“Prevailing rates” is a term used by the insurance industry to describe the stupor it casts on collision repair businesses across the country. Many shop owners are chained to prevailing rates and feel helpless as they watch their profits slowly dry up like a cow pie in the hot August sun.
Southeastern Connecticut is a humble little part of the world, where we simple, humble folks produce the deadliest and mightiest weapon in the world, the nuclear submarine, with little notoriety or fuss. We also produce the magic pill that turns balding, impotent old men into sexual dynamos – albeit, old and balding sexual dynamos. We’re also known as an area that gives little fuss, argument or fight when dealing with the strong-arm tactics of the insurance monster.
I don’t know how many times I’ve heard appraisers say how much they like working this area. “There are a few hard asses,” they say, “but for the most part, you guys are easy going and easy to work with.”
Hmm. I never quite know how to take that. Everyone likes to be liked, but is that helping me or hurting me? For many of us, it’s a debate that’s tough to side with.
Recently, Scar Face Insurance (names have been changed) did its annual labor rate survey. With all the buzz I’d heard from the bee that goes around pollinating all the body shops for the Connecticut Autobody Association, I thought for sure we’d be getting at least another $2 per hour from Scar Face. After a month of not hearing anything, however, I started to wonder. So I called one of Scar Face’s under bosses to find out the score.
Our area wasn’t getting a raise, she said.
In other parts of the state, however, rates went up $2, $4 and $6. What was going on?
Now I’ve never had too much trust in what comes from the mouths of those in the insurance industry. Call me paranoid, whatever, but I had to see things in black and white before I took them as truth. Scar Face, however, had always been straight with me in the past.
Last year, their rates went from $40 to $42, so I was expecting them to go to at least $44 this year. Almost every insurance company is paying $42 in this area except Little Moocher Insurance, who refuses to pay more than $40. Frankly, I was looking forward to Scar Face paying more because it tends to set a precedent.
For those of you thinking what I think you’re thinking, don’t worry. I do make Little Moocher’s customers pay the difference. I’m not that easy.
I can hear the Autobody Online groupies already. “No insurance company tells us how much we charge. We tell them what they’re gonna pay!”
Yeah, right. Stifle yourself and keep reading.
After some thought, I came to believe the results of the Scar Face labor rate survey. I remembered seeing some of the estimates from shops in my area. Sad stuff.
So I decided to do my own survey. I wanted to see who was keeping the rates down, and I wanted to make sure I wasn’t one of them.
I grabbed the Southeastern Connecticut phone directory and turned to the autobody repair shop listing. The first thing that struck me was the number of shops listed that I’d never heard of. I talk with several appraisers every day and each one has stories to tell, but many of these names never came up.
There were 66 listings. I called every one of them to get their fax number so I could fax them the survey. I wanted all the results in writing – their writing.
The first shop I called wanted to know why I wanted his fax number. I hate wasting time on the phone so I figured I’d ask one quick question (“What’s your fax number?”) and then leave the people alone. But this guy wanted to know why I wanted his fax number. It’s a reasonable question. I also hate getting all those unsolicited solicitations soliciting everything from stocks to cheap cruises. But when I told him what I was doing, he abruptly told me that he didn’t want to participate and hung up on me. Ah ha! Light bulb flashes rapidly above head.
Onto No. 2 in the listing. Phone rings … phone rings … phone rings some more. It’s 10 a.m.: Do you know where your body shop employees are?
Next! “I’m sorry, we don’t have a fax number.” What the hell does that mean? If she told me she didn’t have a bathroom, I may have understood that. But how do you run a business without a fax machine? I didn’t bother to ask – I also didn’t bother to ask her any of the survey questions.
Finally, I talked to someone with a fax machine who was willing to give me the number, no questions asked.
Eventually, out of the 66 entries under the “Auto Body Repair” section in the Southeastern Connecticut Yellow Pages, I got 40 fax numbers. So I printed out the survey form I’d written up and eagerly faxed it off to the 40 numbers I had.
I get the first phone call. I had put my phone number and fax number on the survey in case anyone had questions.
“Um, yeah. What are you doing this for?”
OK, I thought I’d explained this pretty well in the two perfectly crafted paragraphs that, I’m certain, my 9th grade English teacher would’ve been very pleased with if she were still kicking. So, I explained everything over the phone that was written on the survey – and that seemed to satisfy him.
Another call. “What am I supposed to do with this once it’s filled out?” Uh boy.
By the end of the day, I’d received three completed surveys. The next day I received one more. The third day, one more. I couldn’t believe it. I explained that this wasn’t an insurance company survey and that the information wasn’t going to be used for any referral lists or anything like that. I just wanted a simple survey of all the body shops posted labor rates. I know everyone is busy, but we’re talking about 30 seconds to fill in the blank spaces and fax it back. And it’s not like these are confidential trade secrets I’m after. It’s just the posted labor rates everyone who walks into the front office sees.
On day four, I had my assistant call everyone who hadn’t faxed back the survey. Yeah, I know, I had her do the dirty work. But prevailing rates roll downhill.
My assistant was able to get survey answers from 36 shops. Of the four shops that we didn’t get information from, two told us that they didn’t feel it was necessary to participate. Well, aren’t we special? One dealership body shop was minus a manager, and the next person in charge didn’t know the labor rates.
As for the fourth shop, they were just so darned confused that we decided we couldn’t use their information.
Most of the respondents, however, were very helpful and gracious, and many asked for a copy of the results. So I faxed a copy to everyone who participated.
