Optimizing Profit in the Body Shop

body shop

The body shop or collision repair industry has slightly diminished, however there are still new shops entering the fray to get their share of the revenue that is out there.  The way the insurance companies deal with these repairs has made it harder for new car dealerships to want to stay in the business.

New technology enables customers to send pictures and receive a check, by passing the repair process all together.  Only two out of five new car dealerships have body repair and paint operations in their facilities today.

Body Shop Managers get very little credit when it comes to the amount of time and energy that goes into running a profitable operation.  The insurance industry in this country is big business and whether you are a fan or not, when the consumer is involved in an accident today, the customer’s insurance company dictates much more of the terms in how the vehicle is repaired than most understand.

Many insurance companies have their own direct repair shops they work with and, in some cases, these are strictly based on prices charged for the parts and repairs rather than on the quality of work provided.  If the customer is not aware of this and they just take it to the insurance companies approved repair facilities, it is difficult to debate after the fact.

Take for example LKQ or salvage replacement parts.  The use of this option as replacement parts after the vehicle has been in an accident has for decades been acceptable.  In one way, at least an OEM part is being put on the vehicle even though it may be slightly or not-so-slightly used. If it’s sheet metal, it is at least original sheet metal from the manufacturer and not aftermarket or generic sheet metal that often is much less material and sometimes of a lesser quality.

The days of the dealership body shop operations holding any real profit from LKQ parts is slipping away.  As technology takes over in this area as well, insurance companies now have access to multiple data bases where the Insurance adjuster/estimator searches first the immediate area for the needed parts.

If nothing can be found locally, the adjuster then searches online from sea to shining sea for that headlamp assembly, steering column assembly or whatever part is required, and the least expensive option.  The body shop at that time is given these options and informed of the price that the insurance company is going to pay.

This offers very little negotiating room on the acquisition cost of the LKQ part which minimizes gross profit margins.

There are a few points to remember:

First: Cycle time, or the amount of time to complete the repair, is heavily weighted by the insurance company.

Secondly: Due to the time delay in acquiring apart from several states away and finding when the LKQ part arrives that it is either incorrect, damaged or inoperable. This can seriously delay the repair and cost the Insurance company additional money.

Third: You need to negotiate LKQ prices with local salvage yards.  Build solid relationships with these businesses so that in this situation they can help with the acquisition. Business-to-business relationships are critical between vendors and your body shop.

Fourth: If purchasing the part from a salvage business that your dealership does not regularly do business with, make sure you refrain from prepaying for the part lest you get stuck with the part when it is not used.

Fifth: If the part is incorrect, return it immediately as there could be penalties if delayed.

Sixth: Use pictures and video to make sure the business shipping you the part has a clear understanding of any specific needs it might have.

Seventh: Find out if your manufacturer has an OEM package or plan that allows discounted pricing on a new OE replacement parts for much less, such as collision link, etc.  Do the necessary research as this might be a viable option.

The improper handling of LKQ, aftermarket or OEM replacement parts is something that can cause your body shop operation to suffer considerable losses over time if you are not wise to these potential pitfalls. Staying on top of these things is easy but you must stay constantly plugged in to the latest information available.