Paint programs

Additionally, paint company programs supposedly designed to help shops make profits and produce better repairs often spread misinformation and foster alliances that are more detrimental than good to the collision industry. PPG's LYNX Network is one that, having wreaked havoc in the glass industry - in diminished shop profits, increased dependence of that industry on DRP-type networks, and the like - is presently developing the same in the collision industry (read "Through the Looking Glass… Head First?" (BodyShop Business 2/05). In my opinion, when their past record is scrutinized and all the facts are weighed, it's quite a stretch to believe that the primary purpose in venturing into networking, PPG-LYNX being one such, is to make shops more profitable.

To prove his point that "Shops have lost their profit one line item at a time, and one department at a time" Styles points out that while the sale of crash parts makes up a greater percentage of the repair ticket than ever before, insurer pressure to use a much greater number of used and imitation parts of diminished parts-profit for shops, capping, and such practices, has increased cycle-time, rental car costs, greatly complicated the repair process and, in the end, also increased insurers' costs of repair.

Paint and materials take a hit

Shops' paint and related materials profits have also taken a hard hit. DRP contracts and insurer interference in our business have severely stifled paint-related profits. In my shop, we have chronicled that PPG-Ditzler paint-related materials have risen around 8.5% each and every year - nearly 1% per month - for nearly the past two decades. Meanwhile, insurers continue to press for continuing the archaic use of a paint material multiplier based on a severely deflated hourly labor rate (that is seldom allowed to be raised), which labor profit margins, according to experience, are far lower than they were even a few years ago.

Insurers have also stretched out their payment-to-shop policies, stretching them often to a month or more, leaving shops scrambling for capital to cover monthly expenses, while the insurer collects more interest on the money they owe shops. And the collision industry is disadvantaged to most other industries in that we can't even depend on a consistent flow of work, making it difficult to keep key employees and pay bills on time.

Styles points out that one of the biggest failures for collision repairers is that of "set door rates that apply to all shops in a market area, regardless of the shop's compliance to the default standards within the industry. These do not reflect better services, faster processing, additional equipment, higher standards of repair, additional training, equipment, or even higher customer satisfaction."

Deducing the obvious - that shops would profit more, under the present system of reimbursement for services rendered, by not investing their money on any of the expensive business practices and standards, since all local shops are paid the same regardless of their excellence or lack thereof - he concludes, "(Though) Communism has failed everywhere else, it is alive and supported by insurance company practices in the collision repairing industry… The ridiculous estimating and door rate surveying practice has added time, complexity and enormous costs to the estimating process, but has not resulted in accurate estimates, or a lower or higher overall estimate on the same repair… many industry experts have suggested that the estimating process is the single largest cause of the inefficiencies and extraneous costs related to the repair and claims process. It is also seen as the single biggest obstacle to change."

Styles continues that "Rumors suggested that before their demise, M2 was offering some insurers a 15% kickback or rebate in exchange for continuing to steer work their way… Their willingness to work at below real cost fits the description of "dumping", a practice that is illegal and the basis of the numerous trade wars between competing countries."

When certain Direct Repair-type shops work for free, or close to it in an obvious attempt to smoke competing shops, the ripple effects are also felt throughout all independent shops across the country. One shop's attempt to gain volume for discounted prices is used by insurers to leverage all surrounding shops to comply, if these want to continue doing business with these insurers. The net result of this downward spiral is that good shops turning out quality repairs are forced out of business, along with insurer-compliant shops and consolidators such as M2 that have initiated and perpetuated the downward spiral. The end result can only be a diminishing of the mythical "industry standard" of repair, and a slack attitude toward ensuring vehicles are repaired accurately, with safety as a prerequisite.

Some third-party administrators are busily establishing networks to attract insurers for enormous quantities of cut-rate work steered to the collective doors of certain network shops that play their game. Various entities of the OE are beginning to play the same stupid game with us, as are those who produce the estimating systems we use. Whether such arrangements are legal or not, which remains to be determined, hasn't hindered their ever-increasing razing of the collision industry.

Enforce the consent decree

If the 1963 Consent Decree were enforced, according to its wording this still enforceable document would render, among other collision industry maladies, all collision databases and their related estimating systems illegal and unusable. Though each of the current estimating systems caution that they are nothing more than a general rule of thumb for compiling general estimates, and not to be taken as absolute, these have become in insurers' hands a tool to tweak, manipulate, and otherwise use to their own advantage, at their own will, to force compliance of the many shops that don't know any better… and in turn, to reduce the profit margins of all other shops.