Bad News, Weird News, Good News and Better News.

November 4, 2004 by
Filed under: Uncategorized 

I have some bad news for you ADP users. Their October update has chewed a huge hole in your profits. Someone left a post on the BodyShop Solutions discussion board the other day with the warning. He noticed some changes in labor times, so he tried an experiment to see what was going on. He opened an estimate that was a few months old and copied it, item for item, the same vehicle, same VIN even. This shop owner faxed me a copy of each estimate. The differences are startling, and very disturbing.

The vehicle was 2000 Chevy Malibu. The original estimate was $3276.20. The new estimate written with October?s update ended up at 3136.29. The difference is 5%. Now for many people, this may not seem like a big deal, but remember this: That 5% is net profit. With most body shops netting less than 10%, that 5% is huge. The original estimate had 27.8 hours. With the October update the hours were reduced to 25.7. The majority of the decrease was in the paint column. As you know, this also lowers materials charges.

We all know there is a disturbing trend of database times decreasing. Over the past decade we have seen an across the board reduction in labor times for every vehicle and every procedure. The only time a labor time is increased is when someone makes the effort to contact the database providers and ask for a review and correction of a certain procedure.

There has been much talk and speculation about the insurance industry?s influence on the database providers. Let?s take a common sense approach to this. There are about 50,000 body shops in the U.S. According to Body Shop Business magazine, in 2003, only 67% of body shops surveyed had a computerized estimating system. We must assume that those who responded to the BSB survey were probably the larger shops, the more active shops, so this 67% is most likely much higher than a survey of every shop would produce. Let?s give it a realistic figure of 50%. So assume there are 25,000 shops in the U.S. using a computerized estimating system. CompEst claimed 5,000 users at the time they sold to CCC. Most of these would be body shop users since few if any insurance companies accept estimates written in CompEst. That leaves about 20,000 body shops using one of the three major estimating systems (CCC, ADP or Mitchell). That averages about 6,666 shops per data provider if distributed evenly. Allstate alone probably pays for that many copies of an estimating system for their appraisers. Imagine the number of copies of these estimating systems the entire insurance industry pays for each year.

With the insurance industry as the major consumer of electronic estimating software (not to mention all the other services provided by CCC, ADP and Mitchell, like data processing, total loss services, etc.) where do you think the database provider industry?s loyalty lies? Follow the money folks. But you?ll never get them to admit it.

I called ADP and asked to speak with someone about this. A very helpful sales person promised to relay my message to the appropriate people. Even with follow up calls from me, they still haven?t responded. If they ever do respond, I will pass along their response to everyone. If they fail to respond, as CCC has done so many times in the past, I would suggest that all ADP users take a long hard look at their relationship with the company, and consider whether they can afford the increasing losses caused by their continually decreasing labor times (I know, I know, all the data providers? times are falling, but this instance is so blantant). As an industry we must get together and come up with a solution to this problem. Perhaps it?s time for us to join forces and create a non-profit organization to provide our industry with honest repair times. Or maybe we should abandon published repair times and use our own individual experience as the basis for estimating repair times. One thing is certain. The current system is squeezing the life out of our industry.

Now for some weird news. Maybe weird is not the right word but here?s the deal. NACE is this week, and though I?m not able to attend this year I am still interested in what is going on. Looking through the seminar descriptions I was amazed at what I read. Here are some examples:

? Estimatics – Better Estimating Practices through Consensus Building: Speaker(s): Robert Medved , Roger Cada , State Farm Insurance Description: Discover ways to write more clear and concise estimates by reviewing the fundamentals of estimating that are most commonly overlooked. Learn how being versed in the most current P-Page language, technician involvement in the estimate-writing process, and having the finished job mirror the estimate can be paramount to your estimating process. Hear discussion about Restraint Systems, TSB’s, and OE and I-CAR repair information.

? Seminar: WE-14 Writing Proper Estimates: Speaker(s): Robert Tavarez, Caliber Collision Centers, Mark Olson, VeriFacts Automotive LLC, Description: Avoid confrontation by writing an estimate that is consistent to what’s been promised. Learn how to write estimates that are compliant with insurance company standards. Learn how standardized tools can be helpful for estimators and management. Understand key items of negotiation. Discover techniques to track performance.

? Seminar: WE-06 Understanding and Measuring Severity: Speaker(s): Michael Condon, Allstate Insurance, Erick Bickett, Alex Feliciano, Sam Mercanti, Ted Stein, Description: Hear an overview of severity – what it is, how it can be measured, why it is important, and how repairers and insurers can find the common ground necessary to address the issue in a positive and productive manner. How repairers can analyze and discuss severity and severity measurements. Learn what estimating and repair techniques repairers use to produce cost effective, quality repairs.

? Seminar: TH-28 Successful Partnerships Between Shops and Isurers: Speaker(s): Tony Molla, Michael Lloyd, California Casualty, Dan Bailey, CARSTAR, Ric Pugmire, Auto Body World, George Avery, Description: Identify what insurance companies and repair facilities look for in a partnership. Discover how shop owners and insurers create and maintain successful partnerships with each other for the good of the common customer. Learn how professional negotiations from both repair shops and insurance personnel serve to make the repair process more efficient.

