Monday, 13 August 2012 09:38

Michigan Associations Approach State Farm’s PartsTrader Bidding Program with Caution

In June, Automotive Service Association (ASA) members and related collision industry vendors in the Michigan area were invited by ASA-Michigan to attend a “facts to date” presentation and member discussion regarding the State Farm electronic parts ordering application.

Since then, ASA-Michigan continues to monitor the controversial program. “We have held a couple of roundtable discussions and data is still being collected,” said Ray Fisher, President of the ASA-Michigan group.

“We continue to have dialogue and provide information when available.  We will monitor things and share this information with the membership and the repair industry. Since this is a national insurance carrier, we are providing feedback to our national association for their collision operations committee to discuss.”

Led by Denise Caspersen, ASA Collision Division Manager, the standing question to State Farm on behalf of the collision repair industry is: “If this is a ‘win-win’ situation, as stated by State Farm, then now is the time for State Farm to provide the numerical data that specifically identifies any benefit (financially or operationally) to Select Service shops. If State Farm is not able to clearly demonstrate the benefits of this pilot application to the repair community, then this application should not move forward.”

(See www.autobodynews.com, or August regional issues, for more.)

The pilot has been tested for the past several months in Grand Rapids, MI; Charlotte, NC; Birmingham, AL and Tucson, AZ.

ASA-Michigan’s next move is to continue to seek feedback and “participate at the levels we need to react based on 1) primarily what our members say, as we owe that to them as their association, and 2) what we hear from the repair industry—reality from a business perspective, not emotionally,” Fisher said.

The biggest concerns regarding State Farm’s PartsTrader continues to be how the application will affect profitability, the unknown impacts on the relationships between shops and suppliers, and the overall current “climate” between repairers and insurers.

“We are waiting to see the benefits for the repair facility and the industry including the ability to increase profits without additional expenditures. Cycle time is a part of that equation and does have an effect on the profitability. We continue to have dialogue with the PartsTrader group, along with having some people on their advisory committee,” Fisher said. “To sum it up, our members do not see a benefit for themselves or their customers, cycle time has been increased,  and some feel it to be ‘business suicide’ to react based on current economies.”

In the western part of the state, the West Michigan Body Shop Association, established in 1955, hasn’t yet held a meeting to discuss PartsTrader with its 30 shop members, but treasurer Diane Rodenhouse says it’s coming. Rodenhouse owns Rodenhouse Body Shop in Grand Rapids and is one of about 20 shops in the area who have been testing the pilot parts procurement program since March. 

“I think it (PartsTrader) adds another day of inefficiency to your estimating, because what happens, especially with used parts, we have found, it basically adds another 4 hours to a day of cycle time to your job,” said Rodenhouse. “It adds another day of repair time because you can’t get the parts in—especially if you have to use used parts—fast enough because you have to wait while they bid on it. Many times the salvage yards don’t have the parts, they are just bidding on them. They have to go out in the  market behind the scenes and buy them. This means you are adding another day or two to the cycle; there’s no other way around it.”

In a nutshell, she sums up her feelings. “It’s the master to servant. Do I wish it wasn’t happening? Absolutely.”

Rodenhouse values her relationships with her vendors because she trusts them. “The problem with PartsTrader is you’re buying blind. You don’t know the vendors. With PartsTrader, you have no idea if it’s going to be a good part.” Recently, her shop replaced a tailgate and bought the part from PartsTrader - and a two-day job became a six-day job because they had to send the tailgate back three times. “It was just junk.” There is no way for PartsTrader “to hold a vendor’s feet to the fire,” she says.

Rodenhouse doesn’t know if her shop will drop State Farm because it’s one-third of her business. She says she’s not willing to drop the program until she figures out what’s going on. Like everyone else in the pilot program, she doesn’t know where State Farm is going with it or when the pilot program will end. She jokes, “I can’t have that information, I only have a graduate degree, I’m not smart enough for that. And I’m a woman, keep me in the dark... They have all the aces and they keep them all close to their chest.”

As a local association, Rodenhouse isn’t sure there is anything they can do to stop PartsTrader. “What are we going to do as an association? What can we do? There’s really nothing a local association can do. Let’s face it, it’s not business-to-business. It’s master to servant. And if you want to be on State Farm’s program, you’re gonna have to learn how to deal with PartsTrader. You can choose to get off,” she says.

