The Total Loss Dilemma
It’s not often a reporter covering collision repair news has an opportunity to do undercover work, ferreting out secret information. But that’s what has happened recently. The principal speaker at a recent auto body association meeting was Herb Lieberman from LKQ Corporation, speaking on “the total loss dilemma.” Herb said that out of about 65,000 totals a week, 19,500 (30 percent) are exported out of the U.S. Out of the 24,500 taken by professional dismantlers, many parts are also shipped to countries all over the world including Russia and Nigeria, just to name a couple. Herb made the point that 10,500 (25 percent) of those totals could have stayed in the U.S. and been repaired by our body shops. The emphasis of Herb’s talk was to try to get shops pressing for laws declaring something like a 50-percent consumer right to repair.
It’s well known that insurance companies dictate what constitutes a total and shops with a direct repair relationship (DRP) with an insurance company usually have a clause in their contract specifying what, if any, compensation the shop will receive for handling the total. It’s not surprising, then, that those shops don’t welcome totals. Shop owners that I’ve spoken to who have a DRP relationship say many vehicle owners would prefer to have their vehicle fixed, and that the threshold for a total should be set high enough to make more vehicles repairable. In fact Herb said that in New South Wales, Australia, a law was passed that required any vehicle that was declared a total loss by a professional estimator, to only be sold for end-of-life processing. That would mean no out-of-country shipping of the vehicle or its parts. The result of the law was significantly more vehicles being repaired by the collision repair industry.
What was surprising to me was the viewpoint of shop owners here who do not have a DRP relationship. Several said they welcome most totals, depending somewhat on the vehicle owner’s insurance company. They said sometimes it was more profitable to process a total than to repair a vehicle. I asked how this was possible. I had to guarantee I wouldn’t reveal my source, but I heard a surprising account of the game some shops play to profit from totals.
Apparently it all starts with a low-ball estimate. When the shop sees that writing a full estimate will put it over the total-loss threshold, they simply omit some of the actions needed to actually repair the vehicle or they write the estimate with low-cost used or aftermarket parts. Then (some said first they would wait for the first check to clear), they would supplement the job for the remaining repairs actually needed. If the supplement made it a total loss, they would still have collected for teardown time and some initial repairs. A reportedly even more profitable approach eliminated actual repairs and simply used the supplement to force the total while collecting for towing, storage and teardown time.
Speaking of the increase in totals way back in 2006, Lee Petersen, training marketing manager for Chief Automotive Technologies, said, “This thing is moving in the wrong direction and it’s moving fast.” During a “special presentations” section of a Collision Industry Conference (CIC) meeting in San Jose, Calif., he said, “Based on our analysis, it would not surprise us if we were pushing toward 30 percent totals within two to three years. Every stakeholder in this room is going to lose—is losing now and will lose more. I don’t have all the answers, but there’s a train wreck coming, and we need to decide if we want to do something proactive about this or just flat get run over.” Peterson’s prediction has proved to be accurate. Leiberman said the dramatic rise in the percentage of vehicles being declared total losses shows no sign of leveling off and poses a grave risk to the entire collision industry.
While it may be true that a few non-DRP shops somehow manage to make a profit from some totals, there is another trend that may make even this peculiar option disappear. Small, independent shops are gradually being eliminated by the relentless march of advanced technology. Only a small percentage of shops overall are prepared to repair aluminum, to use the right sectioning procedures, to identify substrates or to weld the many new lightweight metals and alloys. It is altogether possible that many manufacturers will begin to warn car buyers at the point of purchase that any auto body repairs to the vehicle will have to be made at an OEM-certified repair facility. A change like this nearly guarantees that the only shops that survive will have DRP contracts that limit how they can handle totals.
It would seem the bottom line is there is no escaping the total loss dilemma without a concerted effort on the part of the industry to get legislation passed declaring something close to a 50-percent consumer right to repair.
Tom Franklin, author of Strategies for Greater Body Shop Growth, has been a sales and marketing consultant for more than 40 years.au