Article: Business Editorial

Stop the finger pointing. How well we do in this trade has a lot more to do with our business skills than with how "bad" insurers are. In fact, direct-repair programs have, dare I say it, made many shops more efficient and profitable.

It was more than 40 years ago, but I still remember sitting on a milk crate in the "circle of bodymen" during the morning coffee break. It was dead winter in New York. All around me, the cars that were brought in that morning were still de-icing, dripping water and slush onto the floor.

This was my dad's store - and a tighter Scotsman you'd never meet - so the heat was set on 55.

"You're cold? Well, move faster!" still rings in my ears (and sometimes it comes out of my mouth when somebody complains about our heat, which is set on 65 degrees).

"What a dark, dirty, miserable business this is!" I thought that day. "I don't want to be one of these old, dirty, meat-hooks-for-hands bodymen when I grow up."

I was 12 years old, and this was the first year of many more to come that I'd work at Dad's shop during school vacations.

Although I'd like to have considered myself a hard-working, industrious young man (and, therefore, the reason for my being there), the truth of the matter is that I got in a lot of trouble when unsupervised. The only way my parents could keep an eye on me was to have me there - at work.

My dad always told me not to be a bodyman and to do well in school.

Honestly, I could see why he said that; the autobody field didn't seem to have a lot of class or be very glamorous in the '60s and '70s.

Well, I didn't do well in school and, by chance, I was unworthily gifted in painting, doing body work and managing cars so they'd be delivered correctly. And although I really didn't like the business in those early days, there I was - because I was good at it and could make decent money compared to the other "non-educated" jobs available.

I call this time period part of the "autobody dark ages." There weren't any specific guidelines for repairing automobiles except, "If it looks good and it rolls, it's right."

Two weeks ago, I had a talk with my 18-year-old boy about digging in and really learning about running our new, terribly under-funded store here in North Carolina. Like me, he's gifted at collision work and painting. Also like his father, he isn't doing very well in school. But unlike what my father told me about the autobody business, I told him what a great business this is and what an interesting, rewarding field the collision industry can be.

Why the big change in my view of the trade? Although some of it is maturity on my part, most of the difference is because our industry has changed for the better.

What brought on this change? How did it change and who's responsible?

Well, like it or not, the insurance industry is partially responsible, and not just the insurance industry in general, but direct-repair programs in particular (here comes the hate mail).

Yes, that's right. The insurance industry has helped to improve the collision industry and to bring it to heights that we may not have reached on our own.

There are always going to be idiots doing low-quality work. But with DRP re-inspections and CSI reports being presented monthly, it's harder to get away with. And while there were always good shops doing quality repairs, there are now more because they're held accountable.

Granted, we all have personal horror stories about dealings with individual insurance appraisers. People are people, and we all meet some of the biggest meatballs anyone could imagine. How good a business person you are will decide how well you handle these "personality deficient" problems by people in the insurance industry.

Last year, BSB Editor Georgina Carson wrote the editorial, "Choosing Sides." Under Myth No. 2, she wrote, "DRPs are evil. Also false. It's how people administer them that creates problems."

A truer statement was never written.

The thinking man will be able to discern whether it's the "insurance programs" that bring us the horror stories or the "individual people" who really cause the major problems.

Like it or not, the insurance industry has been of assistance to our industry, and how well we do in this trade has a lot more to do with our business skills than with how "bad" the insurance companies are.

It was 1979 when the Inter-Indus-try Conference on Auto Collision Repair (I-CAR) came into existence (www.i-car.com). According to Rick Tuuri, I-CAR's director of business development and field operations, it was the National Association of Independent Insurers (NAII) that, during the '70s, realized that nobody really knew how to repair the "technology" involved in the construction of new vehicles of that day.

The NAII was the spearhead that gathered together both insurers and repairers for what was eventually to become I-CAR. Interestingly, Tuuri referred to this as "foreign thinking" for its time. I had to chuckle at this point in our conversation, and Tuuri asked me what was so funny.

