CIC Forms Task-Force to Address Alternative Materials Compensation Methods
A new task force was formed to address the issues surrounding alternative methods for computing paint materials costs in collision repair estimates. Formed during the Collision Industry Conference (CIC) Gold Pin Planning meeting held January 12-14 in Phoenix, AZ, the Materials Estimating Task Force’s goal is to identify a paint and materials estimating methodology that reflects the cost to the customer of paint and materials used in refinish operations to a level of accuracy acceptable for use in developing an overall repair estimate. Key to this effort is decoupling materials reimbursement rates from refinish labor times. Under the most prevalent method of computing materials charges total refinish labor hours are multiplied by an agreed upon materials reimbursement rate per hour. This system has come under attack by both collision repairers and insurers in recent years due to a wide spread perception of inaccuracy for the traditional method of estimating materials charges. For small repair jobs with few refinish hours, repairers complain of inadequate reimbursement. On the other side of the equation, for large repairs with correspondingly large refinish labor, insurers believe that materials charges become excessive. For this reason, many insurers have imposed thresholds on materials charges over a specific dollar amount to try and rein in materials reimbursements. Also, changes in refinish labor times, such as clear coat labor thresholds, have had the unintended effect of reducing materials reimbursement to the shop. The task force strategy will first explore and evaluate existing non-time based materials estimating systems and determine if any provide the assurance of long-term accuracy. If no such system is found, the task force will develop and recommend a methodology for achieving the materials estimate. The task force has identified the following elements that must be present in any alternative compensation method: l Computer not required but automation ready; l No caps or trigger points on cost totals; l Not tied to refinish times; l Allows for different fluids costs; l Does not favor any one supplier; l Allows shop to determine pricing “level” based on supplier and/or color; l System for pricing works off refinish list based on 1 gallon intermix systems; l Overall paint and materials to be treated as a “part” for estimating purposes. The task force is chaired by Charlie Baker, publisher of INSIGHT. Baker anticipates that the committee will complete its initial report by June, 1998. Comments and information can be submitted to task force members by phone, to Charlie Baker at (800) 860-2744, by Fax at (440) 729-0927, or e-mail to cbaker@harborcom.net.
CIC Identifies Important Issues for 1998
At the Collision Industry Conference Gold Pin Planning Meeting, held January 12-14 in Phoenix, AZ, the participants identified and prioritized the issues that CIC will address in the coming year. After identifying the priority of issues, the group decided that, in addition to committee work, there should be panel discussions on each of the top four issues during the year. Additionally, a new Task Force was formed for the purpose of exploring the possibility of developing a new, standard methodology for calculating paint and materials, one which all of the data base providers could incorporate into their systems. (Editor’s Note: See the article on page 1 of this issue.) The following are the industry issues CIC will address this year. 1. Cost shifting - Uncompensated but necessary procedures - Write It Right Committee 2. Appropriate use of parts - Parts and Airbags Committee 3. Personnel issues / shrinking labor pool - Education Committee 4. Methodology for calculating material compensation - New Committee 5. Ethical business practices - Fraud Committee and Write it Right 6. Creating beneficial business relationships between industry segments - Industry Relations Committee 7. Uniform claims procedures - Write it Right 8. Education, dissemination, and implementation of information. - Education Committee 9. Service and Cycle times - Definitions Committee 10. Data base times - Estimating Committee 11. Regulatory / environmental issues - Environmental and Regulatory Committees 12. Better understanding of consumer needs 13. Diminished value The CIC will hold four general meetings in 1998. The schedule for these meeting is as follows: April 23-24- Honolulu, HI; July 29- Orlando, FL; October 8-9- Colorado Springs, CO; and December 2- Dallas, TX For more information contact the CIC at their website: www.ciclink.com.
Collision Team of America Acquires Alamo Body & Paint- Adds to Church Brothers Acquisition
Jerry Gnazzo, CEO, and Dan Hall, President, of Collision Team of America, Inc. and Wayne Baker, president of Alamo Body & Paint, jointly announced the acquisition of Alamo Body & Paint of San Antonio, TX on January 20. Collision Team of America, Inc., based in Indianapolis, is a collision repair industry consolidator formed in July by the equity partnership of Saugatuck Capital of Stamford, CT and NationsBank Capital Corp. of Charlotte, NC. The company has total capital commitments of $40 million to be used for acquisitions. Their first acquisition, Church Brothers Collision Repair of Indianapolis Indiana, with four locations in Indianapolis and a fifth to open in March, is the leading collision repair organization in Indiana. Alamo operates three locations and is the leading provider of collision repairs in San Antonio. Collision Team of America, Inc. also announced the signing of letters of intent with four Midwest collision operators with eight locations. The company has added three senior level executives in the last month. Kevin Martin recently joined Collision Team as its Chief Financial Officer, Bernie Allen joined as Chief Information Officer and John Houghton is the newly announced Director of Training and Career Development. Mr. Houghton will direct Collision Team University, a national training center, which will occupy the former Church Brothers headquarters. By the end of the first quarter, the consolidation of Church Brothers and Alamo Body and Paint, along with the closing on the current letters of intent will bring the company to sixteen locations in three states with annual revenues in excess of $50 million.
