May 16, 2012—The Alliance of Automotive Service Providers (AASP) believes that State Farm Insurance Co.’s new online parts ordering and bidding process through PartsTrader is an unprecedented and uninvited intrusion into collision repair businesses, the organization said in a statement released Tuesday.
“Despite posturing from the largest national insurance carrier on what it believes to be positive attributes of the program, collision repair facilities, parts suppliers, parts manufacturers and interested parties around the country have been consistent in their perception that this type of activity will ultimately harm their businesses and the customers they serve,” AASP said.
AASP said that collision repairers are in the business of selling parts, labor and materials at a retail level—each of which are revenue sources that contribute to a shop’s overall success. The pursuit of a profitable return on investment is a core business principle, and one that collision repairers should not relinquish to other outside parties, the organization said.
Meanwhile, AASP said, insurance carriers are in the business of insuring risk and settling losses at market value when losses occur.
“As the payer of claims, insurers should not be ‘market makers’ for pricing of individual products and services that are components of final invoices,” AASP said. “To date, insurance pressure and influence over collision repair market pricing has driven average profit margins to low single-digit figures, despite the fact that the business of collision repair has a high cost of entry and requires ongoing capital investments to keep pace with automotive technologies.”
AASP said it has received feedback from industry professionals in other markets outside the U.S. who are familiar with insurer-mandated bidding platforms. The feedback indicated that State Farm’s parts procurement program is a losing scenario for shops—repairers stand to lose both profit and control of their business.
“The negative impact of this parts program has the very real potential to quickly spread beyond parts to other areas, such as paint, and beyond the boundaries of voluntary direct repair program (DRP) agreements to the industry at-large,” AASP said. “The collision repair industry has gradually transitioned from a proud trade of hard working owners and employees to a service provider that subcontracts to the insurance industry, working on net margins that it no longer controls and that jeopardize its ability to invest in its business and to attract and train qualified employees. AASP has grave concerns for its members’ future welfare if giant insurance corporations are permitted to trample on the free market philosophies that support a culture of small business success.”
