Those Prevailing Rates

October 10, 2003 by
Filed under: Uncategorized 

This article appeared in the February 2003 issue of BodyShop Business.

Like the prevailing winds blowing over one of our local dairy farms, the term conjures up images of decomposing and festering crap.

“Prevailing rates” is a term used by the insurance industry to describe the stupor it casts on collision repair businesses across the country. Many shop owners are chained to prevailing rates and feel helpless as they watch their profits slowly dry up like a cow pie in the hot August sun.

Southeastern Connecticut is a humble little part of the world, where we simple, humble folks produce the deadliest and mightiest weapon in the world, the nuclear submarine, with little notoriety or fuss. We also produce the magic pill that turns balding, impotent old men into sexual dynamos – albeit, old and balding sexual dynamos. We’re also known as an area that gives little fuss, argument or fight when dealing with the strong-arm tactics of the insurance monster.

I don’t know how many times I’ve heard appraisers say how much they like working this area. “There are a few hard asses,” they say, “but for the most part, you guys are easy going and easy to work with.”

Hmm. I never quite know how to take that. Everyone likes to be liked, but is that helping me or hurting me? For many of us, it’s a debate that’s tough to side with.

Recently, Scar Face Insurance (names have been changed) did its annual labor rate survey. With all the buzz I’d heard from the bee that goes around pollinating all the body shops for the Connecticut Autobody Association, I thought for sure we’d be getting at least another $2 per hour from Scar Face. After a month of not hearing anything, however, I started to wonder. So I called one of Scar Face’s under bosses to find out the score.

Our area wasn’t getting a raise, she said.

In other parts of the state, however, rates went up $2, $4 and $6. What was going on?

Now I’ve never had too much trust in what comes from the mouths of those in the insurance industry. Call me paranoid, whatever, but I had to see things in black and white before I took them as truth. Scar Face, however, had always been straight with me in the past.

Last year, their rates went from $40 to $42, so I was expecting them to go to at least $44 this year. Almost every insurance company is paying $42 in this area except Little Moocher Insurance, who refuses to pay more than $40. Frankly, I was looking forward to Scar Face paying more because it tends to set a precedent.

For those of you thinking what I think you’re thinking, don’t worry. I do make Little Moocher’s customers pay the difference. I’m not that easy.

I can hear the Autobody Online groupies already. “No insurance company tells us how much we charge. We tell them what they’re gonna pay!”

Yeah, right. Stifle yourself and keep reading.

After some thought, I came to believe the results of the Scar Face labor rate survey. I remembered seeing some of the estimates from shops in my area. Sad stuff.

So I decided to do my own survey. I wanted to see who was keeping the rates down, and I wanted to make sure I wasn’t one of them.

I grabbed the Southeastern Connecticut phone directory and turned to the autobody repair shop listing. The first thing that struck me was the number of shops listed that I’d never heard of. I talk with several appraisers every day and each one has stories to tell, but many of these names never came up.

There were 66 listings. I called every one of them to get their fax number so I could fax them the survey. I wanted all the results in writing – their writing.

The first shop I called wanted to know why I wanted his fax number. I hate wasting time on the phone so I figured I’d ask one quick question (“What’s your fax number?”) and then leave the people alone. But this guy wanted to know why I wanted his fax number. It’s a reasonable question. I also hate getting all those unsolicited solicitations soliciting everything from stocks to cheap cruises. But when I told him what I was doing, he abruptly told me that he didn’t want to participate and hung up on me. Ah ha! Light bulb flashes rapidly above head.

Onto No. 2 in the listing. Phone rings … phone rings … phone rings some more. It’s 10 a.m.: Do you know where your body shop employees are?

Next! “I’m sorry, we don’t have a fax number.” What the hell does that mean? If she told me she didn’t have a bathroom, I may have understood that. But how do you run a business without a fax machine? I didn’t bother to ask – I also didn’t bother to ask her any of the survey questions.

Finally, I talked to someone with a fax machine who was willing to give me the number, no questions asked.