Herberts Buys Out Sherwin’s Interest in American Standox
In a not-so-suprising move, Herberts GmbH announced January 23 that it has finalized an agreement with the Sherwin-Williams Company, in which Herberts will purchase Sherwin-Williams’ 50-percent interest in American Standox, Inc. Herberts and Sherwin-Williams had been 50-50 partners in the joint venture. The parties have also entered into a distributorship agreement which will take effect February 27, 1998. Under the terms of the distributorship agreement, Sherwin-Williams will retain the right to distribute products to end-user collision repair facilities on a non-exclusive basis. American Standox will add warehousing to its existing functions and directly supply product to both Sherwin-Williams and independent jobbers. “Herberts is committed to strengthening and growing the Standox brand in North America, the world’s largest automotive repair market,” said Herbert Born, head of Standox worldwide. “We will invest the necessary resources to ensure that we meet customer demand for increasingly high quality products and enhanced service.’
PPG To Acquire German Auto Coatings Maker Bollig & Kemper- Reports Q4 Earnings
PPG Industries will acquire the automotive coatings business of Helios-Lacke Bollig & Kemper GmbH & Co. KG (B&K) of Cologne, Germany. The transaction does not include B&K’s industrial coatings and resins business. Richard Zahren, PPG automotive coatings vice president, said he expects the acquisition to be completed by the end of January. Terms were not disclosed. “B&K has built an excellent reputation in four decades of supplying original equipment automotive coatings,” Zahren said. “This acquisition will especially strengthen PPG’s ability to serve German-based automobile manufacturers throughout the world, and represents another major step in our strategy to profitably expand our global automotive coatings business. “Combining our technologies provides PPG with an even stronger product line to meet the total coatings requirements of our customers,” he added. “B&K’s product portfolio is an excellent fit with PPG’s, and complements our capabilities in waterborne automotive products.” B&K’s Wilhelm Kemper will join PPG as managing director of its German coatings subsidiary, PPG Industries Lacke GmbH, as well as European automotive coatings marketing and sales director. Bollig & Kemper’s auto coatings business employs about 190 people; its annual sales exceed US$50 million. PPG’s acquisition includes B&K’s plant at Saarwellingen, southwest of Frankfurt, and its minority interest in PPG-B&K Revestimentos Para Automoveis, A.E.I.E., an automotive coatings marketing business in Palmela, Portugal. This will be PPG’s eighth automotive or industrial coatings acquisition in the Americas and Europe in five months, with combined annual sales approaching US$500 million. PPG also released earnings results for the fourth quarter of 1997. Excluding effects of non-recurring gains and charges recorded in the last three months of 1997, PPG Industries achieved higher sales, earnings and earnings per share than in any previous fourth quarter, propelled by record sales for a final quarter in all three business segments — coatings, glass and chemicals. Sales and earnings per share for all of 1997 were also records, even including effects of the final-quarter non-recurring items. Earnings were lower for 1997 than in 1996, in part because of effects of the net charges. Fourth-quarter net income was $159 million, or 89 cents a share, on sales of $1.8 billion. Excluding gains and charges, net income was $174 million, or 98 cents a share. In the 1996 quarter, net income was $152 million, or 83 cents a share, on sales of $1.8 billion. Full-year net income was $714 million, or $3.97 per share, on sales of $7.4 billion. Excluding the non-recurring items, net income was $729 million, or $4.06 a share. Net income for all of 1996 was $744 million, or $3.96 per share, on sales of $7.2 billion.
