In a previous article, I described the market forces that are converging to have a significant impact on the claims and collision repair landscape in the near- to mid-term. Now I want to expand on two of these forces: how the DRP and OEM network conundrum plays out, and how safe and proper repairs become the "true north" of our industry.
In order to fully understand the dynamics driving these two market forces, consider the external environment that is causing the market to behave this way. I believe the collision repair industry has reached an “economic break point.”
Market forces have suppressed the true economics of the business for years. Primarily driven by DRPs, shops have absorbed large cost burdens: through discounts, by not charging for all work performed, or by taking on administrative and structural costs. This has created artificial economics whereby the true cost to repair a vehicle has been supplemented by business practices. Ask yourself if you’ve ever not charged for a part supplement or additional procedure.
Now shops also face increasing ADAS requirements, work-in-progress at unprecedented levels due to labor and parts shortages, vehicle intake outpacing production capability, and heavier hits requiring more specialized repairs and cycle time (with resulting rental expenses often being absorbed by the shops). Add inflationary pressure in labor, supplies and services, and it’s clear we have now reached an economic breaking point.
Shops can no longer absorb increased expenses and remain profitable enough to stay in business.
There is no longer a “cost control” redress. The only option is increase price, and charge for all you do. The challenge is we have become acclimated to not taking price increases for fear of losing repair volumes.
DRP/OEM network conundrum
I don’t view DRP versus OEM networks on an either/or basis; it’s about doing what is necessary to remain viable. I have said for years that the ROI on OEM certifications is not comparable to DRPs. The value of OEM networks is the training and repair information that enables shops to include all procedures, all one-time-use parts, all materials, all diagnostic requirements on an invoice and to be confident (because the OEMs say they are required) to charge a fair price. If you wish to complete a safe and proper repair every time, these are mission critical.
OEMs have worked hard over the past five years to support a challenged marketplace by highlighting these requirements. Don’t expect significant “work to the door” from OEMs in 2022, but we will see the early signs of their capability to influence consumer shop choice.
I also believe we are seeing the onset of the slow death of DRP as we know it. The fundamental premise of DRPs has evolved from ease of doing business (remember when you were “approved” to start repairs when the customer arrived?) to cost control mechanisms often in conflict with the needs of the vehicle.
Now is the time for shops to assess the “true” value of their DRP relationships, and to align with those that understand the economic reality of the business.
Rid yourself of non-like-minded partners and focus on those you can work with at a fair profit level.
Safe and proper repair
If the market behaves as predicted, the true north will become “safe and proper repairs,” and everything will pivot from there. As I’ve long said, do the right thing by the vehicle and, ultimately, you’ll do the right thing for all involved. Determine your “true north,” and make it known that, “This is who we are, and this is how we repair vehicles.” It will require a resolve that foregoes any fears of being penalized or losing volume based on a conviction that the market will never return to pre-COVID economic conditions. I believe it never will.
This year provides a window for shops to reassess their market position and to make a lasting change. Those that do not will miss the timing and be irreversibly damaged. The suppressed economic model the market has operated under for years is at a breaking point, and confident shops will take control of their destiny and profitability.