Is it my imagination or is NACE becoming an insurance industry indoctrination and re-education camp? Do we really want insurance personnel teaching body shop owners how to write estimates? Do we need to understand ?severity? and how it affects Allstate?s appraisers? pay raises and promotion structure? Should we care about severity at all? Doesn?t that put our thinking on the side of the insurer, when it should be on the side or our customer? Do we really want huge consolidator personnel and insurance personnel telling us how to swap spit with the insurance companies? Do we really believe their advice won?t be self serving and won?t encourage their attendees to bend over in the presence of the mighty DRP drug pushers? Is this what NACE is going to be about in the future? Is NACE?s new objective to create a warm and fuzzy atmosphere between the collision industry and the insurance industry? Does anyone truly believe that the insurance industry will suddenly give collision repairers the respect needed to foster a mutually beneficial relationship? Am I the only person who thinks this is counter-productive to improving the collision repair industry?s position of strength in our battle against the insurer tactics that are destroying our industry?

The good news I have is related to the recent actions by New York?s Attorney General, and now, Connecticut?s Attorney General looking into the illegal steering by insurance agents and the kickbacks by insurance companies. (Isn?t it ironic that insurers are having done to them what they?ve been doing to us for decades?) Though this isn?t the same illegal activity that our industry is concerned with, it is an opportunity for us to jump on the bandwagon and be heard.

The Attorneys General are focused on the insurance industry and will be more receptive to complaints about their shady dealings, especially if there is the chance that it will be publicized. Consumers are getting bilked out of millions of dollars due to arrangements big insurance companies are making with some insurance agents. Consumer?s are also being bilked out of millions in diminished value and are subjected unsafe repairs due to arrangements big insurance companies have with some collision repairers. Concessions made by repair shops to insurance companies can and do end up hurting the consumer in the long run.

Our issues dovetail perfectly with the current investigation. In fact, Connecticut Attorney General, Richard Blumenthal, is on record stating that his office has been investigating the insurance industry for the past five months. This, coincidentally, is about the time of the first meeting he had with the Auto Body Association of Connecticut. It is not clear if that is what he was referring to, but the coincidence is interesting.

Last week the ABAC received a copy of a letter sent to the Connecticut Insurance Commissioner by Attorney General Blumenthal. In the letter he reiterated the three questions he wanted answered by the Insurance Department. Of particular interest to the ABAC was the AG?s office asking for a clear definition of ?reasonable and customary rates? as it applied to the labor rate insurance companies were willing to pay collision repairers. Again the AG?s office made it clear?and this time it was in writing?that ?It is important to note that this same term is used in the Medicaid prescription drug context to mean the price that is charged for the uninsured customer, rather than the price negotiated by the health insurer.? It appears the AG?s office is making clear that this is their interpretation of the term ?reasonable and customary rates? as used in the current statutes regulating Connecticut?s insurance industry.

If the Insurance Department is encouraged to use this definition, insurance companies in Connecticut would no longer be able to use the lowest rate agreed to by their DRP relationships as their benchmark for the ?reasonable and customary rate? or ?prevailing rate.? In my case, as in many shops in Connecticut, my customers regularly pay us $75 for collision repair work. We have boxes of invoices with customer paid labor rates ranging between $50 and $75 per hour. Insurers would have a very difficult time justifying their insistence that $44 is a fair rate.

I strongly recommend that each and every one of you reading this take advantage of the momentum. Attorney?s General across the country are looking closely at the Spitzer/Blumenthal case against the insurance industry. Use their interest to your advantage. Contact your state?s AG office. Ask for a meeting to discuss your complaints. Be sure to mention the Spitzer investigation and how your complaints also affect the consumer. Encourage other shop owners near you to do the same. Contact your state?s association and make sure they are in touch with the AG. Don?t let this opportunity pass you by.

Finally, the better news. The political circus has finally ended. Though I am delighted with the outcome of the Presidential Election, I understand that many of you are not. For those of you unhappy with the results, I want to remind you that for the collision industry it matters little who is in the White House, unless, as a business owner, you are interested in paying higher taxes. If you are interested in paying higher taxes, you?ll have to wait at least four more years for the chance of a tax hike. But may I suggest that instead of waiting for a Democrat to occupy the White House again, you take it upon yourselves to put your money where you mouth is.

Many of you Democrats making more, as a small business owner, than that magic $200,000 per year John Kerry likes to use as the benchmark for being ?rich,? you should feel free to pay more than what that tax chart says you owe. Why wait for taxes to go up? There is no law saying that you can?t pay more than what you owe. The federal government would gladly accept your additional tax dollars. Set an example for those selfish Republicans. Figure out what you would owe in taxes if John Kerry had won, and send it in. You can even insist that the money go to pay down the national debt. Even better, take the difference between the Bush tax rate and Kerry?s dream tax rate and find a homeless person, or drug addict, or single mother on welfare who has six children, you know, someone who would benefit from Kerry?s proposed tax hike, and give the money to that person. You?ll feel so wonderful, so fulfilled.