"Rick," I said, "this is why I'm writing this piece. Too many repairers still think that it's 'foreign thinking' that insurers and repairers would partner to improve anything."

Do insurance companies care about their shareholders? Do they care about their bottom line? You better believe they do! No different than shop owners. This is called "staying in business."

But I digress ... I-CAR recognized that we needed to find a consistent, safe way to repair unibodies, which were flooding the market. I-CAR integrated MGA Research Corporation (www.mgaresearch.com) to help them solve this problem.

Without the insurance industry and MGA testing, the vehicles we drive today wouldn't be anywhere as safe as they are. And I can't say enough about I-CAR and its "volunteers."

Charts:
Percentage Involved in DRPs, 1998 - 2003
DRP Involvement by Shop Sales Volume

There's also the I-CAR Education Foundation, whose mission is to ensure that the collision industry can keep up with its employment needs. (Go to www.i-car.com/foundation and take a look at the Board of Trustees under "About Education Foundation." It reads like a "Who's Who?" in the automotive field, including repairers, the insurance industry, the paint industry, car manufacturers, technical colleges, etc.)

CIECA: More Partnering
George Avery from State Farm introduced me to Jim Lanning, also from State Farm. Lanning is the vice chair of The Collision Industry Electronic Commerce Association (CIECA, www.cieca.com). Like many of you, I've heard of this group but had little handle on what they really do.

Lanning is excited about the direction the industry is going and sees a future where the industry is standardized electronically - making dealing with one another more streamlined.

Does anyone remember when you couldn't send a fax to another fax machine unless it was the same type, such as IBM to IBM? The electronics industry got together and decided it was best for all to "standardize" the system for sending electronic information through phone lines. CIECA is working on establishing the same thing for the auto repair industry -only this project dwarfs what was accomplished with our fax machines.

This monumental task was created in 1992 by shop owner Erick Bickett. (Bickett is also the founder of FIX Auto. FIX Auto has more than 150 locations in the United States, with an additional 130 locations in Canada - www.fixauto.com.)

CIECA now has more than 100 members from all walks of our industry. And, again, all the people involved in CIECA are volunteers. According to Bickett, the insurance industry supports about 70 percent of the cost of CIECA.

I spent more than an hour on the phone with Bickett, and it was one of the most enjoyable conversations I've ever had with another collision person. Bickett is eons ahead of me regarding the "intellectual" market (and I mean light years), but we're on the same page concerning the insurance industry.

Although Bickett is quick to admit that there are always those in the insurance industry who "don't see the big picture," he says that the "good insurers" recognize that they need us. I consider Bickett a 1 percenter. As he told me, he isn't one to complain about problems. Rather, he goes out and does something about the problems.

He told me the entire industry is really directed by a very small collective of the auto industry (my guess is that this may also be true of the insurance industry). Nearly everyone wants to complain, but only a few want to go out and change it.

Bickett also told me that in 1990, he had one location doing about $3.5 million a year (nothing to sneeze at). But because of DRP requirements regarding cycle time, he was able to get vehicle turnaround from 16 days to 12 days - and eventually to eight days.

"I simply got more volume from the same square footage," he says. Why? "Because I became more disciplined."

The results: Tremendous growth from one store at $3.5 mil to six stores at $20 mil a year.

Interestingly, even though many say that DRPs have wreaked havoc on shop profits, I've found the most profitable, quality-driven shops seem to be the ones on DRPs.

For example, David Fait of AutoBody World (www.autobodyworld.com) in Phoenix, Ariz., is building his seventh shop. He's on DRPs for 60 major insurers and keeps a 96.2 percent customer satisfaction rating with more than 10,000 customers. Fait personally develops computer programs that measure quality and on-time performance.

Fait started out as a bodyman and painter in the family business. Fait probably has more business savvy than most of us, but that doesn't mean we can't cultivate those skills.