Eventually, out of the 66 entries under the “Auto Body Repair” section in the Southeastern Connecticut Yellow Pages, I got 40 fax numbers. So I printed out the survey form I’d written up and eagerly faxed it off to the 40 numbers I had.

I get the first phone call. I had put my phone number and fax number on the survey in case anyone had questions.

“Um, yeah. What are you doing this for?”

OK, I thought I’d explained this pretty well in the two perfectly crafted paragraphs that, I’m certain, my 9th grade English teacher would’ve been very pleased with if she were still kicking. So, I explained everything over the phone that was written on the survey – and that seemed to satisfy him.

Another call. “What am I supposed to do with this once it’s filled out?” Uh boy.

By the end of the day, I’d received three completed surveys. The next day I received one more. The third day, one more. I couldn’t believe it. I explained that this wasn’t an insurance company survey and that the information wasn’t going to be used for any referral lists or anything like that. I just wanted a simple survey of all the body shops posted labor rates. I know everyone is busy, but we’re talking about 30 seconds to fill in the blank spaces and fax it back. And it’s not like these are confidential trade secrets I’m after. It’s just the posted labor rates everyone who walks into the front office sees.

On day four, I had my assistant call everyone who hadn’t faxed back the survey. Yeah, I know, I had her do the dirty work. But prevailing rates roll downhill.

My assistant was able to get survey answers from 36 shops. Of the four shops that we didn’t get information from, two told us that they didn’t feel it was necessary to participate. Well, aren’t we special? One dealership body shop was minus a manager, and the next person in charge didn’t know the labor rates.

As for the fourth shop, they were just so darned confused that we decided we couldn’t use their information.

Most of the respondents, however, were very helpful and gracious, and many asked for a copy of the results. So I faxed a copy to everyone who participated.

The results were interesting, to say the least. The lowest body and paint labor rate was $42 across the board. That just happens to be the insurance industry’s so-called prevailing rate for this area. In other words, these shops are letting the insurance companies lead their way. The highest was $60, but this shop didn’t appear to be concerned with insurance work. In fact, this was one of the five shops that faxed me the completed survey. On it, the respondent wrote me a note advertising that he does custom work, chopping roofs, etc. Take the insurance company out of the equation, and the sky’s the limit I guess. There were two shops that do mostly insurance work that had posted rates of $59. How often they get it is another matter.

Most shops posted higher mechanical and frame labor rates. Those varied from the low of $42 all the way to $77. Materials rates didn’t vary as much. The low was $16 and the high was $22. And only one shop reported using a system other than its estimating software to calculate materials. That shop used PaintEx. (Why hasn’t FedEx sued the pants off PaintEx for kidnapping their logo? But I digress …)

Another surprise was that only about half the shops that responded had a minimum labor charge. In other words, some guy needs his headlight assembly changed, it’s raining so you pull the car inside, stop a tech from working on a big job to change the guy’s headlamp assembly and then charge the guy $14 for .3 in labor? The majority of those shops with a minimum labor charge used their hourly rate as their minimum.

The real shock, though, was the average markup on LKQ parts and sublet repairs. The average was 27 percent. The majority of shops responded with 25 percent. One shop even listed 20 percent markup. That’s a mere 16 percent gross profit. The high was 42 percent, and a few were 30 or 35 percent markup. But most of the shops were asking for a 25 percent markup, or a 20 percent gross profit.

My objective was to get the average rates posted by body shops in Southeastern Connecticut. And here they are:

Body labor:
$47

Paint labor:
$47

Mechanical labor:
$54

Frame labor:
$50

Other labor:
$59

Materials rate:
$18 per paint hour

Minimum labor charge:
$48

Markup on LKQ parts and sublet repairs:
27%

Are you paying attention Southeastern Connecticut body shops?
It’s important to remember that these are posted rates. What shops finally agree to is a whole other issue. But we’ve got to start somewhere, and a negotiation isn’t a negotiation if no one has to give anything up. I think of posted rates as goals, dreams, aspirations, a negotiation starting point. And if we’re asking for what we’re already getting, how will we ever get more? It’s this comfortable balance that’s the stink in the prevailing rates. This lack of financial inertia is the cause of the huge void between body shop labor rates and mechanical labor rates, or widget repair labor rates.

