If the insurer fails to fulfill the promised claims volume in each of the four geographic regions, at the end of the year it has to write a check to CARSTAR. If the average repair cost for the year exceeds the agreed-upon level, the CARSTAR corporate organization - not the individual shops - has to write a check to the insurer.

Mercanti said one such agreement is in its fourth year, with new numbers for each side agreed upon each year. The first year CARSTAR "got hit hard" under the agreement, he said, and had to pay the insurer. The next two years, CARSTAR kept up its end of the agreement and received a check from the insurer.

It's not a perfect model, Mercanti admitted, but he be-lieves it offers benefits for both insurer and shop that the current direct repair program model does not.

 

Neave, for example, said shops' purchase of parts gives suppliers too much power, a situation he believes can be reversed if insurers purchase parts and materials. Reliance on parts and materials profit has led shops to increase parts usage, he said. Shops should be better compensated for the real value they bring - skilled labor - so they no longer rely on profit from parts and materials. It's an approach the insurer is testing within its own shops.

Different labor rates

Closer to home, Charlie Baker, publisher of the Ohio-based Collision Repair Industry INSIGHT, predicted that some insurers and large collision repair operations will begin experimenting with different labor rates for different repair operations based on the complexity of those operations.

 

This may make it even more difficult, he said, for smaller operators to maintain DRP agreements with major insurers because these smaller shops still tend to have highly-paid technicians conduct even the most basic labor operations.

Speed the key, Summit founder predicts

Maintaining a competitive edge was also the focus at the Summit Software "2004 Technology Conference" held the morning prior to the opening of the NACE show. Frank Terlep, president of Summit, said that in his view, speed is going to the factor that differentiates successful collision repair businesses in the coming years.

Members of CCRE listen intently to legal panel composed of attorneys Bruce Cornblum, California; Erica Eversman, Ohio; and David Wattel, Arizona.

There's a surplus of shops, Terlep said, all offering very similar quality and pricing. Speed will give some shops an advantage in terms of customer satisfaction (by getting cars back to customers more quickly), cost-containment (by lowering rental car and other costs) and cycle time (by getting more work through the shop to improve profits). 

Terlep said job-costing has been the dominant management philosophy driving the industry's best shops in recent decades. Job-costing is still important, he said, but he believes "through-put management" is becoming increasing vital.

 

Importance of "touch time"

This involves everything from having the systems and discipline to offer predictable delivery dates, understanding the importance of "touch time" (how much time a particularly vehicle is actually being worked each day), scheduling more efficiently (not bringing all jobs in on Monday, for example), and finding and eliminating bottlenecks within the shop. This focus on through-put, Terlep said, will enable shops to produce more work with fewer people.

He said he believes the independent collision repair shop population will experience a rapid decline similar to that of auto dealerships in recent years. By 2020, he predicted, the market will consist of just 25,000 shops - about half as many as there are now - each doing an average of $2 million a year in work.

John Yoswick is a freelance writer based in Portland, Oregon, who has been writing about the automotive industry since 1988.