Hold on tight to profits in your parts

Sizing up the competition is a process to which most business people can relate. In your collision repair world, for instance, you want to know what surrounding shops are doing in terms of marketing and what they are paying techs. You want to know what they are charging in labor rates and you certainly want to know if they are doing anything that makes customers select their shop(s) over your business. Suffice it to say hours are spent trying to get a gauge on the other guy's strategies. Tactics are created to hold off trailing shops that are eager to take a greater piece of the pie in your market.

Not only are you sizing up the competition from fellow shop owners, you should be sizing up the insurance community as well. After all, they are eyeing your business just as much as, if not more than, your chief competitors. The one advantage insurers have is that they see a lot more numbers than you or other shop owners do, and when it comes to pinpointing profits in your business they have a greater understanding of your bottom line. From what we're hearing, insurers are digging deep into their numbers to make a charge at your parts dollars and if you're not paying attention it could be truly damaging to your profitability.

In our cover story this month "Insurers Eye Parts Procurement," News Correspondent Tim Sramcik did some digging of his own into the area of parts procurement. None of the insurers we spoke to were willing to outline their intentions in this area, but it's clear they want to control severity by defining where you can buy your parts. As Sramcik points out, Farmers Insurance pushed in 2005 to have a procurement program in Minnesota for airbags, even going so far as to mandate that shops use certain out-of-state vendors for the replacement parts. Members of the Alliance of Automotive Service Providers, Minnesota (AASP-MN) criticized the program and eventually the concept was dumped.

But for how long? You can be certain Farmers intends to travel down this road again. Perhaps not in the same fashion, but certainly the goal of controlling distribution costs appeals to them. And that notion certainly appeals to other insurers who will attempt similar tactics to reduce their costs. John Bosin, manager of OEM & Industry Relations for Akzo Nobel Coatings Inc. and chairman of the Collision Industry Conference (CIC) Parts Committee, agrees. Bosin has spoken with a number of insurers who report putting together procurement departments or teams to study the matter. That kind of approach isn't being taken on a whim. Insurers intend to realize cost savings for their time and efforts in this area.

So prepare yourself. Hold on tight to those parts profits, because it's very likely you'll soon face greater challenges in this area. It's not just going to be about finding a supplier partner with the parts you need, when you need them. It'll be about being forced to work with parts vendors who are willing to respond to the parts procurement criteria set forth by insurers. How willing are you to give up those dollars?