A few months back, a company that services paint booths called me to see if I wanted to schedule service. The first question I had was how long would it take? He said two hours. The next question I asked was how much? He told me $650. I don’t remember exactly what I told him because I think I blacked out, but a couple days later, his boss called me to apologize and to negotiate a reasonable cost. Heck, I figured the cost for two long-haired, biker types sporting tattoos of their naked wives to fiddle with my booth should be about $42 per hour. The nerve of these people!

Ibet you’re wondering where my shop fell in this survey of mine. I confess! I was on the low side at $44 per hour for body and paint labor. Immediately after I tallied the results of the survey, though, I raised my posted rates to $48, $1 above the average. Will I get it?

Sometimes I do.

I do a lot of customer-pay work. Hopefully, it’ll also help to push the insurance industry prevailing rate higher. And, hopefully, other shops in my area will get out of the survey what I did. Every other industry or business knows exactly what the competition is doing at all times. They’re constantly checking each other’s prices and the way the other does business.

Insurance companies somehow always know what the others are paying for labor rates. Maybe it’s about time we start shopping each other on a regular basis. Maybe every shop should do its own survey once a year, just to ensure its rates are in line with everyone else’s.

If every shop does its own independent survey, there can be no risk of collusion or anti-trust violations. Each shop conducting its own labor rate survey is just collecting public information, information that’s required by law to be posted in plain sight for all customers and, more importantly, all insurance representatives to see.

To some of you, the week we spent conducting the survey and compiling the information may seem like a lot of work, and even a waste of time. But the information we collected has proven to be very valuable. As I mentioned earlier, I faxed each participating shop a copy of the results. Again, it’s public information. The shops can do whatever they want with the information. Next, I wrote a very nice letter and sent it with a copy of the labor rate survey results to the local claims manager of every major insurance company. It sort of put them on notice. It was great entertainment hearing appraisers repeat the comments their bosses had made about the survey and its results.

Because Scar Face Insurance told me that we could re-survey at any time, I had them send me another copy of their survey letter. I then faxed a copy of the letter to each of the participating body shops and begged them to fill it out again. One of the problems with Scar Face’s survey is that few of the shops filled it out or sent it back, so the previous results were inaccurate. Thankfully, many of the shops must have sent their survey forms in this time because Scar Face sent me a note with its new labor rates for my area – and they’d gone up $2. It wasn’t what I was hoping for, but it’s better than nothing.

By raising our rates well above what most insurance companies are offering to pay, I have room to negotiate. And the negotiations have been very successful. Many of the insurance companies are paying $3 to $6 per hour more than they were just a couple of months ago. And we’ve been keeping a list of which companies are conceding to what rates – just in case they get forgetful.

In the past couple of months, my overall average hourly rate has increased by more than $3. If the insurance company refuses to pay the difference, we explain to the customer that we offered to meet the insurance company half way and that they refused to budge. Those customers are almost always willing to pay the difference themselves once they see that we’ve been reasonable and made an effort to negotiate with the insurance company. In those cases, the customer usually sees the insurance company in a bad light, not us.

Yeah, our little survey was a lot of work, but we learned a lot. The most important thing we learned is that it doesn’t take belonging to an association or hiring an army of attorneys to make some meaningful, positive changes in your business. And you don’t need to change the entire industry either. One business, one body shop, one person can make a difference.

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Comments

4 Comments on Those Prevailing Rates

  1. Okla. central rates on Thu, 22nd Apr 2004 8:22 pm
  2. 38 paint labor 28 paint materials 38body labor I think my skills required more thought then todays "part changing mechanics ,,."I’d like to se us making 65 ,,85,, an hour,,.

  3. mitch on Tue, 10th Apr 2012 7:57 am
  4. To all : Spend a couple of hundred dollars,have an accountant find your C O S T per hour per man, add a reasonable profit (“what’s that”?, you ask). Then let me know what your door rate is (should be).

