Profits: Not A 4-Letter Word: State Farm’s New Pilot Direct-Repair Program Impacting Shops - BodyShop Business

Profits: Not A 4-Letter Word: State Farm’s New Pilot Direct-Repair Program Impacting Shops

State Farm’s new pilot direct-repair program is impacting shops large, medium and small. And the bigger the shop, the bigger the hurt. Canada’s Boyd Group Income Fund — operator of Boyd Autobody & Glass and Gerber Auto Collision & Glass in the United States — recently announced that they expect to be impacted $431,555 to $863,110 annually as a result of pricing changes “initiated by one of its largest insurance company customers.”

Although they didn’t mention State Farm by name, they said the specific DRP affecting their earnings is “being tested in a number of U.S. states, including Illinois, where Boyd Group has a considerable presence.” (State Farm’s new pilot program is being tested in California, Michigan, Indiana and Illinois, where Boyd owns 24 Gerber Auto Collision & Glass facilities.)

Unless you’ve been heavily medicated these last few months, you’ve heard about State Farm’s new DRP — and that one of its key provisions requires participating repairers to extend to State Farm the lowest rate for every labor or parts discount category.

In other words, State Farm is tired of watching repairers fall all over themselves giving discounts to other insurers. State Farm writes more than twice as many estimates as its nearest competitor and, as such, feels it should be getting any discounts that shops offer to other insurers or customers.

“If you choose to give no discounts whatsoever, that’s perfectly fine with us,” says George Avery, one of the architects of State Farm’s new agreement. “But if your business model includes some discounts, then we want to be part of it.”

If your shop offers a parts discount to one insurer but no labor discount, and a labor discount but not a parts discount to a second insurer, the terms of the agreement require that State Farm receive both discounts. “That’s when repair facilities need to make a decision,” says Avery. “… If your business practice is that you give discounts but you can’t afford to give me the discount, then perhaps this program is not for you.”

Because dropping State Farm’s program isn’t realistic for most facilities (they’re too reliant on State Farm work and don’t have any sort of marketing plan in place), many shop owners simply agreed to the contract — and discounted their prices to State Farm.

Many, but not all. Some shop owners — rather than discounting more — decided to discount less. Troy Gates, owner of Gates Auto Body in Wisconsin, and Lee Amaradio, owner of Faith Quality Auto Body in California (both heavily DRP) chose to drop their lower-paying DRPs rather than reduce their prices to State Farm.

“The first thing I did is eliminate my low-paying DRPs,” says Amaradio. “This is a risky step but one I found necessary. I’ve also stopped any repair procedures that aren’t generating a profit. Somehow our industry has been sold a bill of goods. We think we’re obligated to do a certain amount of non-profit repairs so we can be entitled to work on the profitable repairs. This is simply bad business. The more unprofitable repairs I do, the more money I lose.”

Although many shops aren’t in a financial position to do what Gates and Amaradio did, Amaradio’s advice applies across the board, no matter what size your shop: The more unprofitable repairs you do, the more money you lose.

“We felt fine charging State Farm a higher labor rate than the others. Why didn’t we raise our rates to everyone?” asks Amaradio. “We forced State Farm to rethink the way they were doing business.

“We’re facing a time when unity is going to be required if we’re going to make things better. We need to educate our customers on which insurance companies are good and which ones are bad. We need to stand together and say ‘no’ when asked to do something we disagree with. We need to take control of our future profits — just like State Farm has.”

Georgina K. Carson, editor

Comments? E-mail them to [email protected]

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