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You Determine Pricing

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Writer Charlie Barone has been working in and around the body shop business for the last 35 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.

In an unregulated industry like collision repair, prices are subject to whatever the market will bear. Payers do not control prices. You can use any guide you want, write estimates on the back of your business cards or give written quotes in Euro exchange rates if you like.

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You might have missed a National Association of Independent Insurers (NAII) press release last year titled “Proposed Connecticut Regulation Gives Auto Repairers Free Rein on Pricing.”

Given my fixation on repair prices and the like, I was captivated by the wording of the release. Free rein on pricing? Who ever heard of such a thing?

Free rein indeed! What’s next? Competitive markets?

What triggered this astonishing headline by the NAII was a proposal in Connecticut that would’ve been an official state endorsement of a recognized reference guide with a basis in actual color costs. This is opposed to the voodoo formulas now in use that calculate paint and material dollars with a stop watch. Evidently, the NAII opposes accepted methods of accounting and prefers to chain body shops to a sinking ship.

In the release, NAII local counsel Jay Jackson is quoted as saying: “Currently, insurers and body shops determine the cost of repairs through open channels of negotiation. If enacted, the proposed regulation will increase the adversarial nature of the negotiation process and give auto repairers a way to exert leverage by justifying their repair charges through use of the reference guides.”

First of all, the guide to be adopted in the proposed regulation is the Mitchell Refinishing Materials Guide, long viewed as a far more accurate way of calculating the cost of paint volume sales than the traditional hours/dollars yardstick. That “leverage” he makes reference to is a shift to a more enlightened approach to billing. Evidently the nonsense you’re living with is preferable to the NAII. Why? The actual numbers are usually higher than the arbitrary dollar figures multiplied by refinish hours on the job.

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Jackson must not know that his opposition to the use of published guides and databases could backfire as his own association’s members advocate the very labor guides he condemns. That is, are guides valid when they suppress costs and invalid when they don’t?

But what really triggered my gag reflex was the premise of the NAII reaction. I’m sorry, but the last time I looked, a body shop owner in any state could use an abacus to figure his estimated costs to repair a car if he was so inclined.

In fact, in an unregulated industry, prices are subject to whatever the market will bear. This would include, but isn’t limited to, paint and material calculators published by well-respected information providers whose other products are subscribed to and used daily by the NAII membership.

What really intrigued me is Jackson’s “free rein” comment. If this proposed regulation will unbridle body shops if it’s approved, who’s holding the reins now? The insurance industry? Evidently, Jackson thinks this is the case.

Now before you start throwing balls of masking tape at me for ignoring the obvious effects insurers have on repair price structures, remember that the body shop business is as unregulated as the Wild, Wild West. You can use any guide you want, write estimates on the back of your business cards or give written quotes in Euro exchange rates if you like.

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When I spoke with Jackson, presumably one of the persons trying to hold onto the reins, he said, “It’s only a few shops in Connecticut behind this

proposal. I feel the regulation would be a state subsidization of inefficient shops. What we’re saying is that prices should not be fixed by all these reference guides.”

Amen to that, brother.

Says Bill Denya – of Denya Auto Body in Meriden, Conn., who’s apparently one of the trouble-making shop owners Jackson referred to: “We just want to parallel New York and Massachusetts in their adoption of the guide.”

Considering the neighboring states to the south and north have more or less codified the Mitchell guide for use in insurance claims, you might assume that it’d be reasonable to expect that Connecticut would follow. Then again, the NAII may have felt the pain of paying reasonable figures for materials in those other states and might be trying to prevent a domino effect in the region.

I have news for the NAII and for anyone else reading this: Repairers do have free rein on pricing. Your customer is the car owner, and despite customer losses being covered under their collision insurance, it’s the availability and price of a quality repair that determines the market.

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Think of it this way: If a lady walks in off the street and asks for a price to fix a ding in the door of her new Chrysler, who decides what the bottom line of your estimate is?

You do. There’s no body shop price authority anywhere.

Naturally, shops are going to price work in accordance with customary labor guides and local rates. But is that woman with the Chrysler going to ask about whether you took overlap out of the estimate or whether you used the Mitchell Refinishing Guide? Of course not. She’s paying out of pocket and is only concerned about the bottom line. And that’s where you need to focus.

Jackson, in his misguided efforts to slam something good, has inadvertently let us all in on the not-so-secret secret of the insurance industry Ñ that they do, in fact, exercise considerable control over prices in the collision repair business. Not since that infamous Freudian slip by a Farmers Insurance executive in which he said, “We control the industry,” has that idea been articulated so clearly. The last thing the insurers want you to believe is that you do, in fact, have free rein in pricing.

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But let’s not kid ourselves. The market is largely made up by customers whose resources are limited to those contained in an insurance draft. So there’s your control. But payers do not control prices, and repair costs are ultimately the purview of the providers.

The NAII has stepped in it big time with their opposition to the Connecticut proposal. Those guides are essentially the same hammer they’ve relied on for decades to beat up the competitive marketplace.

But I’m afraid the insurance industry can’t have it both ways – i.e. jump in and out of reference guides whenever it pleases them. As much as the third-party payers would like to be the ones holding the reins on prices, there are no controls on pricing other than those competitive markets the body shop business creates. Body shops are like wild horses in a corral, but haven’t figured out that someone left the gate open.

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]

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