Evaluating the Pros and Cons of DRPs
Steady work and happier customers sound like a win-win for any business, and while that may have been the intention at one point in the history of insurance companies’ direct repair programs (DRPs), the realities are much more complex today. These days, DRPs have numerous and varied requirements, such as new estimating software, pricing that won’t quite cover your costs and aftermarket parts, like them or not. The role of DRPs in the collision repair industry is a hot-button issue, and DRP relationships can get messy. As insurance companies increase their demands, many shop owners increasingly feel that they aren’t treated as the valued partners they’d hoped to be.
But frustration and hurt feelings aside, when all is said and done, the DRP opportunity is like any other: a business decision to be carefully analyzed. That’s why we asked two longtime, highly successful shop owners — DRP proponent Nick Gojmeric and DRP critic Mike Parker — to help us outline the pros and cons of the issue. Their interviews showed that whether you’ve built your shop’s success around DRPs, whether you’re considering expanding your DRP involvement or whether you’re looking for a way out, there are five basic questions that should guide your business strategy:
- How do you build your customer base?
- Do you run a savvy business?
- What’s your approach to estimates?
- How do you best interact with customers?
- What is your car care philosophy?
Gojmeric is the president, owner and CEO of Collision Plus Auto Body Repair Centers in Belleville, Swansea, O’Fallon and Glen Carbon, Ill., and he built his shops around DRPs, so he knows they can be a valid component of a successful business model — although even Gojmeric, who gets about 50 percent of his business from insurance companies, is sometimes wary about the direction the programs seem to be headed.
Meanwhile, Parker, owner of Parker’s Classic Autoworks in Rutland, Vt., has been in the business 17 years, and at one point, 13 three-ring binders lined his office shelves, one for each of his DRP agreements. After a long, conflicted run with DRPs, Parker is weaning his shop off the programs — and he’s earning more money than ever before.
Here’s their take on how to strategically analyze the business aspects of DRPs for your shop:
1. HOW DO YOU BUILD YOUR CUSTOMER BASE?
A steady stream of work from DRPs can bring peace of mind to your business, Gojmeric notes: “You can get market share by working really hard and buying business any way you can, whether that’s buying shops, making deals with dealerships or spending a lot on advertising. The DRP thing seemed least costly of all.”
Then again, counters Parker, relying on a single source for business can leave your shop vulnerable. In 2003, for example, Parker had a steady stream of business from DRP arrangements — business was so great, in fact, that he had permits in hand to add another 3,000 square feet to his shop. Parker, though, realized the risk of becoming dependent on what he now calls the “DRP drug:” “The bigger you get, the more dependent you are on somebody funneling you work. If you get used to that work, and your major source of work gets sold, or there are changes to the program you don’t like, or there’s a new DRP manager who doesn’t like you for some reason, your world can get turned upside-down.”
Another point on Parker’s mind: If you lose a DRP contract, chances are that prudent advertising can help you through the sudden dip in business. By contrast, working with a DRP can throw a kink in your advertising plans because some programs require shops to handle a significant amount of the contracted insurance company’s business — and woe to the shop owner whose advertising brings in so many customers that it’s impossible to honor a DRP quota.
2. DO YOU RUN A SAVVY BUSINESS?
Even Parker agrees that DRP requirements have made a tremendous difference, for the better, in the overall professionalism of the collision repair business. And the many details and requirements of DRP contracts — along with an increasingly competitive business landscape — mean that you’ve got to be sharper than ever, which Gojmeric notes is also a good thing.
“You really, really have to be a good businessman today,” he says. “Even if that means using a series of spreadsheets to figure out that a highly discounted DRP isn’t a good way to go, you can’t be a bad businessman. You’ve got to know the numbers.”
It took Parker nearly 15 years to fully appreciate that kind of advice. While busy working two jobs, he used to plow through his days just trying to get the work done. “About five years ago, I started to see that our DRP partners had different interests than we did. We wanted to do quality work, but I didn’t even know how to write an estimate,” Parker says. “A few years later, we switched to working with an accounting firm, and they said, ‘What in the hell are you doing?!’ They looked at what we were paying out for labor compared to what we were taking in. We were losing money on materials, and they told us we didn’t have a high enough hourly rate. At that point, I realized I had to learn more about what was going on here.”
Help here is available from paint companies and other vendors that offer educational programs on topics like accounting, management and employees. For Parker, the Coalition of Collision Repair Excellence and local industry seminars have been good educational sources. After reducing his number of DRP contracts from 13 to two over the past few years, Parker had one of his best, financially, in 2006. The difference, he says, came from not having to run his business in a different way for each DRP.
On the other hand, a less tangible, but no less important, aspect of running a savvy business is the image factor, for which DRPs can offer a big advantage, particularly if they’re with high-profile insurance providers, Gojmeric says. “Aligning yourself with a larger company can be good for your image, and you can benefit from those relationships,” he explains. “If I had a first-class restaurant, I’d love to be aligned with a first-class hotel that would send me first-class customers.”
3. WHAT’S YOUR APPROACH TO ESTIMATES?
Remember the bad old days, back when customers had to go shop to shop getting multiple estimates and weeks sometimes flew by as appraisers wrote estimates and then supplements, and everyone waited for the insurance company’s final say via mail? The DRP approach of providing a single, prompt estimate for the customer is a much better mousetrap, according to Gojmeric.
