Leveling the glass playing field, Part II

"When a customer calls with a claim, the first thing the claims administrator asks is if they have a preferred shop. If they don't, we list three nearby shops in our repair network," says Siemenas. State Farm's policy is similar.

In the event a customer picks a non-network shop that charges a price more than what the insurer believes is fair, Siemenas and Luedke say both their companies work to avoid the customer having to pay any additional money. Siemenas says in these cases Allstate asks the customer to retrieve three estimates. Allstate then pays for the work to be done by the lowest bidder.

Luedke notes, "We take every step possible to see that the customer gets service from the shop he wants."

Those claims fail to appease some independents who question why insurers use the repair network\TPA format at all, especially since both would seem to raise insurer costs. Rick Rosar, owner of Rapid Glass in Minnesota, asks, "Wouldn't they gain more by turning to the free market and let shops compete for their business. That makes a lot more sense than setting up networks and negotiating prices from there."

The use of TPAs is an even thornier issue that has raised a number of suspicions in the independent community. Independents wonder what possible motives would convince insurers to turn to a third party when they already use their own people to handle claims duties with collision repairs. In both cases, insurers respond they are simply using the model they believe works best.

That model, particularly the inclusion of TPAs, has left independents believing insurers have ulterior motives. They say the practice effectively removes insurers from the repair and claims process. "It's like they want to wash their hands of the whole thing," says Rosar. "We have to ask why they would do that."

More independents are asking similar questions after a recent controversy over two-tier pricing made news. Some glass repairers are making a point of charging two different prices for the same work, depending upon whom the customer is. Cash customers receive a significant price cut over insurance work, paying, for example, $200 for a job an insurance company would be charged $300.

Shops engaging in this practice say cash customers pay less because (1) they often form the largest block of customers (and therefore should get a better price) and (2) their transactions are hassle-free.

Dave Taylor, chief operating officer of Cindy Rowe Auto Glass in Harrisburg, Pa., says cash customers are simply less expensive to handle. Shops don't have to wade through the time-consuming red tape and overhead involved in a network claim. For example, instead of working with network personnel to authorize and schedule repairs, a shop service rep handles all the duties, saving time and streamlining the sales and repair processes. Also, shops don't spend valuable time dealing with a host of network issues or negotiating prices. Most significantly, payments are immediate. Shops say some TPAs are notoriously slow payers, which drives up costs.

Considering the cost savings realized in non-TPA transactions, why, independents ask, do insurers still insist on sticking with the current system? Insurers respond that the cash business is different from theirs. "We pay market price for the glass. It's up to the shop to determine what they charge individual customers," says Siemenas. Luedke says similarly, "We use offer and acceptance programs. We make an offer based on the market."

Those explanations fail to satisfy independents who believe something more nefarious is afoot—specifically, that insurers are willing to absorb extra costs if it means keeping a third party between themselves and glass repair.

Disappearing benchmarks

For five decades, National Auto Glass Specifications (NAGS) has created a price list for automotive glass (a chore it took on at the request of glass industry members). Bud Oliver, director of product operations, explains NAGS regularly performs an in-depth industry-wide analysis on retail prices for glass. He says NAGS then uses a proprietary formula to determine the list prices and includes suggested repair times for each glass piece. NAGS pricing is supposed to serve as a benchmark for insurer/installer negotiations. Independents claim insurers are using heavy-handed tactics to drive down prices, ignoring benchmarks to the point where they are no longer relevant.

Bob Adamek, owner of Bodies by Bob Inc. in Dublin, Ohio, says some networks are cutting glass prices as much as 49 percent. Rosar contends NAGS pricing has become a "mirage." "It's not something that even seems to get looked at anymore. We use their lists simply for the glass model numbers," he says.

NAGS, in fact, has become a target for independents who say the price lists are more of a problem than a solution to the industry's ills. Mark Rizzi, owner of ARC Glass in Alliance, Neb., complains that the prices reflect only aftermarket products. "They don't work in OEM glass, which we'd prefer to use. Also, we don't know what glass they are looking at," he says.

Other independents similarly claim NAGS's pricing doesn't reflect the actual market and tends to cut their profits. For example, they say NAGS ignored 3.5 percent price increases by several glass manufacturers, then compounded that oversight by lowering list prices almost 1 percent. They also point to pricing lists, including the following one for a particular manufacturer, which show prices falling even as costs rise.

Consider the list price from one manufacturer for the back glass of a 2007 Chrysler Town and Country minivan:

The list price goes down as costs go up. In addition, critics say that prices for heavily used parts went down while prices on lesser-used rose, which they say is an obvious benefit for insurers.

Compounding these complaints, because the formula NAGS uses for determining prices is proprietary, it can't be shared with the industry, creating suspicion of NAGS. "We ask them about their methodology and they say they can't discuss it," says Rosar.

Oliver defends NAGS, saying criticism of the company is misdirected. "We're just the messenger," he says, "We're completely independent. We have no reason to favor anyone.

"Several days ago I spoke to a shop owner in Michigan who complained he was getting paid NAGS pricing minus 50. That's his decision! He made that agreement. We didn't. All we do is create price lists. People can do with them what they want. No one is forcing anyone to use NAGS."

