The Hidden Challenges of Collision Repair
It’s no secret that the auto collision industry continues to struggle mightily with the ongoing labor shortage and supply chain issues. But if both problems were solved tomorrow, what would shop owners point to when it came to overcoming their next set of hurdles to run a smooth, profitable business?
It’s a question that has a variety of answers, but if you pull the curtain back a little farther, it becomes clear that there are a handful that continue to (or will be) thorns in operators’ sides. Whether it’s growing concerns over receiving fair labor rates from insurance companies, keeping up with the rapid evolution of automotive technology, or most recently, the rapidly rising cost of doing business, there are plenty of topics to keep a collision repair owner awake at night.
The Battle Over Labor Rates
According to the 2022 FenderBender Industry Survey, one of the biggest headaches for shop owners is the continued fight with insurance companies about underpaying shops for their labor during a repair process.
The issue hasn’t gone unnoticed by legislators, particularly in Massachusetts, where the state legislature is currently holding hearings on whether dealerships and auto body shops are being fairly reimbursed by insurers.
According to various news reports, the Alliance of Automotive Service Providers of Massachusetts offered a recommendation that would involve a tiered approach to raising rates. It suggested an increase of $33 for the minimum reimbursement rate and yearly adjustments based upon the consumer price index.
News outlets like WWLP in Springfield, Massachusetts, reported on a rally by collision repairers to bring attention to insurer reimbursement rates. One Springfield shop owner said that 30 of his employees went to Boston for the demonstration, according to the news station.
Proposed legislation by the Massachusetts Automobile Dealers Association would aim to authorize the state Division of Insurance to establish the minimum for industry labor rates, which haven’t risen in 14 years.
Several other states, including California, Florida and Michigan are considering legislation that would regulate reimbursement rates.
Stan Medina, owner of Certified Collision Works in Corpus Christi, Texas, says that he’s glad to see collision repair operators be more vocal about the industry issues.
“It's a very interesting time within the body shop industry,” he says. “I think that we’ve built some momentum over the last couple of years, and we’re kind of almost at this point of no return.”
He’s had difficult conversations with insurance adjusters who say they don’t pay out for certain repair processes. One strategy Medina has picked up is to do a lot of homework before dealing with insurers. Make the case for why your labor rates are where they are—and provide evidence.
“Be consistent with them,” Medina says. “We have a documentation that we use that says based on the economy and price increases and materials, it’s due for a labor increase. And we share that with them.”
When more repairers in a market are demanding better rates, insurers will take notice, he adds.
Keeping Pace With Advanced Technology
With OEMs continually evolving vehicle technology at break-neck speed, many shop owners are caught in the middle, having to make the tough decision on investing large chunks of their money into diagnostic and other high-tech equipment so they can properly service a car when it arrives at their lot.
Tim Wall, owner of TNT Body Shop in Virginia, says although he’s aware of the need to invest in new tools to service vehicles, especially those equipped with ADAS, the price tag attached to that decision has forced him to dig deep into researching emerging technology trends and whether any investment he does make will increase his shop’s bottom line to the point it’s worth the price.
“My shop is located in a rural area, so although I know ADAS, for example, is becoming more common in cars, is it worth the massive investment I’ll have to make so my shop can service those specific vehicles?” he asks.
At the moment, Wall says he’s considering investing more than $100,000 into new diagnostic and calibration equipment, but even that isn’t a guarantee his shop will reap the benefits when it comes to increased revenue.
“You have to walk a fine line between deciding exactly what vehicles your shop can afford to service and which ones aren’t worth it,” he notes. “I have a son who is primed to take over the business, and I don’t want to saddle him with crushing debt because of bad decisions I make now.”
Wall acknowledges that investing in new technology will have positive benefits for the shop, but he adds that there’s no clear formula all shop owners can follow.
“If your shop is located in a large metro area, then perhaps you have no choice but to invest in ADAS equipment,” he says. “At the same time, however, you really have to know your customer base, your market and whether you want to offer a service some of your competitors can’t or won’t. Still, in the end there are no guarantees, and manufacturers offer little guidance so to a large degree you’re out on an island when making these decisions.”
Inflation’s Crippling Effect
The rapid rise of inflation across the U.S. has had a crippling effect on just about everyone. While consumers struggle with gas prices surging to and beyond the $4-per-gallon mark, and the rising costs of items from the hardware store to their favorite restaurants, businesses are hit just as hard by the rising cost of doing business.
According to statistics released by the U.S. Labor Department in April, the consumer price index leaped 8.5 percent annually, the fastest pace since December 1981. That jump contributed to the U.S. Federal Reserve decision to raise interest rates in early May. Inflation now has notched new 40-year highs for five straight months.
Prices rose 1.2 percent from February levels, the sharpest monthly increase since September 2005.
Collision shop owners are feeling the crunch, too, as the cost of shop supplies and other essentials have in many cases forced them to pass those increases on to their customers.
“I’ve seen increases across the board when it comes to purchasing supplies for my shop,” says Mike Mashburn, owner of Mashburn’s Collision Center in Tennessee.
You’d be hard pressed to find an operator who isn’t concerned with increasing costs.
“The sad part about that is the inflation always falls on the smaller guys,” Medina says.
He says he tries to do the most he can within his shop walls. He talks to his staff about financial education and has brought in experts during a lunch and learn session to go over personal finance. This action doesn’t make the cost of goods cheaper, but it shows staff members that Medina cares about how they use their pay.