I would imagine that shop owners who don't have the business savvy of insurers or of other shop owners aren't going to be able to turn a profit on DRPs. It requires a sharp mind and accountability to stay within the perameters of DRP contracts. It also takes a good business sense to know when it isn't profitable to stay with a particular insurance company.

Jake Snyder wrote an interesting article, "Getting Noticed" in May 2003. In it, he lists what you need to do to get on an insurance company's DRP. It's what I believe every shop should strive for, DRP or not. He wrote:

"To help you know what to expect, insurers usually focus their attention on the following basic shop performance measures:

• Assignment to estimate time: response time to new repair or "inspect only" assignments.
• Repair pricing: average size of estimate compared to rest of market; supplement frequency and average size of supplements; parts usage; and P-page usage and estimate line-item "add-ons."
• Accurate data entry: fill in all the blanks on EDI claim-repair assignments (electronic assignments transmitted to shop and subsequently uploaded to insurance company).
• Cycle time: in-shop to delivery times based on size of damage area or drivable or non-drivable.
• Frictionless relationship: with customers and insurance company personnel; conflict resolution; good communications; and understands customer needs."

It's not a bad idea to go down this list and rate yourself on a 1 to 10 basis. If you don't register an 8 to 10, I suggest you start working on your grade. Productive, profitable shops - DRP or not - will score high in these ratings.

Everything on this list will improve your process and bottom line. If you doubt me, join a 20 group set up by your paint company. There you'll have the opportunity to grade yourself against other comparable shops.

What I'm getting at here is that, over the years, many shops have "cleaned up their act" to get DRP contracts. Even when those who perceive DRP association as "prostitution" see their competitor improving his shop to get a DRP contract, they, too, often upgrade their shop to stay competitive. In some cases, the competitor even improves on the DRP requirements to prove he's "better" than the DRP shops. And all this improves our industry.

A cleaner shop is an industry improvement. So are better working conditions for employees, more formal education in general (I-CAR, ASE and paint company certifications), more shops giving written warranties, etc.

Years ago, only the best of the best would have spent the money for computers and estimating systems without the need to do so (for DRP requirements). When I convinced my sister that she needed to buy a good estimating system if she wanted to go the DRP route, she called me back -amazed at the amount of additional money she saw at the bottom of the estimate.

Did this help to improve her business even before her DRP contracts? You bet!

How many shops had bench frame machines before they were required for DRP contracts? My bet is that most shops purchased frame machines to get on DRPs, not because they knew they'd make more money with them or because they cared about the backs of their technicians.

Cars are repaired more accurately in less time and technicians have improved health because of DRP requirements.

Also, the re-inspections required by DRPs have created a new way of thinking in our trade. While many repairers dread them, I've always told my inspectors that I have an open-door policy. In the "dark ages," if an adjuster went into a shop uninvited, he risked getting shot. I can remember "escorting" more than one appraiser out of my dad's shop.

Do I have to wonder why that was, if we were proud of our work and repaired the vehicle according to the estimate?

Re-inspections have greatly improved our overall work quality. These re-inspections aren't designed to "catch" us doing something wrong but, rather, to hold us accountable to the estimate we write. Like it or not, the customer and insurance company have the right to get what they pay for.

By capturing this information, shop owners can target where they need to improve and then can increase profits and customer satisfaction ratios.

There have always been some meatballs at insurance companies who think they can produce better numbers by telling appraisers to cut back on operations in some way. How well you handle this problem will depend on your business skills. Time given for procedures are better enhanced by a thorough understanding of the P-pages and included and not-included operations.

Recently, I had an appraiser in on a Nationwide claim. We aren't a DRP for Nationwide - although we'd like to be. We had a 2004 Toyota Camry blasted in the right front nose. The Nationwide guy in here on a regular basis has always been fair. He has an I-CAR education and a lot of company education.

We got down to the brass tacks and when going over his final estimate, we got to the last operation - a blend on the left side fender.

"We don't have to blend white, do we?" he said.

