Wednesday, 20 June 2012 20:08

Birmingham, AL, Shop Owners Drop State Farm’s Select Service Due to PartsTrader

Written by  Melanie Anderson
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Several Birmingham, AL auto body shops have dropped State Farm rather than be forced to use its new PartsTrader procurement software within its Select Service Program. Auto body shops in Birmingham are located in one of four test markets where the pilot PartsTrader program, an online parts ordering/bidding software system developed by a New Zealand firm, is being tested.

Usage of the PartsTrader software has been required by State Farm in four test markets nationwide: Tucson, AZ, Birmingham, AL, Grand Rapids, Mich. and Charlotte, NC. Approximately 10 percent of State Farm Select Service shops are participating in the pilot.

According to a report released by the Automotive Services Association (ASA), 17 Select Service shops in Birmingham, AL, removed themselves from the program prior to any registration or use of the application.

“We are in a pilot—a pilot is still a process where you are learning,” said George Avery, a Property & Casualty Claims Auto Consultant who has been with State Farm for 33 years.

“We had an unfortunate incident in Birmingham because some repair facilities decided to leave the Select Service program before we even got there. They made that decision before the pilot was even over or without even trying the tool, but that was a decision they felt they needed to make, so we certainly have to respect that. We were disappointed they left the program, they were obviously high performers. We continue doing the test, we had more than (those 17 shops) in the market area,” Avery said.

Tim Crawford, who has owned and operated Hwy 280 Paint and Body at 19360 Hwy 280 in Birmingham, for 40 years, was one of those shops. He recently dropped State Farm after a long and beneficial relationship, opting to remove his shop from State Farm’s Select Service program than be forced to use the PartsTrader software.

“I have been on the State Farm Select Service program since the very beginning, a long time. We’ve had a very good relationship with State Farm,” said Crawford. “But through the years, we have realized that they have started controlling different parts of my business, from labor rates and labor times ... to this new PartsTrader program, which has really taken the last aspect of my business out of my control. At that point, State Farm has total control over my business, and that’s not what I went into business for. When they start dictating things to the point that it takes all of my profit away, I’m gonna have to take a stand and take my business back.”

Crawford’s three main objections to the PartsTrader program are 1) being forced to use only the vendors who sign up with PartsTrader, 2) losing parts profits and 3) waiting on parts through the bidding process which could delay jobs getting starting and causing a “clerical nightmare.”

According to the ASA fact-finding report released in early June, the time frame for “parts pricing” is set at two hours as a default and can be adjusted to one hour by the repairer, or the repairer can set a custom close time greater than one hour. Pricing remains open for the allotted time, and during this process, shops are unable to execute on the estimate.

In addition, “the PartsTrader program would take me from the vendors I normally use, which was going to take my business out of the Birmingham area, and make me use vendors I have no relationship with,” Crawford said, adding that none of the Birmingham vendors he uses opted to sign up with PartsTrader.

The ASA report notes that participation in the Select Service program is a collision shop decision, but that participation in the PartsTrader program is a supplier decision.

“Their agreement with us has a provision that they (repair shops) are required to use the tool, and that has been in our agreement for a long time,” said Avery. “We have a tool that we believe meets the need of the customer. Our goal is to have a win-win for everybody, but there could be a repairer who doesn’t feels that way and chooses to leave the Select Service program because they don’t feel it is in their best interest and that is something they need to decide. But our goal is to get information from all the stakeholders, which would include the repairers and the suppliers, to have a win for everybody. The goal is to improve across the board for our shared customer.”

Three weeks after dropping State Farm, Crawford says business is booming.

“I am encouraged by the amount of work I have not having State Farm. They were probably 50% of my business, but I have not found any reduction in my business by leaving them,” Crawford said. “Of course, my customers came to me for what we do for them, not because I was a State Farm shop. They come because of the type of work we do, our customer service, and the quality of our work. I am not really worried about State Farm sending me work or not.” He added, “I feel that State Farm does not have enough good shops left in Birmingham to handle their business. In the Birmingham area, they lost close to approximately 40% of their quality shops that did close to 70% of their work.”

Don Meadows has been the body shop manager for 23 years with Jim Burke Automotive, a new car dealership that sells seven lines and has been in business since 1945. They are located at 517 14th St. North in Birmingham. The high volume dealership does $450,000 a month in business. They aren’t sure yet how much business they’ve lost after being dropped by Select Service due to their refusal to try PartsTrader.

According to Meadows, the dealership didn’t want to try the PartsTrader software because they didn’t like the idea of having all parts purchases going through a third-party vendor. “We were told if we did not use PartsTrader, we would be taken off Select Service, and we were the day the PartsTrader program started,” Meadows said, adding that their customers are being affected by having to wait one to three days for State Farm to inspect their vehicles for estimates and supplements. “I have called several shops that are using PartsTrader and none have had anything good to say about the program,” Meadows said. He feels State Farm is implementing PartsTrader because “they want complete control of the repair process.”

