Will Insurers Eventually Purchase All Parts Directly from OEMs, Eliminating Shop Profits on Parts? - BodyShop Business

Will Insurers Eventually Purchase All Parts Directly from OEMs, Eliminating Shop Profits on Parts?

I’m going to play the devil’s advocate and say, ‘Yes, but only if we continue in our present path of doing nothing to stop them.’ We wouldn’t even be discussing this problem if all shops realized that the repair contract is between you (the shop) and the vehicle owner. Contrary to common, but misinformed belief, there is no contract between the shop and the insurer.

Let’s look at this from different angles.

Insurers are creatures of habit – such as working to eliminate anyone or anything that doesn’t immediately profit them or appears to be in their way – never being satisfied that they’ve wrung the very last penny out of shops and never getting their hands dirty in the process. Liability issues will continue to be passed on to repairers.

Insurers couldn’t care less whether you or I exist, let alone succeed. Knowing that, were the number of shops pared down to half or less, this would further increase, not decrease, competition among shops, giving insurers greater profits and control.

Why would insurers want your parts profit? Daah! Simply, your parts profit is a very large, untapped source for them. How much of it they’ll gain will be determined by the resolve, or lack thereof, of the collision industry.

Insurers have been salivating over shop parts profit for years and will find creative ways of spiriting away this one of our precious few remaining profit centers. The majority of shops are still unbelievably stupid to financial matters, so insurers will first work parts profit out of this majority – but only if they continue to view insurers as their employer. … Under the present backward business plan most shops employ, parts discounts will increase over a period of time.

DRP NETWORKS will be instrumental in the insurers’ push toward eliminating all shop parts markup, since network shops don’t have a solid customer base and need insurer referrals. Network programs will provide the firewall insurers need to distance them from infringing on their tax-exempt status. Comments from some shops that believe insurers will purchase all our parts concede that the channel of insurer-purchased parts will likely be through a limited number of large dealers, rather than directly from the OEMs, offering insurers large discounts for large volumes of business.

Dealers have already been approached to sell direct. It’ll start with DRPs, then move to independent shops because they’ll be told, ‘Everyone is doing it.’

… Why should insurers want to get neck-deep into the parts business when they’ve formulated and perfected control of the collision industry through intimidation? … Insurers are in the business of risk management; they get paid to take risks and will do anything they think would or could make them more profitable. Shaking down shops for parts profits could achieve this goal.

Shops presently do the dirty work for insurers – and with NO risk to them. As always, it’s simply a matter of incrementally turning up the pressure on shops, preying on the weak shops that feel they must kiss the insurers’ fanny in order to remain in business.

Whether some or all of the OEMs would sell parts directly to insurers – and if so, under what conditions – involves too many variables to comprehend. While the OEM has some interests in common with the collision repair industry, they always have and always will be looking out for themselves. The OEM isn’t above turning on the collision industry if it’s to their benefit. However, I don’t see the OEM selling directly to insurers because they know that this would put them in the same relationship that has brought about crippling insurer control of the collision, drug and medical industries. And the OEM is well aware that damaging the relationship they have with most dealerships (direct selling of parts to insurers would cut many smaller dealerships out of parts sales) would spell financial disaster for most dealerships. On the other hand, the OEM is losing market share to imitation parts.

Insurers, despite how they might praise the virtues of so-called ‘CAPA certified’ parts, know that the constant flack they’ve taken from forcing use of imitations has irreparably damaged their image and caused them to tread on treacherous liability-ice for years. If, then, insurers could secure an arrangement with the OEM that would not leave them in a boxed canyon, one that would eliminate the use of imitation parts altogether and include greatly reduced OE part prices, both entities might be interested. But the OEM is smart enough to know that – although in the beginning, the distribution process might be simplified – before long, they’d become the delivery boy for insurers.

Just working out the details concerning which entity (insurer, OEM or shop) would deal with the return of damaged or unused parts would be interesting. But in the end, count on it being we shop owners who get stuck with the dirty details. I can hear shop owners protesting, ‘I refuse to handle parts for no profit.’ But consider, where will you purchase new parts if all new parts are sold only to insurers?

Is it possible that the threat of insurers purchasing parts could backfire on them? Recent events concerning Australian repairers have shown that there’s actually a depth to which repairers won’t sink in preening their relationships with insurers. A significant number of ‘down under’ repairers are refusing to work for peanuts and refusing to bid online for vehicles to repair. These Australian repairers have been so successful in their resistance that the largest Australian insurer is rapidly losing its policyholders to competitors. There’s potential that this parts purchasing issue might finally unite American repairers to assemble their collective family jewels and tell the insurance industry to back off.

Insurers, though, are more tactful than this and will obtain their same objective by steadily continuing to reduce our profits in more subtle ways. The stage has been set by a fair number of shops that are presently giving insurers hefty discounts on parts. Deeper parts discounts are merely a matter of increased insurer pressure on shops – and of shops continuing to give in to their so-called ‘insurer partners.’