Toronto Metro Passes Anti-Chasing Bylaw- Insurers Prohibited from Recommending Repairers
Despite a fist fight between a tow operator and security staff during the debate and shouted insults from the public seating area, the Metro Toronto Council approved a bylaw December 10, 1997 that mandates major changes for the towing and collision repair industry. The bylaw, some two years in the making, will have a major impact on how motor vehicle accidents are handled in the Toronto area. There are 105,000 collision damaged vehicles, 126,000 comprehensive claims and a half billion dollars in repair work each year in the Toronto area, almost 45% of all accidents in the province. Major features of the by-law: ALL collision damaged vehicles must be towed to the closest Collision Reporting Centre. (Collision Reporting Centres are operated privately through an agreement with the Police Services Board. Motorists report their accidents to police who are situated in a portion of the building and then can file a claim with their insurer, who pay for the Centres, in another area of the building. In this fashion, police can have the accident come to them, rather than responding to each incident.) Tow truck price rates for the tow are “capped” at $130 for city roads and $150 for highways. Collision damaged cars must be dropped off at the Collision Reporting Centre, the tow operator is paid for the tow and the tow truck leaves the premises. This is called the “mandatory drop” and commences on June 10, 1998. Motorists will report the accident to police at the Collision Reporting Centre and can file a claim with their insurer, who is also represented at the Centre. Motorists are required to be supplied a listing of “industry accredited” collision repair and auto refinish shops that meet or exceed industry standards and legal compliance requirements. Insurers operating within the Collision Reporting Centre cannot recommend a repair facility to the motorist. This prohibition is effective June 10, 1998. According to Tony DiSanto, President of the Toronto Collision Repair Society, “By providing a level playing field for repairers and freedom of choice for motorists to decide on their own repairer, the level of professionalism and workmanship provided to motorists will improve and aggressive tow truck solicitation will end.” By eliminating both excessive towing charges and the abuse generated by “chase” shops who often charge hundreds of dollars simply to return the still damaged car to the motorist, savings for consumers and insurers are estimated to be over eight million dollars annually. Also, the Metro Council’s approval of an industry accreditation program will allow the collision repair and auto refinish industry to improve the credibility of the industry through an inspection program. Under the program, each facility that is identified in the listing supplied to motorists at the Collision Reporting Centre, will be required to meet or exceed standards for municipal licensing, trades certification of staff and environmental compliance. John Norris of the multiple trade association sponsored Collision Industry Action Group, who have developed the accreditation and implementation plan, believes that the new consumer arbitration and quality assurance portions of the plan will give the plan the “teeth” to force errant shops to clearly satisfy the motorist. According to Norris, “The accreditation plan has gone through a long stakeholder and public comment period, with meetings held across the province and continues to be popular with government. Virtually all collision repair trade associations in the province, major envirorunental groups, some regional governments and the insurance community support an accreditation program.” Over the next sixty days, the accreditation program is expected to be formally adopted and industry information meetings announced. The industry accreditation program is based on: -meeting municipal licensing standards -employing trades certified technicians -meeting or exceeding minimum environmental compliance requirements -possessing the necessary minimum level of equipment to perform the vehicle repair For further information on these developments, contact the Toronto Collision Repair Society at (416) 636-0901, or the Collision Industry Action Group, representing collision repair trade associations in Ontario at (905) 526-9925, fax (905) 526-1947
The Tax Man Cometh...Again-IRS Audit Manual Available from INSIGHT
Nobody likes to think about tax audits, but they are a fact of life for many business owners. Chances are all too good that, at some point, every business will be subjected to an audit. Collision repair was picked as one of over 25 industries for special attention by the IRS. The IRS developed a special training manual so agents could most “effectively” audit collision repair shops. What is the IRS looking for? INSIGHT has the answer! Through the Freedom of Information Act, INSIGHT has obtained a copy of the IRS Training Document MSSP (Market Segment Specialization Program) on the Auto Body and Repair Industry. INSIGHT incorporates the IRS document into a valuable book providing “insights” into the tax investigation process and pointing out what you need to know to avoid the big problems an IRS agent can cause. The training guide for field agents provides IRS examiners with detailed information on prevailing practices in the collision repair industry and includes examples from actual examinations. The manual, for example, identifies five key items to look for when an agent does an initial “walk through” of the business. Key financial areas (for the IRS) such as 1099 compensation, sublets, cash deductibles, referral payments, shop ownership/maintenance of “toys,” owner compensation, building ownership and rent are covered in detail with examples of questionable practices and identified fraud. This is the training manual the IRS does NOT want you to see! The guide, available from INSIGHT for the first time in 1997, is offered again this year at tax time because so many of our subscribers found it to be “very useful and enlightening,” as a California subscriber said right before an audit. A Boston shop owner said, “This book saved my shop from a ‘total wreck’ collision with tax agents! It’s a ‘must read’ for every collision repair facility owner!” The INSIGHT IRS guide includes an introduction by Rex Dunn, president of SOS, the accounting firm working with over 200 collision repair shops nationwide, and the CEO of True2Form, one of the industry’s consolidators. Also included is INSIGHT’s guide to financial and operating ratios for “Top 25%” shops. The guide is available for $29.95, including postage and handling. Call (800) 860-2744 to place your order.
