Industry leaders discuss steering, salvage parts, waterborne paint and industry standards

This month, ABRN offers a glimpse into the annual roundtable discussion that brought together seven representatives from shops and associations and one insurer. Participants included:

• Denise Caspersen is the collision division manager for the Automotive Service Association (ASA).
• Tom Elder opened his collision repairs shop, Compact Kars in Clarksburg, N.J., 28 years ago, and is a past president and current treasurer of the Alliance of Automotive Service Providers (AASP) of New Jersey.
• Mike LeVasseur is chief operating officer for Keenan Auto Body, which has nine shops in the Philadelphia area, and serves on the ASA Collision Division Operations Committee.
• Dan Risley is a project manager for Allstate Insurance at the company's home office in Northbrook, Ill.
• Aaron Schulenburg is the executive director of the Society of Collision Repair Specialists (SCRS).
• Bruce Tschida is the owner of Lake Marion Collision in Lakeville, Minn., and a current national board member of the AASP.
• Paul Val is the general manager of Raintree Autobody, an independent Mercedes-Benz-certified shop in Scottsdale, Ariz., and serves on the SCRS board of directors.

ABRN: Salvage or recycled parts continue to account for a larger percentage of overall parts usage. What are some of the challenges you see in using such parts, and what would you like to see changed in relation to the use of recycled parts?

Tom Elder: The problem is that the economics of it just don't work out for the shop. No one seems to have gotten the idea that if salvage parts were priced and compensated for sufficiently, people would use them all day long and be happy to do so. But people in my facility squirm and wiggle to not use salvage parts because 100 percent of the time, you are going to lose through some frictional loss. Either the part will be wrong, it's not delivered in good condition, or it's not economically viable. And our final product sometimes suffers either in delivery time or quality. A lot of people use more aftermarket parts now because they can make more money on them. There has to be an advantage to the shop to get involved in these things.

Mike LeVasseur: The main reason we use salvage parts is because of the KPIs that we're responsible for in the DRP market. The second reason: economics, to save a vehicle. And the third: It's good for the environment. However, the process is definitely broken. It's broken because the rating system of the parts is inaccurate, the knowledge of the counter person is lacking, and because of the condition you get the parts in after they've shipped.

Denise Caspersen: The other piece is vendor selection. I've heard from more and more ASA members that their choice for recycling vendors is being more and more limited.

Aaron Schulenburg: I agree that there are two primary issues: One is a failure to financially incentivize repairers and make it attractive to utilize these parts. Part of that stems from the cost-plus approach to these parts rather than having list pricing and allowing business to negotiate discounts with the vendor. If the parts don't make financial sense to use, you can't expect a business to overlook that. The other issue is the inconsistency. While the recycling industry has worked on some benchmarks for identifying condition and damage, they just don't translate at the point of sale. I think the good thing is you have the Recycled Parts Roundtable, reaching out to repairers for input and trying to find solutions.

Bruce Tschida: I participate in that Recycled Parts Roundtable, and a lot of these issues are what's being addressed. The first two times we met with the salvage yards, they had no idea what our issues were as shops. But once we explained some of our issues, and they explained some of their issues, we're starting to finally come to some agreement. There are things in the works to make it better between them and us. And at future meetings we're trying to draw in insurers because there are three parties involved in this. We need all three parties to buy-in.

ABRN: There's a lot of talk about the development of formalized "industry standards." What impact – positive or negative – do you foresee if such standards are developed?

Elder: I'm sorry but I'll say it: The insurance side doesn't care about quality. They don't have any standards for fixing a car. It's just: Fix the car, use these parts and get done with it. The insurance carriers are reducing the standard by saying, "That's what the policy pays for." It's real tough for me because I want to repair the Chevys, Fords and Toyotas that came into our store to the same standard that we do for Mercedes-Benz, BMW or highline cars. But I'm finding in my market a lot of shops are just saying, "That's all the insurance company pays for."

Dan Risley: I don't think there's a Top 10 insurance carrier that would pay for or endorse an inferior repair. Are there shops doing inferior repairs and using insurers as a scapegoat? That's quite possible. But you have Top 10 insurers come into your shop every day. Have any of them said, "Even though you're only supposed to section the front rail at this location, we are only paying for half the procedure, so section at this location instead."

ABRN: Aaron, you've been watching the effort to develop standards. Do you think it's the answer to the disagreement that Tom and Dan have spelled out?

Schulenburg: Yes and no. To me a "generic repair" would be one that doesn't follow OEM recommendations, and I disagree wholeheartedly that insurers aren't asking for that. Is it policy to do that? I don't know. Does it happen? Every single day. Top 10 carriers say, "I don't care what the OEMs say; we believe it should be done this way," or "This is the way that we're paying for it to be done." Until both sides equally admit that the OEM recommendation, where it exists, is the standard, and agree to find good solutions where the OEM recommendations don't exist, I think we're going to continue to have this argument and this battle.