Insurers know that their venturing into the purchasing of repair-related parts would tie them closer to the repair business, thus infringing on their present exemptions under at least the McCarran Ferguson Act. So, they’ll continue the same threat game they’ve always played so successfully: ‘If you shops don’t give us deeper (and deeper and deeper) parts discounts, we’ll get into the parts-purchasing game and take away all your parts profits.’ And yes, insurers do know that most shops have discounted their labor severely to please their insurer partners, banking on the hope that they’ll still have parts profit to live on.

What a bunch of simpletons the bulk of the collision industry is – stupidly playing into insurers’ hands and foolishly hoping they wouldn’t grab the one profit center remaining to repairers. All this, when, in reality the repair contract is between you (the shop) and the vehicle owner – not between you and the insurer. … The vehicle owner owes the shop full compensation for work performed, no matter whether the insurer or the vehicle owner actually cuts the payment check. Insurers are correct when they tell you: ‘We don’t owe you anything.’ Compensation is the responsibility of the vehicle owner, not the insurer.

If insurers can benefit from the boneheadedness of the vast majority of the collision industry, that’s their prerogative. But if you’re foolish enough to give insurers concessions, then you have no one but yourself to blame.

Under the present shop modus operandi, shops will still be ordering (and delivering, inspecting, storing, returning, financing and bookkeeping) all crash parts, most likely from a limited number of mega-dealerships, and all at little to no shop profit. And, as always, what infects DRP shops also will infect non-DRP shops…

Seriously consider this: Most repairers have given insurers carte blanche to motivate them through threat, innuendo and intimidation to give away our profits. … But insurers want nothing to do with purchasing parts – they only want the profits that you and I are legitimately due for handling these parts. And insurers aren’t above threatening to handle parts to shake down shops for this prize.

Why is it so hard for you as a repairer to understand that every time you play the insurer game, in this instance, giving part discounts, you play further into insurers’ hands and make it that much easier for them to foist further cuts and concessions on you and on the rest of the repair industry? Isn’t it time you began running your shop as a true profit center, rather than as a charity?

The answer is simple: Stopping the piece-by-piece giving away of the collision industry starts with you. If you don’t take control, insurers will be overjoyed to control you.

No. It’s all relative. If they eliminate the parts markup to the body shops, they’re going to have to employ enough people so they can manage the parts – because I’m not going to – and is their savings on the parts going to warrant having that many more people to handle their parts for me? I don’t know about other areas, but in this area, there’s a couple of insurance companies, I won’t name any names, that have people right out of college who couldn’t change a spare tire…

They’ll have to have facilities, too, because I’m not going to be the staging area, and if I’m two to three weeks out on the repairs, I’m not going to hold their parts for that long. I’m sitting at 25 to 30 percent discounts, so what kind of discounts are they going to ask the OEMs for?

[If insurers tried to buy parts direct from manufacturers], some manufacturers would refuse to sell to them, and some wouldn’t. They’re going to look at the bottom line, just as insurance companies and body shops do. But the manufacturers would be opening the door to a whole new area for insurer control. Insurers would start pushing for larger discounts than what shops give so instead of my 25 to 30, they might push for a 40 to 50 discount. It also opens the door to all new facets of liability (something insurers don’t want; they try to wash their hands of liability as it is)…

What will stop insurers from direct ordering all repair-related parts from manufacturers is going to be the shops standing up and saying, ‘No, I’m not going to do the repairs without the parts markup.’

Just put your foot down – finally.

Shops can do that by just refusing to do the job unless the shop purchases the parts. It’ll have to be a standard – if it’s one shop doing it, it’s not going to work.

In this area, it takes a bodyman and a painter to actually do the repair, and I’ve also got a paint prepper, two detail guys, estimator, shop foreman – and I’ve got to have a parts markup to actually turn a profit and feed all those families. If you don’t have that parts markup, it’s going to be very hard to take care of the car the way it needs to be taken care of – to buff it when it comes out of paint, get all the nibs out of it and polish it, make sure you have corrosion protection, make sure the job is done right every time.

Shop owners and managers will have to say ‘no.’ Apparently I’m in a unique area because we’ve got three shops, two of which will not allow a parts discount to an insurance company, and the third is starting to allow it. We’ve been approached by three or four different insurers, and one of them has approached us once a week for the last month about giving them a discount – but it won’t happen with this shop. ‘Well the guy down the road’s doing it – why won’t you?’ he asks.

Because he doesn’t set the standard. We’ve been here 10 years and the other shop’s been here 40 – and the one giving the discount has been here three. We set the standard, he doesn’t. Any time you open a door to some kind of concession, it’s going to spread. It’s like some kind of a disease. One person opens a door and then two more, and then somebody thinks, ‘Well I’m not going to get the business if I don’t give them this discount, so I’m going to let them this time.’ But then ‘this time’ turns into five more repair jobs and now you’ve got three other shops like you having to do the same thing – you’ve forced them into it.

I can see smaller shops that are trying to develop saying, ‘Well, if I don’t give them this concession, how am I going to keep these doors open?’

Find your niche. Concessions are not the only way. Nine times out of 10, consumers want it done right.

Cars have to be repaired somewhere. If we all stick together, we can get where we need to be. Nobody in the body shop business is trying to make a killing or retire rich – we’re just trying to make a living and feed the families of the guys we’ve got working for us. But you’ve got to do the repair job right… That markup helps to keep the doors open. And the insurance company needs us to survive.

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