I couldn't believe my ears. This guy is pretty dang sharp, yet he thought that white always matches. Now generally I just tell the appraiser to enlighten me as to what brand of paint they want me to use and where they want me to buy it from - and I'd paint the car with it. Then, when it doesn't match because we didn't blend, they'll need to come back out and pay for a separate blend "refinish" operation. (This works better when they're paying for a rental car.)

Having done my homework on the color (DRP experience on notations for operations needed), I knew we had four variances for this color.

"Joe," the Nationwide appraiser, tells me to look at the amount of paint time on the vehicle's damage so far. He then says, "I just gave you the farm, and now you want a blend on top of it?"

"Joe," I say, "all you gave me was what the CCC program said the operations produced. You've been fair so far. What's the problem?"

Well, the problem was that they audit all his sheets and when white shows a blend, he gets questioned.

We worked out this simple dilemma so both of us were comfortable. I'm sure all of you know the circus act involved here. Simply adding a little time somewhere else in the estimate where the appraiser won't get questioned is easy enough, and that's just what we did. An hour moved to clean-up time worked for both of us.

Should we have had to do this? Heck no! And I'm not saying that this should be the answer every time. But on a $6,000 claim, I'm not going to make unnecessary negotiating problems when I can still get my last hour paid. It's a simple enough thing to get around. Yet I know people in this business who would have made a mountain out of this.

In the end, we performed a quality repair and turned a profit as well. And that's what it's all about!

I know what I'm saying can be difficult to see when you're in the "trenches," trying to negotiate a fair price for repair work. And often the insurance representative we're dealing with has little understanding of our struggles. But he has his own pressures - mostly from above - to keep his percentages in line.

I believe how well we do in our businesses depends not on who takes whom to court and wins, but rather, how educated and business savvy we are.

In an interview with Greg Horn, V.P. of Material Damage Claims for GMAC, I couldn't help but ask him about the "stranglehold" insurers are said to have on our industry's rates. (I asked this question to all the insurers I spoke with, but Horn had the quickest answer.)

"It's a free-market issue," he says. "The repairers set the rates, not the insurers."

This reminded me of Charlie Barone's April 2004 article, "Who's Really in Control?" Barone's description of a chicken dinner that killed nearly all the shop owners certainly exemplified the reason for rates being what they are. "It's the market and availability for repairs that ultimately control the prices for collision work," wrote Barone.

Horn used the example of the West Coast to illustrate this point. The San Francisco area has the highest rates in the country. This is a high-rent district with a matching high income. Further south, in an equally high-rent district in California and also a high-income area, the rates are $20+ less an hour.

If insurers truly controlled the rates, why this variation?

Recently my business partner/office manager/boss/wife and best friend asked me why we only get 38 bucks an hour for auto collision and 60 bucks an hour for RV repair. (Following the lead of AutoBody World's David Fait, we delved into RV repair.) "That isn't right when it's the same insurance company," Debbie said.

I did my best to explain Barone's chicken dinner story to her, but I think the real-life scenario of what we had to do when we took over this new business last year made a bigger impression on her.

One of the first things I did when I came into our new store was to increase our shop door rate to $42 an hour from $36. The first appraiser (non-DRP) who came to write a sheet agreed with what I wrote but told me the prevailing rate in our town ("When did they start using towns instead of 'areas'?" I thought) was $36.

I told him that there were only two body shops in our "town." Our competition charged $36, but this one (mine) charged $42. Knowing that we'd never get the $42 I was posting, I told him that we'd settle for $38 for now. We got it, and soon, all but a few of the insurance companies paid the $38.

"So," Debbie said, "why do we get $60 for the RV work?"

I replied: "What does our friend David Blue get down the street for his RV repair at his RV sales dealership?

"Sixty dollars," she said.

"You see, sweetie, we repairers set the rates. The RV people are just plain smarter than us autobody folk."

Some DRPs will always pay two bucks an hour less than the prevailing rate. If this bothers you, get your prevailing rate up to a number you can feel comfortable with.

Do I like the fact that I get paid $22 an hour less from the same insurance company for auto repair? HECK NO! But I don't blame the insurer.

