The Society of Collision Repair Specialists (SCRS) received a letter from one of its members outlining a long list of challenges the business has endured through State Farm's mandated parts bidding process.
The following essay was provided by a repair facility operating in one of State Farm’s test markets. It is a reflection of views formed while participating in the program.
Here is the unabridged, unedited account of this shop’s experience.
“The nine most terrifying words in the English language are: ‘I’m from the government [State Farm] and I’m here to help.’”-Ronald Reagan 1986. By paraphrasing President Reagan’s statement, we can all relate to what the newly mandated bidding program, PartsTrader, is going to mean to the collision industry.
How do you improve on a one-touch electronic upload to your vendor? Apparently State Farm thinks it has the answer in PartsTrader. The short and sweet version of our orientation speech prior to being forced to interject the PartsTrader bidding process into our business was “We are going to help you, the customer, and State Farm have a better experience during the course of the collision repair process with our new system of parts ordering”. How innocent sounding.
After dealing with insurance companies for decades I don’t think I have ever had such a sick feeling as at that moment.
Allegedly, State Farm is implementing this program because we as repairers are so incompetent at ordering parts that we need their help. This decision is obviously based on their vast and direct knowledge of ordering parts over the last 50 years, how to identify and cultivate strong relationships, knowing at all times what the best supply chains are, where to find alternative parts, who has the best service, who has the best quality, and the hundreds of other methodologies we have developed and integrated into our repair process to run efficient businesses, for our mutual customers.
We have been using the PartsTrader system for 2 months now and I can say with authority that it is an administrative burden which has created inefficiencies that have dramatically slowed down our time- proven processes by a minimum of 30%. Before we were forced to use this bidding software to procure our parts, our repair center had the capability to estimate damage, disassemble the vehicle for thorough inspection and blueprinting, and have parts ordered all in less time than it takes to receive quotes through this new “efficiency improvement” process that State Farm has forced us to use. Now we write an initial estimate with all OE parts and must wait a mandatory one hour before quotes are even available for review. Then, the estimate needs to be re-written using those quotes and possibly resubmitted to another program for parts price matching options. Again, the shop waits for quotes. After the second rounds of quotes are reviewed, the estimate is re-written again. Yes, that means writing the same estimate up to three times and parts are still not ordered! How does that make part ordering easier or more efficient?
Following is a list of some of the problems encountered using PartsTrader.
- Mandatory quote time delays
- Minimum delay of one hour
- Afternoon cut-off time increases delay to the next workday
- Delays uploading estimates to State Farm
- Delays parts ordering and receiving
- Refusing to utilize program forces shop to call for quotes
- LKQ vendors low-balling quotes and delivering non-insurance quality parts
- Restricts OE vendor the ability to price match aftermarket or LKQ prices
- Having to choose a non-preferred/not trusted vendor because the quote was lower
- If the vendor has a question about the options, they have to submit a question and wait for a response
- Vendors who sell LKQ and A/M are seeing both quotes
Parts returns increase
- Consequence of choosing a non- trusted vendor or vendor quoting unusable parts caused by quoting wrong part based on options
- Pre-order parts have to be returned if quote comes in lower at a later date
- Unable to give State Farm customer an accurate estimate until parts quotes are returned
- Causing customer’s confusion if parts are changed after quotes are reviewed
- Delays jobs when parts quoted are unusable and reordere
- Must wait at least one hour to finish State Farm Estimate
- Must explain part changes to customer after quotes are reviewed
- Must resubmit estimate to Collision Link after waiting on Parts Trader for price matching options
- Parts returns for unusable/wrong parts
- Write one estimate up to three times
- Pre-ordering parts is restricted
- Decrease due to parts ordering and receiving
- Decrease due to delaying paperwork for technicians
- Decrease due to increase of part reorders
- Decrease due to restrictive pre- orders
- Decrease to profit because standard list price has been reduced
- Cycle time decreases = lower DRP tiering
- Lower tiering = less referrals
- Unhappy customers = less organic growth
- Parts returns increase
- Additional admin staff cost
In addition to the above stated items, the following is a list of other observations and conclusions that can be drawn from the issues we are now experiencing daily:
Dealer body shops may not be able to purchase parts from their own parts departments because of discount pricing from competing dealerships. Who makes the decision to go on State Farms RPM report with poor parts price numbers, the body shop or parts side? No matter who makes the decision, they both lose.
