Friday, 27 May 2016 10:03

Labor Rates are the Foundation of Consumer Care & Safety

Labor Rates are the Foundation of Consumer Care and Safety

A new era has arrived in the collision repair industry, an era in which OEM requirements to repair their modern production vehicles continue to grow and grow faster, as these vehicles increasingly include new technologies, new manufacturing techniques, and a wide range of advanced materials. 

This may be good news for training firms, certification bodies, and equipment suppliers, but is there enough concern for collision repairers who find themselves in a quandary, caught in the middle between significant investments to meet these increasing requirements and present labor rate levels that are largely insufficient to cover both the necessary investments and earn a fair return? How are the shops going to pay for all this?

National AutoBody Research (NABR) is very concerned about the present state of labor rates, because we think the right labor rates are the foundation of consumer care and safety (See Figure 1). Without healthy labor rates, collision repairers are not able to generate sufficient profits to reinvest in people and training, tooling and equipment, and facilities and certifications. Moreover, limited resources can adversely impact their skill and ability to repair today’s vehicles properly. This in turn, may seriously jeopardize consumer care and safety, which is irrefutably unacceptable.

At the core of NABR’s mission is a focused effort to restore the free market system for labor rate pricing in the collision repair industry. Our Variable Rate System (VRS) technology can help auto body shops determine the right labor rates for their individual shop, in order to generate sufficient profitability to pay for these increasing costs required to repair modern vehicles. That labor rate is not just one price for everybody, and we believe that there is no such thing as one prevailing labor rate in a market. Instead, there is a range of acceptable rates, segmented by a shop's location, level of training, type of certifications, investment in equipment and technology and facilities, quality of work, and overall cost of doing business.

We see higher repair standards and increasing investment requirements coming from both luxury and mass-market manufacturers. For example, starting with its new CT6 model, Cadillac recently launched its Cadillac Aluminum Repair Network, which included a $4,500 annual fee, a list of equipment requirements, additional training, and auditing to verify competency. Likewise, Honda is raising the bar with its ProFirst Collision Repair Facility certification, requiring shops to successfully complete Honda specific training courses, have the correct tools and equipment, maintain exacting facility standards and a customer satisfaction system, get an annual inspection, and pay the annual $2,700 fee. These increasing investments to support increasing collision repair requirements are not just coming from the Audis and Mercedes of the world but also from mass market brands such as GM, Ford, and Honda, among others.

NABR agrees that OEM and third-party certification programs are a good move for collision repair shops and technicians, but only if shops are able to adjust labor rates to sufficiently profitable levels. NABR also concurs with one group of industry panelists involved in training, certifications, and equipment validation and verification who stressed that things in the industry were changing so quickly that it would be financial suicide not to keep up-to-date with training and equipment, as expensive as it could be. But again, it will also be financial suicide to attempt to stay up-to-date without having the surplus capital to do so which is largely dependent on sufficient labor rate revenue.

The Icing on the Cake – Inadequate Labor Rates Paid by Insurers

To top it all off, even if shops are willing and able to make these investments, they still face a significant obstacle in getting insurers to pay qualified shops for all needed and proper repairs at the right labor rate. As an independent, unbiased third party, NABR questions insurers’ resistance in light of a wide range of premiums paid by their policyholders for auto collision coverage, especially for luxury vehicles.

NABR’s Goal: A Win-Win Paradigm for Labor Rates

Taking a consumer centered perspective, NABR believes that crashed vehicle consumers have the right to a complete, safe, and proper repair at a fair price, and the right to be fully reimbursed for their loss. The shop owns the repair. The insurer owns the reimbursement.

We believe that paying shops what they’re worth as defined by an objective standard—which could include items such as levels of training and types of certifications, tooling, equipment, and facilities—is a fair, reasonable, and equitable solution to the settlement of claims.

This win-win-win approach would benefit consumers, repairers and insurers. Insurers would reduce the significant friction costs between themselves and body shops experience every day across the U.S. Repairers would get paid the right rates, earning sufficient profits to enable them to reinvest to keep up with increasingly higher repair requirements. And consumers would get their vehicles repaired properly from a shop that is trained, equipped, and certified to do the repair.

For all this to happen, we think insurers and collision repairers must take a fresh approach to the collision repair and claims settlement situation, adjust their motives and attitudes, and have a keen awareness that doing so will lead all three participants—insurer, repairer, and consumer—to come out as winners. Most notably, it will help ensure the proper care and safety of consumers and their families.

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