It's our job to charge the appropriate amount an hour. In my last store, I got the rate up from $34 to $40 in just four years. It seems that in this part of the country, it may take longer to make that kind of progress since my competition still hasn't raised his rates to match mine.

The last store I managed had three DRP contracts when I took over, and two of them were leaving because of the constant turnover in managers. Before I left, we had 11 DRP contracts.

The idea with any DRP contract is to think of it as an advertising campaign. If you do well within the DRP agreement, you should have a very high CSI score, which means you're building a large, loyal customer base.

You should tell customers who come into your store because of the DRP affiliation that they have the right to go to any collision shop they choose and then show them why you're the best choice - regardless of DRP affiliation. You do this by giving them tours of your facility, by showing them your equipment and educational diplomas on the walls, and by explaining the paint manufacturer's lifetime paint warranty and your shop's repair warranty.

I've only had a few customers leave after I explained that they didn't have to use me - and most of them returned to say that they wished they had.

Being one of the best has its advantages.

When Allstate had a customer who they needed to be sure was completely satisfied, that person was generally referred to our shop, even though there may have been other contractors closer to the vehicle.

In general, DRP agreements have worked for me and my family. And I've learned to work within "policies and procedures" as long as they don't infringe on a quality job.

But I'm also a bit of a hard head and don't mind bucking the system when justified (kind of like I did with this article).

When I took over my last store, we had a new GMC pickup that was in the middle of repair on an Allstate assignment. The new frame was about to be rolled under the cab. It should have been washed. The customer was furious because the call was made to repair it, and this was no ordinary customer. The owner of the pickup worked for another insurance company that I later became a DRP for.

The Allstate employee in charge of our territory and I had a conversation about this vehicle, and the subject of it being a total came up. I said that I never would have repaired this vehicle. His response was that he didn't feel comfortable having one of his repair facilities telling him they wouldn't repair a collision loss if they were told to.

My response? "How comfortable are you going to feel when you have to buy this vehicle back because it blows the line?"

Four years later, the same man sat in my office and told me that I pushed the envelope too much on R&I of parts, referring to a quarter glass removal on a blend panel. I had checked the encapsulated trim for lift tape masking, and it wasn't a possibility.

He told me that he had shops in his territory that would mask this glass all day long. My answer was simple: "I'm disappointed that we have that many shops willing to do poor work on our program, but we're not one of them."

Was I taking a chance on losing our contract? You bet I was. But I knew that he'd be hard pressed to find another shop that would do the job we did.

I should mention that this same man taught me a lot about P-pages and notations on estimates. And even though he was a hard case, the knowledge I gained about writing a tight, well-documented estimate was well worth the aggravation he gave me in the long run.

The DRP requirements of insurers have helped me to improve our cycle time, enabling us to get more repairs accomplished in less time in the same floor space. As Bickett said, we simply became "more disciplined."

Don't get me wrong. I've also entered into contracts that were too time consuming in the administrative end, such as Farmers Insurance Co. The amount of procedures required to execute their information need was just too confusing and didn't fit in with the majority of contracts we had. When we bought this new store, I decided not to re-sign with them. Using good sense will help avoid the pitfalls. (But there are lots of good articles on this subject.)

I personally believe that our trade is at a pivotal point in time. It can get better or it can get worse.

There are many people (both insurance and collision) who are working hard to improve not just their own businesses, but the collision repair industry as a whole. These are the people who, when something really bothers them, go out and find ways to improve it.

Then there are those who do nothing but tear down our industry by complaining how miserable it is and blaming everything and everybody but their own lack of business skills. No wonder it's hard to get young ones interested in the collision business today.

I've been told that insurers only care about vehicles being repaired properly because they want to retain customers and improve their bottom line. DUH! Is this a bad thing? There was a time when insurers could've cared less about retaining customers. The age of competition is here, and only the best insurers will survive ... as well as only the best repairers.

Original article available on bodyshopbusiness.com.