At least once a year we review our financials in order to determine if we need to adjust our labor rates. Some stats I've seen recently indicate to me that this isn't a process enough shops are doing on a regular basis.
Take some numbers published by CCC Information Services. CCC shows that the national average for body and paint labor in 2006 was $41.32. This had risen to $45.09 by 2011. But that means over that five-year period, rates grew at an average of only 1.9 percent per year.
An increase of 1.9 percent might have been fine in 2008, when the consumer price index (CPI) rose only one-tenth of 1 percent, or in 2010 when the CPI increased only 1.5 percent. But during most of 2006-2011, the CPI rose by well over 1.9 percent per year. It rose 2.5 percent in 2006, 4.1 percent in 2007, 2.7 percent in 2009, and 3 percent last year.
I'm sure most shop owners receive, as I do, an annual letter showing what the increase will be in the pricing being charged for paint materials. Those are usually significant increases. So it will come as good news, at least at first, that the average paint materials rate nationwide, according to CCC, has increased faster than have labor rates.
That said, they haven't kept up with the increases in costs I've seen in the notices I receive from my paint vendor.
In 2006, CCC reports, the nationwide average for the paint materials rate was $22.26. By 2011, it was $25.70. That's an increase of only 3.2 percent per year. As I said, I doubt there are many, if any, shops whose materials costs haven't risen faster than 3.2 percent a year during that period. The last three increases alone that we've received averaged 6.5 percent each year.
One problem I see with rates over time is that, at least in my market, they always seem to rise in even increments of $1 or $2. This tells me that no one is doing any math when they calculate what their rates should be.
They're just adding one or two dollars to their current rate and hoping that's sufficient to cover increased costs in their business.
But the $1 or $2 you added to your rate back even as recently as 2006 isn't the same $1 or $2 you add today.
One dollar added to the national average paint materials rate in 2006 was a bump up of 4.5 percent. But if you added just that same one dollar to the average paint materials rate in 2011, it would be an increase of only 3.9 percent. And you'd need $1.12 in 2011 dollars to equal the same buying power of you got from $1 in 2006.
Another part of the problem is how insurers determine the labor rate they are willing to pay. Unless required by state law, most insurers do not conduct market labor rate surveys. Even State Farm shifted away from an active survey to just a passive online form that shops have to take the initiative to fill out (which many don't). Without the prompt of an annual survey, even fewer shops would notify insurers when their business needed to raise its rates.
This is why, in part, that insurers rely on data from the information providers about rates on estimates in a given market. The problem with this is those are often discounted rates that insurers negotiated specifically with their direct repair shops. Those rates almost assuredly do not accurately reflect the true average rates in a given market.
That's not necessarily something shops can address, other than pushing by state-mandatory labor rate surveys by insurers.
But I think an even bigger part of the problem is something shops very definitely have some control over. I believe far too few shop owners take the time to calculate what adjustment they need to make to their rates, and far too many shop owners are too passive in asking for those increases.
Here's my bottom line on the issue: If you can't say that you've asked for a higher rate and instead have only taken an increase when it was offered to you, I think you should consider yourself part of a key problem that this industry faces. You need to be proactive in managing your business and calculating rates.
Camille Eber is the second-generation owner of Roth & Miller Autobody in Portland, Oregon.