The results were interesting, to say the least. The lowest body and paint labor rate was $42 across the board. That just happens to be the insurance industry’s so-called prevailing rate for this area. In other words, these shops are letting the insurance companies lead their way. The highest was $60, but this shop didn’t appear to be concerned with insurance work. In fact, this was one of the five shops that faxed me the completed survey. On it, the respondent wrote me a note advertising that he does custom work, chopping roofs, etc. Take the insurance company out of the equation, and the sky’s the limit I guess. There were two shops that do mostly insurance work that had posted rates of $59. How often they get it is another matter.
Most shops posted higher mechanical and frame labor rates. Those varied from the low of $42 all the way to $77. Materials rates didn’t vary as much. The low was $16 and the high was $22. And only one shop reported using a system other than its estimating software to calculate materials. That shop used PaintEx. (Why hasn’t FedEx sued the pants off PaintEx for kidnapping their logo? But I digress …)
Another surprise was that only about half the shops that responded had a minimum labor charge. In other words, some guy needs his headlight assembly changed, it’s raining so you pull the car inside, stop a tech from working on a big job to change the guy’s headlamp assembly and then charge the guy $14 for .3 in labor? The majority of those shops with a minimum labor charge used their hourly rate as their minimum.
The real shock, though, was the average markup on LKQ parts and sublet repairs. The average was 27 percent. The majority of shops responded with 25 percent. One shop even listed 20 percent markup. That’s a mere 16 percent gross profit. The high was 42 percent, and a few were 30 or 35 percent markup. But most of the shops were asking for a 25 percent markup, or a 20 percent gross profit.
My objective was to get the average rates posted by body shops in Southeastern Connecticut. And here they are:
|Materials rate:||$18 per paint hour|
|Minimum labor charge:||$48|
|Markup on LKQ parts and sublet repairs:||27%|
Are you paying attention Southeastern Connecticut body shops?
It’s important to remember that these are posted rates. What shops finally agree to is a whole other issue. But we’ve got to start somewhere, and a negotiation isn’t a negotiation if no one has to give anything up. I think of posted rates as goals, dreams, aspirations, a negotiation starting point. And if we’re asking for what we’re already getting, how will we ever get more? It’s this comfortable balance that’s the stink in the prevailing rates. This lack of financial inertia is the cause of the huge void between body shop labor rates and mechanical labor rates, or widget repair labor rates.
A few months back, a company that services paint booths called me to see if I wanted to schedule service. The first question I had was how long would it take? He said two hours. The next question I asked was how much? He told me $650. I don’t remember exactly what I told him because I think I blacked out, but a couple days later, his boss called me to apologize and to negotiate a reasonable cost. Heck, I figured the cost for two long-haired, biker types sporting tattoos of their naked wives to fiddle with my booth should be about $42 per hour. The nerve of these people!
Ibet you’re wondering where my shop fell in this survey of mine. I confess! I was on the low side at $44 per hour for body and paint labor. Immediately after I tallied the results of the survey, though, I raised my posted rates to $48, $1 above the average. Will I get it?
Sometimes I do.
I do a lot of customer-pay work. Hopefully, it’ll also help to push the insurance industry prevailing rate higher. And, hopefully, other shops in my area will get out of the survey what I did. Every other industry or business knows exactly what the competition is doing at all times. They’re constantly checking each other’s prices and the way the other does business.
Insurance companies somehow always know what the others are paying for labor rates. Maybe it’s about time we start shopping each other on a regular basis. Maybe every shop should do its own survey once a year, just to ensure its rates are in line with everyone else’s.
If every shop does its own independent survey, there can be no risk of collusion or anti-trust violations. Each shop conducting its own labor rate survey is just collecting public information, information that’s required by law to be posted in plain sight for all customers and, more importantly, all insurance representatives to see.
To some of you, the week we spent conducting the survey and compiling the information may seem like a lot of work, and even a waste of time. But the information we collected has proven to be very valuable. As I mentioned earlier, I faxed each participating shop a copy of the results. Again, it’s public information. The shops can do whatever they want with the information. Next, I wrote a very nice letter and sent it with a copy of the labor rate survey results to the local claims manager of every major insurance company. It sort of put them on notice. It was great entertainment hearing appraisers repeat the comments their bosses had made about the survey and its results.
Because Scar Face Insurance told me that we could re-survey at any time, I had them send me another copy of their survey letter. I then faxed a copy of the letter to each of the participating body shops and begged them to fill it out again. One of the problems with Scar Face’s survey is that few of the shops filled it out or sent it back, so the previous results were inaccurate. Thankfully, many of the shops must have sent their survey forms in this time because Scar Face sent me a note with its new labor rates for my area – and they’d gone up $2. It wasn’t what I was hoping for, but it’s better than nothing.
By raising our rates well above what most insurance companies are offering to pay, I have room to negotiate. And the negotiations have been very successful. Many of the insurance companies are paying $3 to $6 per hour more than they were just a couple of months ago. And we’ve been keeping a list of which companies are conceding to what rates – just in case they get forgetful.
In the past couple of months, my overall average hourly rate has increased by more than $3. If the insurance company refuses to pay the difference, we explain to the customer that we offered to meet the insurance company half way and that they refused to budge. Those customers are almost always willing to pay the difference themselves once they see that we’ve been reasonable and made an effort to negotiate with the insurance company. In those cases, the customer usually sees the insurance company in a bad light, not us.
Yeah, our little survey was a lot of work, but we learned a lot. The most important thing we learned is that it doesn’t take belonging to an association or hiring an army of attorneys to make some meaningful, positive changes in your business. And you don’t need to change the entire industry either. One business, one body shop, one person can make a difference.
Writer John Shortell is body shop manager at Secor’s Collision Technology in New London, Conn. He’s been in the collision industry for 20 years and has developed computer software for body shop scheduling called BodyShop Schedule Pro. For more information on the software, visit www.bodyshopsolutions.com.