There’s a nip in the air, and a sense of dread is spreading across the collision industry as winter fast approaches. Sky-high energy prices and other costs will very likely continue to erode your shop’s already small profit margins.
Will rising heating costs — combined with the price of materials increasing — further strain collision shops to the point of collapse this winter? Record-high prices at the pump grab the headlines, but we’re already paying more in other areas, too.
Recently, BASF Coatings, DuPont and PPG announced price increases on some to all of their products to cover their rising costs in raw materials. And some of these price increases are as much as 25 percent. With oil and gas prices having increased dramatically, one paint company press release stated, “Clearly, we can no longer absorb these increases.”
Natural gas costs are expected to climb as much as 50 to 70 percent higher this winter, continuing to put the squeeze on our budgets. And elevated electrical bills are sure to follow due to more electrical generating plants using natural gas instead of coal.
Escalating diesel costs have shipping companies passing on their rising costs of carrying goods around the country. These increased freight rates will be passed on to consumers, who will be paying more for anything that’s shipped by truck. And this will include anything in your local grocery store to materials used every day in your shop. Some trucking firms are also charging transportation fuel surcharges to partially recover some of the additional fuel costs.
Other petroleum-based raw material costs will continue to rise, too. One example, polypropylene, is used in dozens of applications on today’s vehicles. Other product prices that will be affected will include lubricants, polyurethane adhesives, sealants, epoxies, acrylics, silicones, fiber glass and butyl sealants. The price of these products will be impacted in two ways: rising freight costs and raw material cost.
Additional examples of other industries that are facing a perfect storm of higher energy and other related costs are the airline industry; the air freighters such as Fed- Ex; manufacturers such as Clorox, Proctor & Gamble and Kimberly Clark; the agricultural industry; and the steel industry.
This torrent of rising costs is happening in every segment of business from international companies to Home Depot and Lowe’s to your local pizza delivery guy. In every case, as these costs are being born and absorbed into the supply chain, they are ultimately passed along to the consumer.
So do we hold the line and continue to supply our services at the old prices? In a business such as the collision industry — where every penny counts and bankruptcy threatens even many of our major suppliers — we must make sound business decisions now, if we are to survive in the future.
The facts are:
The costs of your paint and materials are going up.
It will cost much more to heat your shop this winter.
Your gas bill will be higher with every vehicle baked starting this month.
The collision business has always been difficult. Profits are always slim, and it has just gotten harder. What will you do? What will happen if you continue to do nothing different?
If you’ve already worked diligently on your business, your collision facility has likely become much more efficient. You’re writing more profitable, accurate estimates, eliminating re-dos and minimizing your costs as much as possible — while finding ways to increase your production. You’re measuring and tracking everything your management software allows. You know your cost of doing business each day and your facility’s resource capacity. You job-cost each vehicle repaired and know the profit your shop makes on each repair order.
If you’ve taken all these actions, good. But guess what? In the coming months, that will probably not be enough to protect your bottom line.
When you make lemonade, you can only squeeze so much lemon juice from the lemon — no matter how hard you continue to squeeze it. If you don’t know how many lemons it takes for your shop to make lemonade and turn a profit, take a serious look at your costs now, today.
Also worth noting: The people who work for us and their households are being affected by these same costs. Each body technician, painter, estimator, receptionist and detailer now pay more for the gas they use to get to work each day. They all will be paying more for heating and electricity and the goods they need to sustain their families. How long will it be before they demand raises? If this isn’t addressed, will you be able to blame them if they leave?
We cannot continue to perform more tasks with less people and less capital any longer. If we are to survive these rising costs, we must look at our prices and profit margins. We have to dramatically change the reactionary, fragmented, crippling nature that we, as an industry, have displayed in the past and take control over our own futures. If our rates and charges are too low to sustain our businesses, then we must pass our costs on to the market and raise our prices immediately.
With across-the-board increases, it will be increasingly impossible to stand pat and do nothing.
Writer Jim Young is the collision process instructor for Manheim Technical Center in Stockbridge, Ga. During his 20-plus years in the industry, Young has been a body tech, collision shop manager and independent appraisal business owner. Young is an I-CAR Instructor, an ASE Master Collision Repair/Refinish technician, a GM-certified body/refinish technician and a Toyota Collision Repair & Paint Specialist. He also recently completed the Automotive Management Institute’s (AMI’s) Accredited Automotive Manager (AAM) designation and is working toward completing his bachelor’s degree at the University of Louisville.
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