too. Steep discounts don’t leave enough money for the jobber to provide much in the way of “good service” to its shop customers.
Every jobber’s largest expense is the wages of its employees. About two-thirds of a jobber’s operating expenses are payroll costs. If the jobber must cut its selling prices to the bone and cough up a bigger cash enticement than its competitor, there isn’t anywhere to save the money except payroll.
“So what?” say the people in the front office. “Paint is paint, and one jobber is the same as the next. Take the money and forgo the service.”
Remember, our fictional average shop is ahead by $20 per day with the $25,000 upfront money and probably negotiated an additional 10 percent off each month’s purchases for another $20 per day. So with money up front, a monthly discount and a five-year contract, this average shop gets $40 per day, or one hour’s labor, to switch jobbers and/or paint lines. Unfortunately, the switch might be to a jobber that may not be able to afford to hire enough people to provide much service.
I know from personal experience that a good jobber partner can make its body shop customers much more than that. Like anything else connected with collision repair, the biggest bang comes from improvements in shop productivity. Prompt deliveries, knowledgeable counter people, large on-hand inventories, custom color matching, local training classes, professional sales calls and responsive managers/owners all serve to make the good PBE jobber an invaluable resource for smart body shops.
At a national average door rate of about $40 per hour, each minute of a production technician’s time is worth 67 cents. Good jobber partners endeavor to make the best use of every tech’s time. Among the helpful and expensive services a good PBE jobber provides to its shop customers are the following:
Delivery. Most body shops, and even most jobbers, point to frequent delivery as the main element of “good service.” While it is important (imagine your shop would have to send someone to the jobber store to pick up everything,) it can also become too frequent. Every minute the shop painter, metal techs or production manager stop work to phone in an order, then wait for delivery, it costs the shop sixty-seven cents. In many shops, the delivery driver from the PBE jobber becomes a friendly face and often the shop techs stop work to shoot the breeze with their favorite driver, at 67 cents per minute. Creating and maintaining an inventory management system for all the shop’s materials and supplies keeps deliveries and downtime for the techs to a minimum. One delivery per day should be plenty, and some very successful body shops prefer to have only two to three deliveries per week.
Stock Management. Body shops tend to be good at repairing collision-damaged vehicles. Jobbers tend to be good at managing large inventories (50 percent of the average jobbers’ assets are his/her inventory). Running a successful body shop inventory management program is much more than marking the shelves with masking tape and stocking quantities. The goal should be to first minimize the items in inventory. For example, the metal techs all have favorite grits and sizes of sandpaper. Tech A want six-inch gold 320A DA paper, Tech B wants five-inch blue 280A DA paper and Tech C wants only six-inch. Velcro 180C DA paper. If the shop stocks a backup roll for every tech in every style, the dollars in inventory skyrocket. Start your inventory management program by getting input from the techs to reach consensus on which products will be used during repair.
Let your jobber partner monitor and manage your inventory. Good jobbers can provide monthly usage reports that will help spot any inventory problems early. They can also provide stock-on-hand counts at month end. Many shops look only at what they spent each month, and do not include the material they bought that is still on-hand. Good inventory management practices make it easy for the techs to replenish their needs (it’s that 67 cents per minute thing) but also provide accountability for all materials. Numerous ways exist to accomplish both. Materials could be assigned to individual repair order numbers or to individual tech accounts. Products could be stored in one central location or in individual tech cabinets. A good PBE jobber will have an explicit written plan that it can quickly customize to your shop.
Industry Information. The weekly call by the jobber salesperson provides not only an opportunity to continue the inventory management process but is the No. 1 source of information about the industry for most technicians. While trade magazines (this one in particular!) are full of current market trends and productive repair techniques, the jobber salesperson is still the source of the latest news about collision repair both locally and nationally. In a true vendor partnership, the jobber salesperson is careful to make the best use of its time in the shop. These folks aren’t shooting the bull about last night’s ballgame; they’re offering valuable insights about new products, tools or techniques that will make their shop partners more successful.
In many jobber organizations, the salesperson is also the go-to guy for technical questions. How many coats of sealer, how long between coats, when can the clear be polished, what caused this failure? If your current jobber is one of the few who employs a full-time tech rep, make sure you appreciate the enormous costs associated with that position. Jobbers forced into deep discounts and big checks up front must cut payroll to lower their overhead. A full-time tech rep (one who doesn’t write orders but just trains painters) is often an early casualty of lower margins. If your partner still has a tech rep, thank it with your business.
Training. Good jobbers know the value of training and spend thousands of dollars each year training their own people. If you’re lucky enough to do business with one of these partners, you know how helpful it is to have the counterperson who answers the phone know not only what you’re talking about but why you want it and what makes their brand special. Those jobbers without full-time tech reps have their salespeople doing double duty, making sales calls and solving paint problems. They made that person knowledgeable by sending them to lots of paint manufacturer training classes.
Good jobbers do their best to bring useful training classes direct to their shop customers either by hosting evening paint clinics at the vo-tech school or holding lunch-and-learn sessions in the shop. They know that trained customers do better work faster. If your jobber is expending the time, money and effort to create and host training classes locally, or offers to pay your tuition for far away classes, make sure to support those efforts.
Performance Metrics. Insurance companies are interested in doing business with body shops that meet or exceed certain measurable factors. Repair cycle time, severity, parts-to-labor ratios, customer satisfaction and many other factors provide the insurance companies with hard data to support their choice of repair facility. Simply telling the adjuster that your shop does a good job won’t cut it anymore. Insurers want written proof of shop performance. Good jobbers know exactly what the measurable body shop metrics are and can help their partner shops not only track them on paper but improve them over time. One of the most powerful elements of “good service” from a PBE jobber is its ability to understand collision repair. A good vendor partner knows what makes its customer’s business tick.
Gotta Have Trust
The No. 1 ingredient in any partner- ship is trust between the partners. If your current jobber has a reputation for fuzzy morals or short shipments, better partners exist. Vendor partnerships recognize that nobody is in business for their health. Owning a small business of any kind, body shop or jobber store, is a risky proposition. Competition is fierce at every level and in every town. Someone will always have a lower price, either on sandpaper or collision repairs. It’s not a viable partnership if your goal is to beat your supplier to a pulp and demand the absolute lowest price and biggest discount. They won’t have money left to hire good people (or enough people) to be a good partner. Sound like your shop’s relationship with an insurance company?
Trust must go both ways. If the jobber is worried that you’ll try to sneak product in the back door from the guy in the bread truck or will demand unreasonable concessions for deliveries, sales calls or tech rep time, it can’t afford to be your partner. You can’t beat them out of every last nickel; they must run a profitable business in order to be your partner next year.
Focus on Success
A good jobber partner is focused on your shop’s success. By having a large inventory to ship most items from stock and providing timely delivery, informative sales calls, prompt answers to problems and equitable resolutions to your complaints, your jobber partner benefits your business. Just like your shop has had to do more for less in today’s insurance DRP relationships, PBE jobbers have had to lower their prices through monthly discounts and upfront investments while maintaining reasonable service levels. Good jobbers can make your shop much more than one hour of labor per day. Don’t let the front office trade a good jobber partner for $40.
Writer Mark Clark, owner of Professional PBE Systems in Waterloo, Iowa, is a well-known industry speaker and consultant. He’s celebrating his 20th year as a contributing editor to BodyShop Business.