Risley: But one of the Asian automakers doesn't provide a single sectioning procedure. So should we not do any sectioning on those? Are those cars just totals? And there are instances with the domestics where there aren't any sectioning or repair procedures available because they don't have the resources to develop them. So in the absence of having OEM repair procedures, do we say those cars aren't repairable?

Schulenburg: I hear those examples, Dan, but one of our members last week had a 2010 pick-up, hit in the rear. The Top 10 carrier, despite documentation from the OEM that said that the frame needs to be replaced once damage is past a certain point, said they wanted the shop to section in the rear-half of a used frame and, "if you aren't willing to do it, we have two other shops that will." Trust me when I say there's a problem that the other shops are willing to do that. But there's also a problem for the shops willing to perform to a standard if the insurer is not willing to reimburse to the standard. A voluntary standard has shops nervous. If I'm a shop investing and doing what's necessary to meet that standard, but I have carriers pushing work away from my business because the standard costs more, that's not beneficial for the repair industry, and it's certainly not beneficial for the consumer.

ABRN: Let's turn to another tough subject: steering. Various efforts have been tried to combat it, from legislation to litigation. Is steering a problem, from your perspective, and if so, what's the best approach to addressing it?

Tschida: My opinion is you're not going to make it go away. It's a byproduct of a DRP program. It's going to continue as long as we have these kinds of contracts. Until a consumer gets harmed from it, you're not going to be able to change it, even through legislation. Because if someone suggests to a customer that he go to this shop, if he gets a decent repair, he's not going to complain. He's not harmed.

Paul Val: I personally feel legislation will work eventually. I get a lot of the clientele into my shop after they've a bad experience somewhere else. They're not going back, and they're switching insurance companies. I think insurance companies are eventually going to catch on to this and open up the market.

LeVasseur: What I see are customers who have fear when talking to insurers, and so they just listen to them and follow them. I can have a loyal customer for years, and when the insurance company says, "We need you to go to so-and-so," that's the true definition of steering. But offering a value-added program to the customer? I don't think that's steering. That's giving choice.

Schulenburg: Putting together a program that creates efficiency for the customer and creates a seamless process is one thing. It's another to deter a customer intentionally from going to a shop of their choice and trying to direct them somewhere else. And that takes place. I've heard it, first-hand.

Caspersen: If shops are being recommended, perhaps there should be some qualification of why they are being recommended beyond the aspects of the DRP program. Are these shops I-CAR Gold Class, using waterborne, ASE certified? Quantify these shops on the list beyond just what's required for the DRP. So now you're not just promoting who is on the list, but promoting positive business characteristics, so at the same time you're educating the consumer.

Risley: We're restricted in just about every state as to what we can and can't say, especially if the customer already has a shop in mind. The complaints we get are if someone has a poor experience outside of the network, and later finds out we had a network we didn't tell them about. That's not to say steering doesn't exist within the industry. Otherwise you wouldn't see legislation cropping up on a regular basis. But I can tell you from an Allstate perspective, if we do steer, we probably do one of the worst jobs of it in the industry because a large percentage of our insureds don't use our DRP network.

ABRN: Could you look to the future a little bit, say three years from now, mid-2014. What do you think will look different at your business or for the industry?

Val: We're going to see fewer shops. We're starting to see, at least in Arizona, the mom-and-pop shops going away. With the way the cars are changing, it's getting more expensive to fix them and you're going to have to be educated to be able to work on them. I don't feel everyone is going to be able to spend that kind of money.

Tschida: I agree. It's not going to be the strong that survive. It's going to be the smart that survive. There's so much knowledge that's required to repair these cars safely. If you're not invested, you're not going to survive.

LeVasseur: I see our margins will continue to be challenged, squeezed. No offense to Dan, but the insurers can't get to some of our vendors so they have to go through us to get to them. So that we will squeeze them. I see consolidation of shops. I see fewer shops, but not as greatly reduced as what is necessary to even out the market.

Risley: I think you're going to see consolidation on the insurance side, a lot of the smaller carriers consolidated into the larger carriers. I think you will see an attrition of shops, but not at the pace that it needs to be. There will still be too many shops and not enough work. I think with our DRP, like other insurers, we're trying to identify the best performers, those that perform high quality repairs, and try to reward those shops that provide superior customer service. Because the technology is available today to aggregate data and information to identify those better players.

Caspersen: I think there's also going to be a greater affiliation of shops, through networks, MSOs or associations. I think there's going to be a stronger community of collision repairers because there's going to be even more need for that exchange of information and ideas in order to survive.