At the same time, for shops with multiple DRP contracts, multiple estimating software programs might have to be leased and learned, and some estimating systems might not reflect what a shop owner feels is a reasonable figure for getting the job done. Still, while DRP-mandated estimating systems are not always right, Gojmeric says, they’re the best thing going in terms of consistency, and once an estimating database has been agreed on, it can be followed as the standard for creating an accurate estimate.
For shops that don’t work with DRPs, much greater care is required to educate customers about the additional, hidden damage a technician might find once a repair is underway. So expect to spend more time talking with customers and teaching them about the value of their vehicles if you don’t go the DRP route.
4. HOW DO YOU BEST INTERACT WITH CUSTOMERS?
DRP arrangements can make the estimate and repair process easier on the customer, which, other things being equal, makes for fewer headaches all around. But while non-DRP shops might have to spend more time educating customers, those shops might ultimately see greater revenues — as better-informed drivers choose OEM over aftermarket replacement parts, for example.
When customers know the risks of using aftermarket parts, Parker says, they tend to choose factory parts, and with a little explanation, customers also start to think differently about estimates. When an insurance company calls for an aftermarket part, a customer learns that he or she — rather than the shop — has the responsibility for negotiating the disagreement.
Gojmeric, however, views it like this: “The insurance companies are the customers, and we take care of our customers’ customers. They have the money, we want the money, and the best way to get it is through a DRP relationship.”
5. WHAT IS YOUR CAR CARE PHILOSOPHY?
Great auto body technicians know that the car, not a set of DRP rules, should suggest the proper collision fix. Shops without DRP agreements are free to work this way, while shops with DRP agreements generally aren’t. Consider these scenarios:
“Manufacturers are getting more involved in how their cars are repaired,” explains Gojmeric, who works with all but one of the major DRPs. “Insurance companies can agree, or not — they are in the risk business. But when insurance companies decide not to follow the manufacturing guidelines, shops have some really tough questions to answer. If you violate what the manufacturer recommends to follow the DRP rules, you have to ask yourself if you can sleep at night.”
For Parker, the answer was such an emphatic “no” that he was willing to risk losing his DRP contracts. “A DRP wanted us to straighten a frame rail instead of replace it, but that would never restore the integrity, dimension and shape — you have to get the car back to manufacturer specs,” Parker explains. “When a DRP asked us to do something unsafe, we’d say no. They’d threaten to take us off the program, and I’d say, ‘Fine, take me off.’ And then they’d back off.” Parker adds that the threat of being removed from a DRP was much less threatening once he’d made the final decision to wean his company off DRPs.
THE ROUGH ROAD AHEAD
The future of DRPs seems steady for now, but there is growing discontent among shop owners, even among those built around DRPs. “DRPs are still great programs,” Gojmeric says. “They’re good for customers, for shops and for insurers. But the balance of power has gone too far, and the relationship has become abusive.”
In fact, some DRPs pay less for greater volumes of work; there are no incentives for doing better work; and a “most favored nation” clause in one DRP contract forces shop owners to charge lower rates on sometimes significant volumes of work.
Gojmeric’s hope for the industry lies with standards. “The dirty little secret of our industry is that there are no standards,” he laments. “When Mrs. Jones calls her plumber, there’s a plumbing code the plumber has to follow. When she calls an electrician, there’s an electrical code. But her 150-miles-per-hour car doesn’t have a code, and shops can put on parts that may or may not fit right, that may or may not be in the best interest of the car and customer. And with the increasing leverage of DRPs, that happens quite often.”
One of Parker’s concerns about DRPs, however, is on the legal front. He’s beginning to hear questions about whether shops have the right to negotiate with the insurance company on behalf of the customer, which is, in effect, what happens when a shop acts as a go-between to sort out price and parts disagreements. In fact, when Parker asked his attorney to review one DRP contract, the attorney found more than a dozen items that made him nervous — a big reason why Parker now aims to run a DRP-free shop.
Meanwhile, Gojmeric and Parker both offered an anecdote that illustrates their respective DRP business philosophies.
“I think of the story of the scorpion and the frog crossing the river,” Gojmeric says: A scorpion needs a ride across the river, but the frog objects because he’s afraid the scorpion will sting him. The scorpion points out that if he stings the frog in the river, they’ll both drown. So the frog agrees, only to feel the fatal sting halfway across the water. As the frog goes down, he asks the scorpion why he’s stung him, and the scorpion replies that it’s his nature; stinging is what scorpions do. So too the insurance companies, Gojmeric suggests: They keep costs low to provide a reasonable price to their customer and to make money for themselves. Again and again, it’s what they do — the challenge lies in how a shop owner can best deal with that reality.
Counters Parker: “Fear runs this DRP industry. We all worry that the insurance companies will take us off the programs immediately and give all our business to the shop down the street.”
Parker, 53, is a competitive runner, and, during a recent conversation with an older competitor at a senior track-and-field meet, he gained some perspective on the expression, “feel the fear and do it anyway” and how it relates to getting off DRPs: The older gentleman, a 90-year-old, has set a world record in the 400-meter-dash in his age group and also holds the 200-meter-dash world record, but he can’t seem to capture the 800-meter record — for some reason, no matter what his running strategy, he always seems to have too much energy left at the end of each race. To which Parker remarked that the speedster might actually be afraid of the longer race. “Geez, you’re right!” said the record-holder.
“This guy started running competitively at age 70, and here he is talking about fear!” an amazed Parker says. And he marvels at the fact that he could have had a similar conversation — about how fear alone can stop you in your tracks — with just about any DRP shop owner across the nation who’s thinking about changing course.