“Why are autobody shop rates at the bottom of the barrel,” you ask?

Because the body shop owners allowed it to happen.

There’s a common understanding – or should I say, misconception – in the body shop business today. That is, insurers have total control over rates, repairs and the industry in general.

I would argue that point.

Don’t Eat the Chicken

Indulge me for a moment or two and imagine a scenario in which an
entire statewide autobody repair association held its annual meeting in Chicago. And for the sake of the story, imagine that every shop owner in that state was in attendance.

Most of the shop owners at the luncheon on the second day ate the rubber chicken dish that the hotel bought in great quantities from a South American vendor with a truckload of the prepared meals. As one might suspect, the containers of chicken sat in this truck – unrefrigerated – yet crossed into the United States nevertheless and headed for Chicagoland.

Sadly, all the shop owners who ate the Salmonella-laced chicken died that evening.

There were some at the luncheon, however, who didn’t eat the chicken. They had the salmon plate and lived.

This left only 20 surviving shop owners in the state. The rest of the body shops in the state were closed indefinitely, leaving the sick fish eaters to cope with the workload of cars stacked up over the weekend. (Yeah, the fish got funky, too, but the symptoms were limited to nausea and vomiting.)

Put yourself in the place of the survivors. Suddenly, you have all the work you can possibly attempt to repair – and then some. While you’re literally pulling out your hair trying to catch up, man the phones and write estimates on the flood of cars at your door, a number of insurance adjusters are also in your office. Their workload of claims is the same, but things have changed dramatically, no?

As you’re coping with this odd situation, an adjuster enters into his normal routine of negotiating, which as most of you know, isn’t much of a negotiation at all. But since you’ve come this far with me, imagine the fellow from a major Illinois property and casualty company opening his mouth and denying procedures, parts, road test time, rates, etc. What do you do? You’re thinking, “I don’t need this bull$#@! …” And then a strange smile comes across your face.

The tables have turned.

Now you are in control. Where are those cars going to be fixed? Will that Illinois carrier have them all trucked to a NAFTA safe haven for the repairs, or will they understand that the shops are indeed holding all the marbles? Now they either pay the prices to satisfy the abruptly altered market for body shop work or total all the cars.

The point I’m making is that it’s the market and availability for repairs that ultimately controls the prices for collision work. And that’s all.

Supply and Demand

Every time a shop accepts an
offer in settlement of a claim on an insured or a claimant’s car, it establishes what’s possible in terms of payment for goods and services. As the ranks of any qualified repair professional thin, prices go up. This is basic supply-and-demand economics.

If you don’t believe me, try finding a shop that can straighten the frame on a $20,000 Harley-Davidson and see what they charge (a lot more than you get for your time, I’d be willing to wager).

Getting back to Illinois, a virtual gold rush is in play in that state. The survivors are cleaning up and out-of-state operators and consolidators are buying up the closed shops from the estates of the deceased conventioneers. Rates have increased dramatically, and all previously denied procedures are paid with nary a whimper from the insurers. Things are great.

Within a few years, though, the market stabilizes, and the third-party payers regain some ground. But what’s interesting is that the rates and prices paid in the Land of Lincoln never go back to pre-convention status. The market for collision work in cities like Chicago and Springfield exist like the anomaly of San Francisco, a place where a major market adjustment occurred in reality.

When an insurance representative trying to settle a claim in your shop comes off with that familiar swagger – as if he can actually “pull” a job out of your shop – that power he has over you is only that which your fellow shop owners have given him. But for them succumbing to the same racketeer-like tactics (do this or else), that man with the palm pilot would be powerless.
Remember, those people have a job to do and it’s primarily to settle claims, to see to it that their insureds get out of the rentals and to contain the cost of the claim.

Just Say “No”

I’m constantly reminded in my day-to-day work with shop owners and insurance companies just how emasculated the industry has become. It’s as if most shop owners have given up entirely their ability to price their goods and services. They’ve allowed insurance companies to dictate their prices, procedures and even where they buy parts and supplies. It’s a virtual abdication of the industry’s business to third-party payers.

But I’m here to tell you, friends and neighbors, that this is a fatal mistake, a phenomenon based on a myth. The idea that a payer can set the prices for a provider is entirely false. It only occurs when the provider believes it’s possible. And an alarming number of you do, I’m sorry to say.

If shop owners weren’t as eager to fix every job that came their way (because they’re heavily leveraged in terms of overhead and debt), things would change. The good news is that there are cars on the road today that require an increasing amount of expertise to repair.

The new 5-Series BMW, for example, requires specific training to service its aluminum front inner structure. For those with the training and certification, it’s a great deal – a provider’s market, if you will. A shop I work with in New Jersey gets $121 an hour for structural repairs on those cars. The point is, there is opportunity for those with a sense of the market.

So the next time you read something or listen to someone say how the insurance companies control you, think about the shop owners doing the funky chicken in Chicago. Look in the mirror and realize that it’s the industry at large that controls prices for collision repair. It’s always been that way, and it always will be that way. You don’t compete with third-party payers or their estimating systems. You compete with each other.

Writer Charlie Barone has been working in and around the body shop business for the last 27 years, having owned and managed
several collision repair shops. He’s an ASE Master Certified technician, a licensed damage appraiser and has been writing technical, management and opinion pieces since 1993. Barone can be reached via e-mail at [email protected].

Next time: What you can do about it.

For another article – with a radically different opinion – on why the industry’s labor rates are so low, click on the article titled, “By Door Rate Dollars, We’re In the Dumper,” written by Washington shop owner Mike West.