Power and Control

May 1, 2016
Market pressures are setting up a collision course between insurers and OE manufacturers

As we find ourselves in an election year, considering presidential candidates who desire to be in the position of most power and control and influence in our government, I ask you to consider a few similar questions regarding our collision repair industry. Who has the most influence? Who has the most control? What about power and authority? Like our government, is it changing?

Most of us would agree that we have three major groups, including the manufacturers, the repairers, and the insurers. I would group major entities like paint companies and information providers with vehicle manufacturers as they provide products and maintain influence through providing direction in how we use and repair their products.

I believe that current market changes are setting up a collision course between insurers and OE manufacturers. It is already occurring to some degree and I expect it to escalate. Why should we as repairers care? What is at stake? Only the ability to determine how vehicles are repaired and how much we repairers are compensated. In other words, the very course of our destiny as repairers is at stake. Let me explain some reasons why I’ve come to this conclusion.

As independent repairers we like to think that we control our own businesses, results, processes, and ultimately our destiny. Note that we like using the term “independent.” Many of us would also argue, and frequently complain, that insurers have the most control. Not only do they control the payment for most of the repairs we make, but with the advent of direct repair programs (DRPs), they control work referrals. As MSOs and consolidators who build business models around DRPs have become more prevalent, the insurer’s influence has become greater. Arguably the manufacturers have been third in terms of position in the past. Generic repair methodology on older vehicles allowed us the ability to repair most vehicles with vo-tech and I-CAR training. Insurers increased their influence as they promoted the use of alternative parts, especially aftermarket, which diminished the manufacturer position. As the number of independent repairers increased and the number of dealership body shops decreased, the manufacturer position weakened further.

In Europe, the situation has been different. There has been less use of alternative parts. Vehicle manufacturers participate with entities like Thatcham in estimating labor times. Vehicle mix has been different than here regarding brand names, technology, and sophistication. Manufacturers have more influence.

Yet it is obvious that things are changing here. New technologies in vehicle construction are making repairs more unique. We as repairers are now increasingly dependent upon manufacturer direction in how to properly make repairs. It’s now promoted by many industry experts that we reference factory repair information on each and every repair we make. Experts also state we should be performing pre- and post-repair scans on all new vehicles, which of course uses data and process based on vehicle manufacturer information and methodology. Toyota has even developed their own estimating methodology based on their repair standards. The influence and control of the vehicle manufacturer is increasing.

When General Motors announced their new parts pricing methodology, they publicly stated that they were tired of setting the standard for a parts price only to have alternative parts sources base their pricing accordingly to be more competitive. In their announcements, GM stated that they believe their parts customers include the dealership, the independent repairer, and the vehicle consumer. Visibly absent was the insurer. Indications are that other vehicle manufacturers are watching this program closely and are likely to follow suit with new parts pricing programs of their own.

OE certification, arguably the new DRP, is gaining in popularity. In some cases the vehicle manufacturer even controls the situation by restricting parts sales to only certified shops.

While all this is taking place, the insurers are aggressively marketing against each other, basing their value proposition on price. As a result, they are more aggressive than ever in reducing costs, as evidenced by the reduction and consolidation of their corporate buildings, the significant reduction in their claims staff, their shifting of some claims handling processes to DRP shops, and their increased usage of the DRPs. While insurers still control who is on or off DRP programs, in many cases they don’t have enough claims staff to handle their needs if they remove a large DRP repairer, thus diminishing their control. To make matters worse for the insurer, new technologies and repair methodologies are driving up repair costs.

What should happen? I believe, and I think most of us would agree, that we are at our best when insurers, repairers, and manufacturers work in harmony for the common good of the industry and the consumer. Yet, as we see every day in observing politics, when there is money, power, control, and influence involved, people are often inclined to favor their own interests.

What should we as repairers do? Perhaps you’ve already felt the pinch. Have you been caught between manufacturer repair instruction and an insurer that takes issue with it, perhaps arguing that it is unnecessary? Ultimately our first mission as repairers is to perform a safe and proper repair for the consumer. Educate the insurer, use factory and other industry documentation. I am not advising going to war with insurers. Yet, in the scenario I’ve described, their ability to dictate repair methodology and to control price to the extent they desire will diminish.

I believe it in our best interest to maintain relationships and communication, yet understand at times that we will be increasingly interacting with OE manufacturers and will be increasingly dependent upon their repair direction. It will be up to us to educate ourselves on proper repair methods and to establish reasonable pricing, then be prepared to defend our position and negotiate accordingly with insurers.

For those of us who study and participate in our industry, these are fascinating times. Stay tuned.

Sponsored Recommendations

The Spanesi Mutlibench Structural Repair Workstation

Sign in. Your browser can't play this video.. Learn more. 0:00 / 0:14. The Spanesi Mutlibench Structural Repair Workstation. 528 subscribers. <__slot-el _=…