John Fagan, owner of Fagan Collision Repair in Moody, AL., has been in business for 15 years and also opted out of Select Service rather than get on board with PartsTrader. He doesn’t like the idea of having to use the lowest price bid on parts or the fact that State Farm “threw the LKQ (like and kind quality) parts and aftermarket parts into the same mix. It if was just a parts locater for used parts, it might have been OK.” But, mainly, he said, he is concerned about “the uncertainty of the LKQ parts they want you to buy.” He reported he hadn’t lost any business in the first few weeks after dropping State Farm.

Donnie Burgett, owner of Donnie’s Paint & Body, which has been in business for 22 years in Trussville, AL., also opted to drop out of State Farm’s Select Service rather than use PartsTrader. He feels that if he had gone on the PartsTrader program, he’d be working more than the 10-11 hours a day he was already working handling State Farm clients and claims. The PartsTrader program would bring additional administrative work, less money and a reduction in profits, he said.

“I decided to bail out of the program after several years because I didn’t see any benefit for my company or myself in any way whatsoever,” Burgett said. “PartsTrader was going to create discounts and maybe even ill feelings with my vendors because they were going to have to bid on parts and I felt like parts would be coming in from every direction on one job, instead of from one direction. It’s all about discounts for State Farm, and I don’t have a problem with discounts, except when it is going to cost me money. Being on the program would cause me extra work, an extra two hours per claim on my part, to save State Farm money and cost me money and reduce my profits.” He said ‘no thanks.’ Additionally, he said he doesn’t know of any suppliers participating in the program.

According to the ASA fact-finding study, the report stated, “Currently in the pilot, shops are experiencing initial increased administrative costs at an estimate of 30 minutes daily. This is being evaluated within the pilot. PartsTrader states that this is true with any new system, but that over time, it will be more efficient and save time. PartsTrader intends to contract an independent study to validate this.”

Burgett feels some satisfaction about dropping State Farm’s Select Service. Today, he works a normal eight-hour day instead of 10 or 11 hours a day. Three weeks off Select Service, he sees no affect to his repair shop.

“If there is going to be any affect, it has not hit yet,” he said. “It is like it was 15 years ago. They send an appraiser out and we negotiate repairs on a claim and they do all the administrative work and we just do the body work again like it used to be.”

Like other body show owners in his area, Burgett reports that he doesn’t know anyone who is happy with the PartsTrader program. “Most of my competitors who are doing the program are doing it in desperation, for fear they might lose State Farm business ... they are afraid... but they aren’t happy.”

Now that he is no longer tied to State Farm, Burgett feels he did the right thing. “I felt like this was something I needed to do a couple years ago, but like my competitors, I felt like I needed them (State Farm) ... until it came to this and it made my final decision to bail out of the program. It’s all about their profits. They will realize more savings, which will make them realize more profits, at the expense of the body shops and parts vendors. I am surprised this program hasn’t gone away yet.”

According to ASA’s findings to date, the majority of repairers making comments are not in favor of the new State Farm application. “While the majority of sentiments are coming from non-participating shops (which make up approximately 75 percent of the facility market), the actions of some of the Select Service shops (removing themselves from the program) also demonstrate lack of support for the application,” the report said.

In response to the controversy surrounding the PartsTrader issue, State Farm in early June sent an open letter to all of its 10,300 Select Service shops and repair facilities throughout the United States and Canada. Avery noted that the letter explained State Farm’s general intent, the status of the program, the overall process, as well as acknowledging the negative comments swirling around the program and State Farm’s attempt “to clear up perhaps some misinformation.”

In the State Farm letter signed by Roger Mann, it stated: “Collision repairers must be profitable to provide the quality repairs on which our customers depend. At the same time, State Farm must act as an advocate for reasonable repair costs on behalf of all our customers. We believe repairer profitability and reasonably priced, quality repairs can both be achieved.

“... We understand there are many factors associated with making part selection decisions. Pricing, availability, vehicle type, and supplier service levels are all important considerations. Our pilot acknowledges and respects existing relationships that repairers have with suppliers, including the confidentiality around margins and purchase prices. This new process keeps repairers in control of all part selection decisions. There are no requirements for repairers to use suppliers they don’t know or trust. Suppliers are invited to participate by their repairers and have an opportunity to compete on equal footing – putting their best price forward. Since it is widely accepted that open competition is at the heart of successful marketplaces, we aim to help by providing repairers with a more competitive and comprehensive parts marketplace,” the letter continued.

Added Avery, “We thought it was imperative to reach out to all our Select Service shops, even though they aren’t in the test or pilot. They are obviously hearing a lot.”

As the PartsTrader pilot continues in its four test markets, Avery reported that the four-week “feedback phase” phase started June 4 and comprises of State Farm representatives who will follow up with each repairer on the program to gather their feedback. The next phase will be the “evaluation phase” and the length of that stage will be determined by the amount and type of feedback State Farm receives from those shops testing the PartsTrader software application. Avery explained there will be “two portions” to the evaluation stage, how the process itself is working and recommendations on software changes.

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