  5. John on Sat, 14th Apr 2012 9:18 am
  6. Surveys are very complicated, what are the variables?

    There are A,B, & C shops in every area, the insurance company typically picks zip codes or areas they have the most market in to survey those shops, they say they don’t include their DRP’s in their assestment buy you know they do. You never get a copy of their so called survey leaving you in doubt as to the authenticity of their survey.

    The problem is our only consistancy is that were not consistant. The insurance company’s got smart in the ’90’s and we became complacent the DRP programs have killed this industry. Not the program’s themselves, but our estimators became an extension of the insurance company and are manulated into doing their wishes.

    For labor rates I noticed above that someone was charging $50.00 pr hr. for FM work, only a few dollars above SM labor. How do you pay for the equipment or maintain it. Shops if your employee (Tech) is getting most of the split your equipment is being used for free. Most frame machines sit idle for much of the week unless your doing above 2million a year, obviously there are exceptions. So from an accounting perception you are loosing money on the machine, accessories and sq. footage for that area of your shop. Also that equipment set you apart from some of the lessor B and C shops.

    The same goes for mechanical labor, most body shops don’t do a large volume of mech work so you do more research and it takes longer to do the same repairs that a mechanical shop could do it in. If you are doing the same work as the mechanical shop, why would you do it cheaper? Don’t you warranty it the same?

    Surveys should be done once a year, sent out by November one, collected in the first week of December and sent to all insurance companies by the 15th of Dec. to go into effect January one of next year.

    It would be best to have a body shop association put them on line where everyone has access to them to unite shops to participate.

    As with the party above taking surveys as a shop owner is frustrating at the least but one of the most important tools available to shop owners.

    The State should have the same rates throughout it, the insurance companies break it down in areas to keep shops from unitting and keep them guessing. Nobody said their stupid!

    Most states have a clause with the State Insurance Board with something to the effect about areas and Insurer based methodalogy. This is ambigious, because all insurance companies figure items differently, such as what they will pay for and what they won’t. Almost all of the one’s I’ve seen say the vehicle should be brought back to a “Pre Loss Condition”. Your responsible.

    If you really what to become more profitable you will have to get smart, get together, and get with your state legislators for all the areas in your state. Almost all states are loosing tax revenue and may be interested in what you have to say.

    If and when you get together, you need to understand that you can’t tell other body shops what to charge for and what not to, thats where you get into trouble. If you actually get together, write down all your questions and donate $50. apiece and speak with an attorney, you will find out you can do much more than you think. Also as mentioned above your door rates are open to the public as well as your other shop owners.

    Doesn’t it bother you that insurance companies don’t argue about parts price increase, they simply pay for it. So why do you let them keep you at the same labor rates for several years?

    Sorry about the spelling, I hadn’t planned on responding.
    Thanks

  7. A. Glidewell on Fri, 13th Feb 2015 5:32 pm
  8. It is flabbergasting how any two shops can have the same Rates. I am sure all the shops have different cost and fixed overhead. Then there is inflation that is rarely ever accounted for on an annual basses. In other words At a minimum your rate should increase the rate of inflation or you loose. Go online and get an inflation calculator and see where you should be from where you are, say giving you a base line of the Rate you charged when you opened your place for business. Then you have all those other Government fee’s that go up at a rate grater than inflation just like the utility company and other services you use. So as you can see just because the man with shop a charges XXX because he has no debt/lower overhead and decides to work for less money don’t mean that shop B who is in a similar situation has to pass that savings on and in fact should not because shop A and B are entitled to make a fair profit and should not be penalized for good management. Now if shop c and d was to come the area with New everything, and c has a lot of DEBT to service and d has no debt what do they Charge? Is not all shops entitled to a Return on the investment they make or is that only allowed for the Bankers, Finance company, equipment lease company, and insurance jerks? Every Shop should Get a baseline and go from their! Don’t forget to Adjust for inflation Each and every Year or you are going to suffer!

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