Fisher agrees that there may not be an solution to this issue.

“We all have to understand that the world is changing and that parts procurement was advancing through technology before PartsTrader. Moving forward, we need to recognize these opportunities as a repair industry and seize the moment when they make our lives more efficient while understanding the impact that they may or may not have on our business plan while maintaining the desired profit. That being said, these tools should be sought and sold to the collision repairers to increase efficiency and profitability—we don’t dictate how an insurance policy should be written or what printers to use in printing [the contract],” Fisher says.

Rodenhouse feels that part of the problem is that some insurance companies conduct business on the back nine of the golf course, which gives body shops no way of fighting them.

“I’ve thought about it, and I’ve thought about it, and I’ve thought about it, and the only thing I can come up with so far is you got to make this program work for you,” Rodenhouse says emphatically. “And that means you have pick and choose. I’ve already decided I won’t use it for used parts because it just doesn’t work. For new parts, we’re going to have to use it.”

The solution, she believes, lies at the national level with getting the McFerguson Act repealed so insurance companies have to abide by anti-trust. The McFerguson Act was passed in 1963, exempting insurance companies from anti-trust, giving them “free reign and a free checkbook,” she says.

The insurance companies, she says, have taken the net profit from 15-20% on a good shop and squeezed it down to 3% “and we have allowed insurance companies to do that. We are all our own worst enemies and the bottom line is, insurance companies know it. They are just doing what a good business model does, which is make money.”

She cites a deflationary example, comparing today’s dollars to dollars made in the 1980s. Recently, she paid $59 for an aftermarket fender and was paid $76 from the insurance company, making less than $20 on the job. “Instead of making $100 in 1980s dollars, I am making less than $20 in 2012 dollars.”

Body shops willingly take this abuse from insurance companies by “drinking the poison” of DRPs. Her shop has two DRPs. By accepting PartsTrader, “We will drink the DRP poison again. Now we are giving them the checkbook again,” she says.

It’s a conundrum that has many body shop owners frustrated. If body shops drop DRPs, they fear they will lose business and have to lay off employees. Rodenhouse says she has five guys who work at her shop, and between them, they have nine children that need to be fed, in addition to house payments that need to be made.

The other frustration she voices is how much PartsTrader will make at the expense of body shops.

“PartsTrader will be making money and saving the insurance companies money," says Rodenhouse. “I just want PartsTrader to answer this question: Show me, just don't tell me, how this program is a "win win" for the body shops? Answer this question and I will be supportive of this program.”

Sue Allor, secretary of the board of trustees for Northern Michigan Body Shop Association, and employee of Tri-Rivers Collision, says the association hasn’t yet taken an official stance, but speaking personally, she says her objection is that an outside entity (State Farm), in conjunction with a vendor of their choosing (PartsTrader), is “attempting to further influence the business operations of collision repair facilities nationwide. These businesses are not owned by State Farm, and yet, through past directives, issuance of policies and procedures within State Farm (without much consideration to the repair facility), and ‘effective training’ of their claims adjustors in the ‘art of consumer manipulation,’ State Farm and other insurers continue to have a negative impact on the financial well-being of repair facilities. And, unfortunately, if State Farm has its way, it will soon have negative consequences to the bottom line of many of the existing parts vendors,” Allor says.

She adds, “The control of a repair facility by an insurer in fact does exist and is blatant control of the business operations and financial condition of a business that typically is an independent repair facility. Although State Farm currently indicates with regard to PartsTrader that ‘a shop can continue to purchase through its vendor of choice,’ my fear is that more controls are on the way, and repair facilities will, in effect, become ‘employees’ of the insurance companies, and profit margins will again be reduced.”

Like others in the collision repair industry, Allor stresses that the playing field isn’t level. “The relationship that exists in this wonderful world of collison repair between the insured, insurer and repair facility is a relationship that allows insurers to always come out on top, plain and simple,” she says.

And, like other associations nationwide, the NMBSA isn’t hearing anything positive about the pilot program from their members. “I have not heard anything positive about the PartsTrader/State Farm issue,” Allor says. “There is a great deal of frustration, confusion, anger and resentment expressed by many.”