Thursday, 24 May 2012 11:29

State Farm’s PartsTrader Program Encounters Significant Opposition, Not Just From its DRPs

State Farm’s forced implementation of its PartsTrader e-bidding process within its Select Service Program shops has ignited a firestorm of criticism from the industry, not just from its own DRPs.

Usage of the PartsTrader software, developed in New Zealand, has been required by the insurer in several test markets nationwide, including Tucson, AZ, and Birmingham, AL, however several sources have reported shops dropping the Select Service Program as a result, up to 40% in some markets.

The Alliance of Automotive Service Providers (AASP), the Society for Collision Repair Specialists (SCRS), and the Automotive Service Association (ASA) as and numerous independent industry observers have come out with  strong statements cautioning their members against State Farm’s bidding process for parts procurement.

AASP called it “an unprecedented and uninvited intrusion into the business of collision repair.” The AASP released the following statement, which reads in part:
“Despite posturing from the largest national insurance carrier on what it believes to be positive attributes of the program, collision repair facilities, parts suppliers, parts manufacturers and interested parties around the country have been consistent in their perception that this type of activity will ultimately harm their businesses and the customers they serve.

“Collision repairers are in the business of selling parts, labor and materials at a retail level. Each of these revenue sources contributes to the overall success of the roughly 35,000 small businesses across the nation, allowing the business to provide employment opportunities to individuals within their community and invest in the necessary equipment and training needed to provide customers with safe, quality repairs. As is the case with all types of business—including the business of insurance—the pursuit of a return on investment (profit) is a core principle, and one that collision repairers should neither apologize for nor relinquish to the influence of other parties.

“Insurers are in the business of insuring risk and then settling losses at market value when those losses occur. As the payer of claims, insurers should not be “market makers” for pricing of individual products and services that are components of final invoices. To date, insurance pressure and influence over collision repair market pricing has driven average profit margins to low single-digit figures, despite the fact that the business of collision repair has a high cost of entry and requires ongoing capital investments to keep pace with automotive technologies.

“Feedback from other markets outside the U.S. familiar with insurer-mandated bidding platforms indicates that the State Farm parts bidding program is a win-lose scenario, with repairers losing both profit and control of their business. Furthermore, the negative impact of this parts program has the very real potential to quickly spread beyond parts to other areas, such as paint, and beyond the boundaries of voluntary direct-repair program (DRP) agreements to the industry at large. If State Farm contends that this parts program is indeed good for the collision industry, surely the industry would embrace the program on a voluntary basis – assuming the benefits of the program did indeed extend to more participants than just the carrier.

“The collision repair industry has gradually transitioned from a proud trade of hard-working owners and employees to a service provider that subcontracts to the insurance industry, working on net margins that it no longer controls and that jeopardize its ability to invest in its business and attract and train qualified employees to ensure safe and quality repairs. AASP has grave concerns for its members’ future welfare if giant insurance corporations are permitted to trample on the free market philosophies that support a culture of small business success.”

John Shoemaker, of JSE Consulting, released the following statement;
“The collision industry has weathered situations like this as in the Safelite Glass Program and Greenleaf salvaged parts program.  Both these insurance company directed programs whittled away the shop owner’s ability to make a business decision that benefited the shop.  All shop owners develop an expectation on how their business should operate as well as establishing the profit margins necessary to ensure survivability.  They have developed business partnerships with local businesses to ensure that their profit margins are maintained.  In-turn the local business have relocated stores to become more convenient, stocked more parts and negotiated with shop owners to maintain an edge on their market. The State Farm Parts Program negates these partnerships forcing shop owner’s to purchase parts from an unknown outside their market.  As insurance companies move farther away from insuring vehicles and go deeper into the repair process shop owners will see further erosion of their ability to run their business.  First it was glass, now it is parts, tomorrow it could be paint.

“Another issue I have with the State Farm Parts Program is the distraction it has caused in the collision industry.  Every blog I read, every magazine I open up and every shop owner I talk to has the State Farm Parts Program on top of their mind.  Everybody is up-in-arms about it and not paying attention to the immediate tasks on hand. If you look around you will see that this program has caused distractions far beyond parts!

“My last thought on this is that shops are dropping State Farm as a DRP, up to 40% in some markets and State Farm does not care. They are contacting shops that were previously dropped from the DRP program for multiple reasons and signing them back up if they agree to the parts program.  Does that mean that you can be a poor performer and as long as you accept their parts program you are good again?”

See additional reaction at www.autobodynews.com, including SCRS’ statement and Scott Biggs’ blog: “State Farm – Parts Trader: It’s about losing profit, control, and your very survival” which can be read at ScottBiggs.com.