Wednesday, 31 December 2008 05:32

Causey --- Do You Know What Your Labor Rate Should Be?

Written by Mike Causey

How many times have you heard complaints from body shop owners about “low” labor rates?

A Mississippi body shop owner said recently, “We’re losing our collective asses at the front door because we’ve quietly accepted our current situation as being beyond our control!” The main reason these labor rate complaints abound is rooted in the “arbitrary” rate setting policy of insurers. Body shop owners could clearly benefit from knowing what their labor rates SHOULD BE and posting those labor rates clearly for all to see.
    When a body shop owner KNOWS the “cost factor” in his shop, then he knows the labor rate he MUST CHARGE. If the actual cost for body shop labor is sixty-dollars per hour ($60/hr), why not POST AND CHARGE sixty dollars per hour for body shop labor?
 Independent Body Shop owner Bill Rajewski, of Columbia, Missouri (Perry Legend Collision Repair Center) says: It is time to break the prevailing rate system. Every shop has its own cost factor to open its doors and do business. Some are higher or lower based on how well equipped they are or are not. It’s no different than dealership labor rates in a state. The auto makers don’t dictate to the dealerships what they will pay them for warranty repairs; the dealers do a cost analysis to come up with a labor rate for “their shop” and submit it for their rate structure. Why can’t we, the Auto Body Industry, use a similar system to arrive at an individual Shop rate to do business with the Insurance world?
Greg Redfield, owner of Redfield Collision Center (www.redfieldcollision.com) in Festus, Missouri, agrees with Bill Rajewski.
    Redfield says: Mr. Rajewski, You are absolutely correct. We can. There is nothing to restrain an independent business, except for lack of knowledge! If any repair facility wants to stay in business, they need to KNOW what they must charge to receive a fair return on their investment. Once they KNOW for sure what their individual number is, they need to post it clearly where everyone can see it. They also need to go to their service provider survey programs and load their individual number in so it will be accounted for. Everyone complains that there is “nothing” they can do about the demise of their business. You know why? They do “nothing” to correct the challenges they face. KNOW your numbers…load your numbers…charge your numbers. If you have to negotiate now and then…do so. At least then…you will KNOW what you can… and cannot do! This business is a lot more fun…when everyone is fairly compensated. Techs, managers and office personnel. What are you waiting for? This is the most important thing you need to do…TODAY!  
    According to all accounts, Redfield Collision “writes fair estimates, never charges for anything customers don’t get and will refund money for unneeded parts.” Redfield says, “I think integrity in this business right now is almost more important than quality repairs.”
    Redfield’s shop doesn’t have a labor-rate problem or a problem with charging for work the shop performs. “It’s all a matter of negotiation,” he says. The ‘prevailing rate’ is charged and insurance companies don’t get additional discounts.
    “Other shops complain because they don’t know their true cost of doing business. If they know the true cost of doing business and explain to the adjuster or agent what it will cost to get the car back in pre-accident condition, they have to pay for it.”
    If an insurance company refuses to pay for a repair, Redfield notifies the customer that it’s up to them to convince the insurer that the repairs are accident related. Redfield admits that he avoids taking this problem to his customers unless it’s absolutely necessary. He prefers to make collision repair as hassle free as possible for the customer.
    To get your labor rates in-line with where they should be, remember Mr. Redfield’s advice:
1) KNOW your numbers;
2) LOAD your numbers, and
3) CHARGE your numbers.

Legislative Solutions
In some states, body shop owners and body shop associations have decided to fight back, through legislation, to regain control of labor rates.
    In Massachusetts, House Bill 5056, anti-steering legislation that passed the House and is now in a senate committee, is opposed by insurers because it “takes away labor rate control.”
The Massachusetts Auto Body Association (MABA) was the driving force behind this legislation. They believe that HB 5056 would “establish accountability for insurers and repairers and allow a competitive, free-market system allowing shops to compete fairly and freely against one another for customers.”
    Stephen Regan of MABA, says of insurers, “They’re admitting that the current system… allows them to dictate what would be paid for labor.”
    Although HB 5056, has no language that addresses the labor rate issue, the insurers’ main argument against the bill HB 5056 is that “the net effect of the language in the bill would result in insurers paying a higher labor rate.” The insurers say that the “current statutes and regulations that MABA is seeking to change, which govern the Direct Payment and Referral System, would eliminate the mechanism that insurers use to ‘control’ the labor rate and other cost in Massachusetts.”
    Since HB 5056 is “anti-steering legislation” and does not specifically address labor rates, it is interesting to see how the insurers believe their ability to “steer business” actually does affect labor rates.
    Regan says, “The language we have to address labor rates in the bill is actually a passage we took from the 1963 Consent Decree. It said insurers will not implement any program that would control the amounts paid for labor, the type of parts that are used or the procedures that would be used to fix the vehicle.”
    The Massachusetts Auto Body Association is encouraging repairers to support this legislation. The anti-steering bill language addresses auto body steering, auto glass company steering and rental car steering issues. In addition, the bill would make it illegal for insurers to offer to a warranty or guarantee for auto body work. For more information call MABA at (800) 487-6262.
    In North Carolina, the Independent Auto Body Association (IABA) is preparing legislation to address labor rate inequities throughout the state which also incorporates some language to which insurers agreed in the 1963 Consent Decree. To get involved with the North Carolina legislation on body shop labor rates, call IABA at (336) 210-1947.
    Rhode Island passed legislation last year where auto insurers can no longer “arbitrarily pick a number out of the air and claim it’s the ‘prevailing’ local labor rate.” This all happened because of some very persistent, action-minded body shop owners. The prevailing rates ‘went out the window’ when the Rhode Island Department of Business Regulation (DBR) adopted a new regulation that sets precise guidelines for how insurers are to conduct their annual surveys to determine the prevailing labor rate. The proposed regulation also includes “the exact survey form insurers must use and requires insurers to provide in their report to the DBR a description of the formula or manner in which the insurer has calculated or determined the prevailing labor rate.’”
    In Connecticut, the Department of Insurance conducted a survey of insurers a few years ago to find out how they determined the “prevailing rate” they pay to body shops. Here is a sampling of answers:
Allstate sets their rates “via field adjusters written estimates in body shops & agreed amounts.”
    MetLife relies on “experience of appraisers,” and they “work with body shops to determine U&C” (usual & customary) charges.”
    Nationwide pays what the “majority of auto repair shops are willing to charge. Constant review of preferred & non-preferred shops.”
    Progressive uses the “Marketplace but utilizes flat rate manuals (Mitchell)”
The Hartford determines their labor rates “on a claim by claim basis in the field at the discretion of appraisers, (negotiated) no set rates.”
    In summary, every insurer has a method of determining labor rates for body shops and the goal for the insurer is to hold down the rates as much as possible. Your job is to set your labor rate as determined by your own business situation.
    From the above sampling of insurer responses it is apparent that an “industry standard” or guidelines need to be established in order to gain a uniform approach to body shop labor rates.
    In the meantime, if you believe that YOUR labor rate is dictated by the insurance companies, why not “prove” to them what your rate should be? Calculate your costs, including ALL operating expenses and determine your “cost factor” to set your own labor rate.
    Do you know what it costs you to keep your shop open every day? Figure this out and you can have an excellent starting point for setting your labor rate as it should be.

Mike Causey is a consumer advocate and legislative lobbyist for body shops.                Contact information: Causey & Associates, P.O. Box 16725, Greensboro, NC 27416. Phone: (336) 210-1947  email: gocausey@aol.com