Several years ago, some installers began joining forces to create new price lists they believed better reflected the market than those produced by NAGS. In 2003, the Illinois-based Chicago Auto Glass Group (CAGG) began holding meetings to discuss pricing. They developed criteria for setting benchmarks they believed would more accurately reflect the current market.

Those criteria involved hiring an independent third party — a certified public accountant (CPA) — determining benchmarks based on actual acquisition cost from manufacturer to distributor for a cross section of the industry. The methodology for determining pricing would be subject to review and improvement by a cross industry group consisting of the glass industry, insurance industry and independent third party. Also, all components would be considered separately. The auto glass benchmark would reflect the glass only. Labor, kit, molding and other charges must be calculated separately. This section of the criteria departed greatly from the standard practice of including labor and materials in the price list.

CAGG is still at work but so far hasn't gained much traction. However, during its recent recalculation of its formula, NAGS did adopt some of the changes CAGG wanted. Realizing many of its prices were inflated, NAGS lowered most prices significantly and removed labor. "I'm all for charging labor separately," says Oliver. "Insurers seem to feel the same. I've talked to a number, and they were glad to see it broken out."

As for claims that NAGS pricing has become relatively moot, Oliver says the industry would be in far worse shape without NAGS. During a recent IGA conference, Oliver spoke on what would result from the industry not having a third-party price list. He noted that shops would have to negotiate every repair part by part and locate price lists from every available vendor. With so many vendors to choose from, even large buyers would be forced to buy from a select group of large sellers. Small buyers would be left at a deplorable negotiating position. Finally, a non-neutral party could begin publishing price lists, effectively forcing shops to adopt pricing set by their competitors.

Independents say that last scenario is already a part of their business, as they must bow to pay rates accepted by other shops or risk losing customers who are told by a TPA they might be paying out of their own pockets.

Communication breakdown

Lost in the battle over prices, says Rizzi, is safety. Rizzi notes that glass, particularly windshields, play a special role in modern vehicle safety. Some windshields must support as much as 60 percent of a vehicle's weight in a rollover and are instrumental in allowing the airbags to function properly. Because of this, he says only OEM glass, or glass tested by the manufacturer to be "crashworthy" should ever be used in a repair.

Insurers similarly stress that the glass used to repair policyholders' vehicles must be high quality. They require any glass used and services performed to comply with all "applicable federal motor vehicle standards."

Those standards aren't good enough, says Rizzi. "It's been over 30 years since NHTSA [National Highway Trans-portation Safety Administration] passed most of its rules on glass. That's long before airbags and a lot of other systems were ever put in place," he says. Due to that fact, he believes only the highest quality, tested glass should ever be used. That glass tends to come from an OEM.

"OEMs have worked hard for years to build and install glass that far exceeds those early rulings," Rizzi says. He has good reason to suspect many aftermarket glass varieties aren't nearly as good as OEM and may, in fact, not be suitable for modern vehicles. "If this glass is so good, why aren't auto manufacturers using it?" he asks. "Companies like Ford and GM have lost millions and are always looking for less expensive parts to help them save money. Why aren't they using this glass then?"

Factors like this continue playing into independent suspicion of insurers. Installers say insurers have a large say in what they do but share none of the responsibility.

"Insurers don't contract with shops for the work," says Rizzi. "Look at the paperwork. The contract is completely between the customer and the shop. The reality of our business is that if something goes wrong with the repair, we are liable, not the insurer."

While Rizzi takes insurers to task over safety, he also has some sharp words for his colleagues. "We need to set some strict new standards. This industry needs to join together and step up and stand for something," he says. That isn't happening. Instead, costs are driving the industry. While costs play a significant role in any business, Rizzi says they need to take a second seat in the service field.

"We don't sell a product. We sell a service," he says. "What we do isn't quantifiable to what someone like Wal-Mart does selling products. There's a reason why they and others don't sell services. With services you're selling something else — craftsmanship. Services are about quality first. Price comes after that."

Final word: Belron to the rescue?

Rizzi's comments raise the point of whether insurers and installers can ever begin a dialogue to address their shared concerns. For that dialogue to even start or be productive, installers say they need to be in a better negotiating position, one where shops form a combined front to better engage insurers. Unfortunately, glass shops, like collision repair shops, are mainly small to medium-sized businesses that aren't used to working together on a wide scale. Many are interested mainly in just surviving day to day, without time to worry about the rest of the industry. "They're running scared," says Rizzi, who points out that there are a number of "hardworking, strong-willed" people trying to lead the industry — maybe just not enough.

If independents can't combine forces, a large repairer with plenty of shops might be up for the job. Rizzi says there have been whispers regarding what Belron ultimately will do to protect its recent merger with Safelite. Safelite has had its own struggles staying in business. In 2000, it filed for Chapter 11 bankruptcy protection from its creditors. While Safelite emerged from bankruptcy several years later, that part of its history surely must be fresh in the minds of Belron executives who realize the difficulty many shops, even large consolidators, have making profits. This fact eventually might compel them to push for different pricing structures that could help all shops bump up revenues and renew their focus on safety.

Unfortunately, there are a lot of "mights" and "coulds" in that scenario. But it does give installers and other industry members some reason to believe the industry might yet turn in a new direction. They only hope it takes that turn before all the forces involved in glass repair, without fully realizing it, allow the industry to slip into a state no one wants. That's something installers, insurers and consumers can all agree on.