Strom

An industry leader's paraphrased comments chronicle where direct repair went bad: "I was working as a staff adjuster with Farmers in 1974-75 when they introduced their 'Preferred Shop' program, and I participated in setting it up. At the time, because of fraud on the part of certain shops, I was convinced this preferred shop program was a good idea. And shop concessions were minimal.

"But the big problem came when, after requiring 'Preferred' shops to leverage expensive equipment and facility updates, insurance industry 'bean-counters' began leveraging their influence, first by requiring junk imitation parts. In my opinion, Preferred Shop programs were a good idea that went bad - bad because of insurance industry bean-counters having 'baited' the shops into financing massive expansions, and then 'leveraging' their position with the shops for the exclusive benefit of improving insurers' bottom line."

Insurers will never, ever place your best interests in front of theirs! Why? Because insurers' core objective (saving money) couldn't be farther removed from your core objective (making money). Work with insurers when you can do so without compromising your integrity and reasonable shop profits. But getting too cushy with them has cost shops dearly, and squeezed many out of business.

One good result of Allstate-Sterling is that many DRP shops have been slapped into reality by the crassness and callousness of this insurer (to date more than ten states have proposed legislation to curb this abuse), and the understanding that other insurers will go the same route if A-S makes a go of it. Faithful PRO shops are having their work diverted to Sterling facilities.

• The visibly shaken owner of a large Midwest shop, heavily leveraged for years into Allstate-PRO work, recently told me that though they had faithfully catered to this insurer, since Allstate recently opened a Sterling facility nearby, Sterling was hauling jobs out of their shop (three good Allstate jobs that very week) to the Sterling facility.

• The only remaining shop in a small Eastern Washington town is experiencing the frustration of having local collision-damaged vehicles shipped 180+ miles round trip to a mega-shop. If these practices haven't yet happened in your locale, count on it: The many shops that have heavily invested in floor space, tools, and employees to meet insurers' promises of increased number of vehicles at reduced costs to insurers can't help but wonder "When will the axe fall?"

An Auto Body Association of Connecticut (May/03) article, Labor Rates Rise-DRP On Decline, states in part that shop owners who in the past had signed DRP contracts with several insurance companies seem to be reanalyzing that thought process.

As one shop owner put it bluntly, "Why sign a DRP contract agreeing to give parts discounts, pay for all rental cars in some cases, and do the job for a lowball labor rate when I can do the same job, negotiate for a higher labor rate, retain all the parts profit, and not have to pay for rental cars if the repairs are delayed?"

The article continued, noting that a large New Haven county shop with 13 DRP contracts, after realizing reduced profits due to insurer restrictions in those contracts, sent out 10 contract termination letters, which immediate resulted in increased gross and net profits for the shop. The article concluded, "Many other shops seem to be making similar changes by removing DRP arrangements that are not profitable, (instead) doing their own creative sales marketing to maintain good business volume - a trend that makes good sense."