Wednesday, 02 April 2008 03:03

Nightmare Lays Out Worse Case Scenarios for Insurer Partners

Written by Dick Strom

I awoke in a cold sweat as from past nightmares, relieved that this particular nightmare didn’t have a direct bearing on my life. It certainly did affect the lives of others. I forced myself to remember every detail so the dream would not fade away. 

    In this bad dream, while passing doorway after doorway of a hospital-like facility, I saw familiar names posted on door placards, such as Fox Collision Centers and M2, whose self-absorbed reasoning dictated they take the low road against their own industry.
    Other rooms were occupied by local DRP collision shops who remained on the I.V. because of fear, greed, stupidity, or ignorance. What prompts anyone to participate in predatory pricing schemes and price suppression tactics that a RICO prosecutor would delight in unraveling?
    The common thread among these shops is that they each were being kept as comfortable as possible under the circumstances, their family and friends watching in teary-eyed silence as the unfortunates breathed their last breath. Much like a smoker who in spite of the risk unrealistically hopes that his bad habit will not eventually kill him, this Hospice for DRPs is, likewise, completely avoidable.
    Every shop owner with whom I’ve ever discussed Direct Repair has rationalized it as “a business decision” or “a way to grow my business.” Yet all along, each one understands that, in reality, DRPs are a means of suppressing trade, killing competition, taking jobs from others during shrinking markets, and participating in illegal steering plans as the recipient of work they normally would not have had unless they invested in personally selling vehicle owners on their shop’s abilities.
    In the process, through suppression of trade, these shop owners have aided and abetted the insurance industry in cutting all potential for shops’ fair profit; removed even a glimmer of chance for a return on investment; and suppressed a whole generation of employees who are avoiding the autobody  industry because of its lack of profit and a future.

Waiting to die
Around the corner was the waiting area at the Hospice. Sitting there in big leather chairs were those insurers who have promoted Direct Repair. No tears welled up in their eyes. Rather, they were there seeking indemnity for the re-repair costs of the vehicles abandoned by their own DRPs.
    All the usual suspects were there: State Farm, Allstate, Farmers, Progressive, Safeco, reciting clichés aimed at temporarily indulging their dying-DRPs:
    •We underestimated the ability of non-DRP shops to survive.
    •Our plan was that they would have died long before now, leaving selected DRPs all the work and under our complete control.
    •Our plan was to hold independents hostage to the same concessions we extract from DRPs, and aggressively steer work away from them.
    •We thought the sheer numbers would have killed them.
    •Many non-DRP shops can thrive by dealing directly with the vehicle owner.
    •Why don’t you hurry up and die! You’re occupying valuable bed space, and your insurance won’t cover past today!
    As my memory of this nightmare faded away, I thought: “If these fools only knew!” What will it take for DRP shops to realize that insurers have no feelings for them beyond the profit they provide.


And the squeeze goes on
State Farm’s doctor of spin, George Avery, recently announced that the Farm’s just-launched test of electronic parts ordering is not an attempt on the insurer’s part to reduce the parts profit that shops need to stay in business.

    He stated, “The amount that’s your profit dollars will remain the same,” at least intimating that though the Farm has squeezed the OEMs for parts discounts deeper than you and I can negotiate, shops will still receive the parts profit they would have received were the insurer given no discount by the OEM. Though George did not add, with a wink, “You can trust me on this,” he did continue, “We’re (also) looking at rental.” (insurer-speak for taking shops out of the profit loop from rental vehicles), and “We’re looking at towing (insurer-speak for taking the shop out of the profit loop from markup on towing). We’re looking at ways to make shops efficient because of the customer that we share.”
    Of course, George forgot to mention how long it will be, once the insurer also has crash parts manufacturers under its thumb, before the Farm will begin incrementally whittling our former parts markup down to zero.
    A serious talk is in order with your CPA if you think you can survive losing all or most of your parts markup. And George only stated that the Farm is “looking at towing and rental,” not even hinting that the Farm would give shops the courtesy of, at least for a while, compensating them for the loss they would take were markup on these reduced or eliminated completely.
    I have no doubt that sufficient numbers of shops in this industry will fall for this latest affront and make it a reality. Once that trial balloon has passed, I foresee a fight brewing between the OEM and imitation parts manufacturers to see which entity can come up with the deepest discounts on their product, to please their new-found insurer “partners.”
    And why should insurers stop there ? Why not insurer-fostered/favored “competition” among the suppliers of refinish materials, reducers, hardeners? How about among suppliers of bumpers, masking tapes and paper, plastic fillers. And among… Who know how far this can go?
    In an editorial, Letting the Business Run You!, Mike Orso, president of New York State Collision Technician’s Association (NYSACT) and co-author of this article, explained the present situation in which shops find themselves. “I’m still of the belief that now more than ever before we are at a crossroads where we can take back this industry… that we can run this business instead of this business running us. It can still be that insurers are held to the standard of only paying claims.
    “The insurance industry has said that they are winning because (shops) are without leadership and without one voice. I think they are wrong. They aren’t winning, they just keep telling shops they are. Don’t believe them. As soon as we begin running our business instead of letting it run us, its game, set, match point. We can win!”
    But you can’t win if you’re already on Hospice.

    This article was co-edited by Dick Strom, Modern Collision Rebuild, moderncol@qwest.net, and Mike Orso of Nick Orso’s Body Shop, nickorso@prodigy.net