Vendors are already resistant to quoting prices knowing full well that the body shops already have preferred vendors. Why quote if you aren’t going to get the order? What is the purpose of having multiple vendors search their inventory, determine availability, quote on each part, knowing full well only one of them will secure the order? It is obvious to anyone that it creates further inefficiency for the supplier side of the industry, wastes time and resources, and is driving a bigger wedge between the buyer and seller. Divide and conquer? Are these the efficiencies that State Farm promised to the vendor side of the equation or just more sales? Carrot anyone?
As buyers we have honed our vendor list to the suppliers that are going to provide the best services that fit our business model. State Farm already has the tool (RPM report) to track our performance. Why are they trying to drive a wedge between us and our suppliers?
- This program is not going to be free. How much will vendors pay to cut each others’ throats and live on razor thin margins?
The biggest area for problems is going to be in the used part arena. If there ever was a market where the quality is subjective and inconsistent, this is it. The price quotes/bids on used parts have been outrageous in their disparity. Not to mention, the inherent delays due to such inconsistency are crazy. The reason I have a very select group of used part vendors I am willing to work with is to keep them competitive, maintain high quality and provide excellent service.
State Farm already has access to nearly all our repair information thanks to our information providers (another story) and the fact that their 42 million policies encompass 18+ percent of the P&C marketplace. Now they want to close the circle and have it all. So along with labor rate suppression, they can now control our parts profit margins. How many repair facilities can afford to lose points on their bottom line through the combination of reduced profit and added administrative handling costs while still maintaining the standard of care that is demanded by State Farm, our customers, and of ourselves? Further, how can any carrier expect our repair facilities to maintain acceptable levels of training and reinvestment in equipment, while simultaneously minimizing the ability for our businesses to make a return on those capital investments?
For an example of the financial impact to your business I would refer you to the very concise article circulated by the SCRS on their website in early April. It is a very graphic, real world analysis of exactly what we are seeing in our own business examples. I can tell you from direct experience it is not speculation.
With this program in its fledgling stage, it is time for the collision industry to pick the hill on which to die on, and die it will if this intrusion into our last profit center is breached. State Farm and the insurance industry are going to use this program to make our vendors as dependant on them as we have become. State Farm has already stated publicly they are going to share this program with other insurers.
That said, it is our job to inform and educate our vendors of the pitfalls this program holds for both us and them. Our sharing of this information will help prevent them from being sucked into the “insurance dependant vortex” we repairers find ourselves in. We have no excuse not to do this, as the vendors can benefit from our experiences and business insights. The dangling carrot doesn’t taste so good after we caught it, does it?
A disclaimer: No boycotting or collusion allowed!
Just tell your vendors the truth about your experiences and the control your “PARTNERS” have over your business. The unadulterated truth should certainly suffice to keep them – and us - out of the cesspool we find ourselves in.
With all that being said, it is easily concluded that during the study phase of this program, State Farm could not possibly have missed half of what is listed above, much less all of it. It would be totally unbelievable if they plead ignorance to these issues with the brain trust at their disposal. Wouldn’t it?
Rest assured that State Farm will say they don’t or won’t tell us which vendors to use or which parts to select (anti-trust anyone?).
However, we will pay dearly if our part pricing matrix doesn’t conform to what they say is the norm in our “market” by being tiered lower on their RPM Mystery Scale that their own employees don’t understand. Numbers, by the way, that are not verifiable under any management system that any of us use.
I can just visualize their supervisor looking me in the eye and saying “If you don’t like it you can always withdraw from the program.” No discussion!
Make no mistake that the velvet glove they wield covers an iron fist.
Thought for the day:
Who benefits from this program? You can draw your own conclusions, but it isn’t us, our customers, or our vendors.
In closing, I would like to apologize for the fact that this is being published anonymously. I have never been afraid or ashamed to use my name on any articles or commentary I have provided in the past.
The reason is obvious: I am simply afraid for the future welfare of my business if I was to include my name, and for that I am ashamed! But while we may have to suffer in anonymity, we do not have to suffer in silence. Educate your colleagues and your parts suppliers. Be certain to know where you stand and what you wish to do BEFORE this program enters your market too.