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Page 1 of 2 Twenty-seven years after opening my business in 1979, I'm trying to figure out how our industry went so wrong. Although I have learned many things in those years, I haven't learned how to produce a profit consistently.
 | | Amaradio |
As soon as things start looking like I've finally figured them out, some new challenge arises. It may be with an employee or an insurance company or even a government agency, but something always comes up that keeps me on my toes and requires me to pay attention or else. I keep thinking back to how I started - how difficult it was to build a business and develop relationships with various insurance companies. Naively I thought that one day I would arrive in Body Shop Heaven and my troubles would be over. I imagined having a really nice, well-equipped shop, where people just dropped off their cars, we would fix them and they would be on their way - where I didn't have to sell every customer on our credentials; somehow they would already know. They would have confidence based on our reputation - a dream come true. Body shop heaven My impression of Body Shop Heaven arrived in the form of a DRP. I made an agreement with a large insurance company and off we went. When there was more work than we could handle, the shop expanded; more work necessitated expanding again and again. I had finally arrived with a nice facility and customers dropping their cars off as fast as I could fix them. My profit margins were over the top, I was making money - and I loved it. My insurance accounts were so valuable to my business that I would do anything they asked. After all, they were supplying me with more work than I ever Where did you get those numbers? All of my statistics were based on what I charged in 1979 and the rest of my research came from three sources, which were internet based, at inflation.com, and the American Institute for Economic Research and The Shrinking Value of the Dollar from infoplease.com. Please remember the 2.745 was the actual number determined to be the average for the entire country. My second calculation of 4.65 times is what I determined to be within the collision industry for my California-based location. Your numbers may differ slightly but it shouldn't be enough to matter much because we are all being paid well beneath what we should be. Based on my actual cost of doing business today with regard to materials, government agencies, software and hardware, business insurance, and the cost of employees in California compared to 1979, I determined that my cost to operate a collision business today is 4.65 times more than in 1979. |
imagined, so what if they wanted me to do something for free. I was making a profit and they treated me very well, so why not give a little extra. The change happened subtly. The more I gave, the more I was being forced to give. It also seemed that I wasn't being treated as well as I used to be. My "direct repair partners" become more demanding and threatening, My shop hadn't changed our way of doing business, but suddenly insurers started acting differently. Don't get me wrong. I love the DRP concept because it is a win-win situation for insurance companies and for body shops. I'm smart enough to know that DRPs save the auto insurers a ton of money; conversely, they are smart enough to know that the DRPs make the body shops a ton of money. There are now major differences in my profit margins since first entering these agreements years ago. My profits have diminished to the point that I am being forced to reevaluate my relationships with some of my DRP contracts. Why am I struggling to pay my bills even though I have all of this work? What has changed? Digging through some old files, I took a journey back in time to substantiate what really has changed. The good ol' days I began by researching what I charged for things in 1979, the year I began my business. The labor rate was $20 per hour for paint and body and $30 per hour for frame labor. Paint materials were billed at $11 per refinish hour. The average metal man/body man - what we called techs back then - made about $35,000 per year in wages. Comparing this to 2006 prices, body and paint labor rate is now $45 at the door, but my DRP rate is an average of $34. Frame labor rate is $60 with a DRP rate of $45. Paint materials are $30 per paint labor hour with a DRP rate of $22. The average body tech's yearly wage is $68,000 per year. Since I am 90% DRP-driven, we will use the DRP rates for this comparison. Considering the cost of living increases over the years, I was concerned to discover that everything related to the cost of running my business had gone up 4 to 5 times. While his isn't a CPI study, it is based on numbers within our industry. Outside our industry, the cost of doing business has gone up an average of 2.745 times nationally since 1979. Using this figure, a body tech's average wage should be more like $96,075 per year. No wonder we have trouble keeping good technicians. According to this model, my door rate should be $55 for body and paint labor, frame rate should be $82 per hour, and paint materials should be $30 per hour. Now remember, these numbers were derived using the smaller, non-industry cost of living increase rate of 2.745 times more than in 1979.
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