More importantly, remember that no president, no Republican, no Democrat or coreless independent will help you improve your situation, whether in the collision repair business or in your life in general. As an individual (I know, individuality is a scary concept for some of you) you have the power to control your own life, your own destiny. John Kerry and his cronies could not have helped you fight the insurance industry. You have to stand up and fight yourself. Yes you can use these politicians, attorneys general and insurance departments to facilitate your goals, but they won?t do it for you. You cannot depend on anyone but you to get the job done. An amazing thing will happen if you act. When you stand up and fight, when you lead the effort, others will see your successes and want to join you. Others will line up behind and sign up for service. You will find yourself as an unlikely leader, but others will see you as an inspiration. If you only lead a loud and obnoxious whining tantrum, if you blame others for your situation, others (people who matter, people who can help you) will see you as a nut. Yes, you will attract some followers. And you will have plenty of company to share in your misery.

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Comments

9 Comments on Bad News, Weird News, Good News and Better News.

  1. Roger Walling on Thu, 4th Nov 2004 12:54 pm
  2. P. Freeman on Thu, 4th Nov 2004 12:59 pm
  3. I am glad we don’t have a tax & spend President. We have a Borrow & Spend President. Borrowing from our children & grand-children so that every person in Iraq can have medical coverage. Yes, every Iraqi citizen is now guarenteed health care! Did a Democrat do this? Nope! Our conservative Republicans did this! Along with creating the largest federal government that has ever existed! Borrow & Spend! To heck with pay-as-you-go like those stupid Democrats that balanced the budget! PS I’m a regestered Republican and am still looking for a conservative candidate to support.

    RESPONSE FROM AUTHOR:
    Just for the record, I too am disturbed with all spending. But to get the facts straight, yes the dollar amount of the deficit and debt is the highest ever. But that is a dishonestly misleading statistic. When taken as a percentage of the GDP, it is at the lowest point it’s been in decades. Which of the following two situations would you rather be in? Would you rather make $50,000 per year and have $10,000 in debt? Or would you rather make $150,000 per year and $20,000 in debt?

    Though the federal government has grown too large–way too large–Bush’s income tax overhaul plans include eliminating the IRS. This will be a very difficult task politically, just because of the number of federal jobs it will eliminate. For more information visit fairtax.org.

  4. J. French on Thu, 4th Nov 2004 1:17 pm
  5. This is complete B.S. With the materials cost much too low already, trimming refinish hours adds insult to injury. I am faxing a copy of this article to my ADP rep PROMPTLY.

  6. John M on Fri, 5th Nov 2004 10:10 am
  7. I also found times decreased on the Nov. CD. Along with the refinish times going down I also noticed the Aim H/L’s time to decrease by (.1). So I contacted ADP and they did respond to me. They let me know that they have received "concerns from some of our clients regarding refinish times." They also said that they are looking into this. I know that that does not say there will be a change but at least they have acknowledged it. They also said that they will get back to me on what they find out, so I will try and post back here on what I receive.

  8. RATES on Mon, 8th Nov 2004 9:26 am
  9. NO ONE HAS YET EXPLAINED WHY INS.CO’S WILL PAY THE MECH. RATES THEY DO . AND SCREW THE BODY SHOPS SO BAD.I KNOW THE DON’T HAVE ANY MORE MONEY IN EQUIPMENT THAN WE DO .I DON’T THINK MECHANICS GET THE OPPERTUNITY TO BREATHE ALL THE WONDERFUL STUFF WE DO EITHER !

  10. Rob Johnson on Tue, 9th Nov 2004 10:48 am
  11. not a bad article, but nothing new either…then you had to ruin it with a political debate.

    Which political party benefits the most from insurnace company PAC money?

  12. Jim on Thu, 11th Nov 2004 4:31 pm
  13. The thing with Dealerships and their mechanical rates is that they are all on the same page as far as labor rates. They all demand a higher rate and don’t budge. Many body shops settle for less allowing the insurance companies to continue to pay lower rates. It doesn’t make it right….but until everyone agrees to settle for nothing less than $50 / hr, things will never change. You have to get your buddies down the road to put thier feet down on negotiations if your going to put your foot down. Without their support, your labor demands will be laughed at which ultimately could lose potential customers

  14. Tony on Mon, 18th Jun 2007 7:04 am
  15. Have they gone out of business? Their phone has been turned off, and I can’t print estimates… Anyone know whats going on with focus-write?

  16. Steve on Fri, 17th Apr 2009 9:34 am
  17. @Roger Walling

    Can you give me a simple explanatin of what severity is and how to measure it. I have a small shop and keep hearing about this, but honestly don’t even know what it is.

    I would greatly appreciate it if you could answer. I don’t feel comfortable saying to those throwing it at me that I don’t know what they are talking about.

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