The survey has since expanded to numerous states and NABR president Sam Valenzuela expects to reach a sample size of 10 percent of all the shops in the country soon. Valenzuela recently spoke with FenderBender about the survey.
Can you explain the technology of the Variable Rate System?
It’s a multi-step process and an iterative process. It starts with our online survey. In that survey, shops share with us their labor rates, the labor rates they would charge if insurance companies did not influence rates, shop statistics, certifications, trainings, equipment and tools, and OEM certifications. As more shops in a given area complete the survey, we have all of those rates in the VRS database. We can measure and report on that information.
Now that people have their rates in the system, the VRS subscription comes with a set of online tools that shops can use to better understand their cost of doing business and the labor rate they need to charge to hit their profit goals. The toolset is designed to help them price their labor for their own individual shop in order to be profitable.
We recommend that shops take a look at their financial statement and pricing every month and see if they need to make any adjustments. Once they decide to change their rates, they fill out another survey. As everyone actively participates in managing their own business, the market rates start to increase naturally over time.
How is this survey different from how insurance companies collect data?
The collection is probably similar. Our understanding is that insurers have the ability for shops to go to their website and complete their survey. Very similarly, we use an online collection method. That’s probably where the similarities end.
The path we’ve seen the insurers go down is one of creating a prevailing rate, which is one rate for a particular market. Our view is the opposite of that. We think there’s no such thing as one rate for a market. Instead, there’s actually a range of rates. Our approach doesn’t just show one number and say that’s the market rate. We show a range of rates from low to high.
How will you report the information collected from the survey?
There are two ways. First, when we do these state surveys, the results are publicly posted on our website. That’s a little more high-level of a view. For example, for Ohio, we carved up that state into two regions and we show you the rates for those different regions.
Second, we report through our subscription to the VRS. Subscribers can log in 24/7 and can view the survey at a much more detailed level. You can make more selections that are not available on that public page. We show you a range in labor rates from low to high in a market, as well as an average rate, a below average rate, a median, and mode.
What constitutes a state being part of the survey? Is there a number of shops per state you’re hoping to hit?
We started down the state path because we saw that the industry is largely organized by state associations. We just kind of fit right into that structure. Obviously, we need some data first so that we can have something to report on. Ideally, we’d like to have at least five percent of the market to be a sufficient enough sample size.
What does it mean to have a specific shop owner, like Ray Gunder in Florida or Bob Juniper in Ohio, or an association attached to the survey?
They’re promoting and bringing attention to the surveys in their state. They are making a statement and saying that they are on board with this vision of restoring the free market system back to labor rates and labor rate pricing in this industry. By Bob or an association joining, they’re all stepping up to say, “We have this issue, we have to get through it and we believe the Variable Rate System is that solution.”
How do you expect the results to be different than what the insurers show the prevailing rate to be?
What we expect to see has actually turned out to be true. We expect that there really is not just one price in a market that meets everyone’s needs. There are a range of rates that different shops need. Different shops have different rates. Shops who have invested more in all of the necessary training to produce manufacturer grade repairs, those shops should have higher rates. And what we’re seeing is that those kinds of shops are definitely charging higher rates.
In some markets, however, many shops charge very similar rates. No matter what kind of shop they are, they’re charging rates that are pretty close to what insurers are saying that they will pay. If you see a market that has low rates, we hope that serves as a wake-up call.
If everyone’s rates are low, is there a chance shop owners will think their labor rates are in line with their market?
If you look at prices, there are markets like that where everyone has a low price. One piece is that a shop’s price starts to reflect what they actually get paid if they’re working with an insurance company. The way to break through that is again, as we work through the five-step solution with the individual shop, we help them understand they need a profit goal. When we show that to them, it’s eye opening for a lot of shops.
If everyone has a low price, I can guarantee you that they’re not coming close to hitting their profit goal. If everyone starts doing that for their individual business, they will start to hit their profit goals and prices will naturally start to rise. The alternative is that if they don’t, they won’t survive in the long run.
How does the survey avoid falling into price fixing?
Some people may have some antitrust, collusion and price fixing questions. When you examine what price collusion is and what the VRS system does, it’s really the polar opposite of price fixing. Here’s why: With price collusion, it requires people getting together and agreeing on price setting. If that were to occur, you would observe price uniformity. With the VRS system, we work with individual shops and help them understand their price. We don’t tell them what their price should be.
What results is actually price fragmentation. If there are 100 shops in the market, it’s likely that some shops will charge the same price. That’s more the competitive free market doing what it does. It’s not people in a room getting together on prices. We’re working with individual shops and the result is price fragmentation.
How do you hope to show this to insurance companies?
We want to bring this to insurance companies and that is part of the plan. I think we’re close to getting to that point. We think we can be partners as an independent third-party source of labor rate data that really reflects what’s happening in the market.
