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Fighting Shrinking Margins in the Body Shop

Costs Are Rising But Insurance Companies Aren’t Paying

By: David Lewis

One of the unique and marvelous things about a free market economy like ours here in America is that prices are based on what the market will bear. When we have a product or service that is being introduced into a competitive marketplace, the success of the business will often depend upon its quality and price compared to the competition.  It is the nature of a true capitalist economy and it has been central to building America’s success as the most powerful economic nation in the world.

Whether it is a product or service that I am interested in purchasing, as a potential customer I am expected to shop the various providers of such things until I find one who offers the quality and product I need at a price I will be willing to pay.  It works that way in most American businesses, whether providing products or services, and it has been this way for well over two-hundred years.

If I need to hire a plumber I can generally expect to pay $70 to $90 an hour for those services. Mechanical repair companies for something like heating and air-conditioning might charge $75 to $90 per hour; auto mechanic shops range from $75 to $225 per hour.  It is how things work in our society and it is the best way to measure the value of products and services in a free market economy.

While this is true of most industries, Auto Body Shop Repair and Refinishing businesses are held to low profit margins by the insurance companies who set the amount they will pay for an insured repair.  In most states Body Shop & Refinishing businesses can usually expect to be paid $44 to $52 an hour by the company insuring the vehicle.  Not only is that out of step with the pricing for similar services in the marketplace, it is the insurance company who decides what they will pay. If you want their business you have to take it at that price. 

In collision repair the insurance company is over 90 percent of the time the payee of the repair bill and the insurance companies dictate the labor rate charged by the shop. Body shops have no choice but to charge that amount or try to get the difference from the customer. A few try this approach, but those who do rarely remain successful. 

In spite of the fact that the cost of labor continues to rise, including benefits, employee taxes, tools, equipment and the rising cost of an experienced body shop employee.  The expertise needed for this job requires a highly skilled individual.  If the person they can afford at those rates is not well qualified for the job, what suffers is the quality of repair. 

So what can be done to right this unjust system?  Here are some examples of potential solutions that can possibly make a difference with some insurance companies:

  1. Body shops and Dealership Collision Centers need to form local and state associations forums and join together to make their plight known to their local insurance companies.

Coming together as a sort of coalition they are more apt to increase the labor rates that are essentially being dictated by the insurance companies.  The going rates are grossly inadequate as a general rule and need to be given fair consideration.  Some areas in the country already have strong associations while others have none.

  1. Training: Repair shops need to train their estimators/collision advisors to write complete estimates and to negotiate properly with insurance companies. 

This is their business and they need to defend reasonable rates of payment for their services or things will not change.  Obviously the insurance company will continue to pay these low rates as long as they are not challenged and can get away with it.

At David Lewis & Associates we understand that this must be done with care in some aspects.  However, Body Shop Managers need to stop trying to be the insurance adjuster’s best friend to the point of detriment to the dealership.  We are in business just like the insurance companies are and we deserve fair composition for the services we supply. 

Some may say that this is the way it is always been done and so it is the way is still being done.  But as in every case, doing things the way they have always been done is the worst excuse for doing anything.  In case you have not noticed, the insurance industry continues to raise their rates year after year while practically freezing the rates they will pay for the very intricate repair work being performed on the damaged vehicle.  While these shops need and appreciate the opportunity to get their business, it is not fair to penalize them by shrinking their profit margins.

All businesses to be successful need to be profitable, take the necessary steps by joining together in a coalition or association with other repair shops and dealerships so you have a stronger voice in your local area.

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David Lewis
David Lewis
David’s firm is a national training and consulting business that specializes in the retail automotive industry. He also is the author of four industry-related books, “The Secrets of Inspirational Selling,” “The Leadership Factor,” “Understanding Your Customer” and “The Common Mistakes Automotive Salespeople Make.” Visit his website at www.DavidLewis.com.

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