"The Hidden Financial Crisis In The Collision Repair Industry," an article written by D.J. Styles (penname) (Autobody News, 6/05), presents an insightful account of some of the practices that have rendered the collision repair industry increasingly profitless, practices which the author contends also led to the recent collapse of the consolidator M2 Collision. 

Strom

In the above mentioned article, to which I refer here, Styles reminds us that, "Literally thousands of body shops have closed in this last year, and several thousand more, including other consolidators, are on the verge of a financial restructuring, or worse… (in large measure because) the business practices of a few converging entities have created an economic reality that will no longer supports the operation of a collision business that complies to all of the required standards. Worse yet, many of the obstacles to profitability are creating an environment that will not even support repairs performed to pre-accident condition."

Insurer interference

Styles is right on target in describing how increasing insurer interference in the collision industry has caused a state in which "…it is not the ugly backyard body shops that are not complying with the industry standards, and therefore failing. Ironically, the hardship is borne foremost by those that do comply - the independently-owned and professionally-operated collision repair businesses that provide repairs according to pre-accident standards. The cause and effect is a shocking essay of lying, cheating, stealing and deception on a massive scale!"

He lists sources of problems that, cumulatively, have contributed to the financial crisis in which most collision repairers find themselves:

• Inaccurate information that has been spread far and wide by the influence peddlers.

• Ineffective industry leadership which has left the illegal, unethical, and illogical business practices shrouded in a camouflage of deceit and ignorance.

• Purchasing agreements that lock shops into dead-end deals that result in no profit and poor performance.

• Insurance practices that coerce busi-ness into illegal and fraudulent activities.

• Mandatory systems used to bill and manage that are biased and tilted toward the buyer, leaving the seller with inaccurate information and inadequate compensation.

• The above has resulted in collision repair businesses operating on low to no margin, not even covering cash-flow, in many cases.

•This has resulted in the devaluation of collision repair businesses to the point they are worth nothing, from which organization after organization, with their mandatory products and services, siphon the last dollars from the shops.

Misinformation abounds

How often, at a trade function or exposition, such as NACE, have we heard tool vendors spout off absurdities such as, "Your lowest paid employee can set up and measure any vehicle on our frame rack, and do it in just 15 minutes!" We may fume at this outright lie in his enthusiasm to sell tools or products, but the real damage these mongers do is in sowing such lies to the many insurance representatives who pass by their booths that, giving them the benefit of the doubt, are looking for ways to cut the costs of repair and possibly don't know any better.

Multiplied vendor lies and/or misinformation soon become that from which insurer estimates are compiled - to the shops' disadvantage. Such misinformation by tool suppliers, paint and material vendors, crash parts suppliers, crash data program compilers, loose-lipped association and industry "leaders," and the like, have set the stage for serious insurer hacking of shops' estimates.

Styles gives a typical example: "Numerous presentations by leading vendors and consultants wanting their 15 minutes of fame at industry events have been filled with inaccurate information that has helped to hide the crisis. At several CIC meetings and industry advisory group meetings, erroneous facts were shared that… insurers and vendors in the audience take as gospel, and make critical judgments and demands based upon it, leading to a further erosion of profits and business value."

Styles points out that such misinformation presented in a recent database and estimating system advisory meeting attended by insurers and vendors, incorrectly led those in the audience to believe, "…the average operating overhead of the body shop was approximately 25%, and therefore the shop (in the example presented) made reasonable profits. However, if the correct information were used, it would illustrate that the average shop's overhead is nearly 36%, and therefore the shop would have an operating loss!"

He continues that in another CIC meeting a poorly informed industry consultant stated, in so many words, that the decision to repair or replace a panel or part is based, not upon the most appropriate and proper method of repair for the vehicle, but purely upon the most economical method. Such misinformation is a great disservice to the honest exchange of communication between insurers and shops.