Nine-Month Results Indicate Spectacular Year as Underwriting, Equities Propel P/C Insurers
BestWeek Insurance New and Analysis reported in their December 1, 1997 issue that the U.S. property/casualty insurance industry posted exceptional underwriting results for the first nine months of 1997, and full year results are expected to be the industry’s best in nearly 20 years, according to an A.M. Best Co. analysis. Premium growth remained sluggish, in the 3 to 4 percent range, for the fourth consecutive year. However, the industry had strong surplus growth of about 16 percent through nine months, reflecting its excellent underwriting results and market appreciation on its equity portfolio. On a segment basis, results are as follows: A.M. Best estimates that the personal lines segment’s nine-month combined ratio will be between 99 and 100, reflecting a five-point improvement from last year. This segment, which accounts for nearly 50 percent of the industry’s premium volume, benefited from strong personal automobile and improved homeowners results, primarily because of fewer catastrophes. The top three carriers - State Farm, Allstate, and Farmers - which account for 40 percent of the personal lines market, reported combined ratios of 100, 98, and 101 respectively. USAA and GEICO, two leading direct response writers, had outstanding combined ratios of 79 and 91 respectively, reflecting their low-cost distribution systems and USAA’s practice of waiting until the fourth quarter to pay its generous policyholder dividend. The personal lines segment experienced low premium growth of about 4 percent. However, Progressive, the second-largest nonstandard auto writer behind Allstate Indemnity had extraordinary premium growth of 51 percent, while maintaining its consistently outstanding underwriting results with a combined ratio of 94. Strong surplus growth improved this segment’s premium-to-surplus ratio to 1.1 as of September 30.
Mitchell to Revamp NAGS Glass Part Pricing and Installation Times
Mitchell International announced in December that, effective with the fall 1998 NAGS publications will have the most realistic and easy-to-access benchmark for glass part pricing and labor installation times in the industry. National Auto Glass Specifications (NAGS), a subsidiary of Mitchell International, is making a major enhancement to the company’s Benchmark List Price and Labor Times. According to NAGS General Manager Catherine Howard, “The new pricing structure will enhance the credibility of the glass claims process by providing realistic and reliable benchmark glass part list pricing and labor installation times. This will provide the means to both the buyers and sellers of auto glass to accurately determine realistic charges for each component of the auto glass claim; i.e., the glass, the installation labor required and any additional materials such as adhesives, clips and mouldings. Unrealistic glass part pricing has been a sticky issue for the industry for many years. Under the existing auto glass pricing method employed by NAGS, most of the costs are buried in the price of the glass itself, giving no visibility to the true costs associated with the installation of glass. As the list prices of auto glass have increased, so have the discounts off this list to the point of being totally unrealistic- examples of 70 to 75% off are now quite common with low “flat” rates being charged for the installation labor and little to nothing for the associated materials. The revised NAGS benchmark, which will be implemented and available with the Fall 1998 release of the NAGS print and electronic publications, will replace the traditional list price with a NAGS benchmark price that more closely predicts realistic, fair aftermarket glass dealer prices and precise times for installation labor, aligning all labor times to the Mitchell Collision Estimating Guide and factoring in appropriate cleanup times as indicated by the Mitchell labor time studies. The timing of the implementation is designed to give the market an entire year to prepare for the effects the changes will have on both point-of-sale systems and agreements between trading partners. The anticipated changes will include the elimination of or significant changes in discounts on glass, realistic hourly labor rates in line with body shop rates, and accurate pricing for the materials used in installation.
Fierst Leaves CAPA- Founds Consulting Firm
Karen Fierst, the well known advocate for the Certified Automotive Parts Association (CAPA), has left the aftermarket parts certification group to pursue a consulting career. Fierst was employed by Gillis and Associates, a private firm dedicated to consumer education and advocacy, for over twelve years. As the company’s first Research Associate, she managed projects, contributed to and co-authored numerous consumer guide books for major publishers, including many focusing on automotive issues. Promoted to Senior Associate after four years at the firm, Fierst’s primary responsibilities shifted to management of CAPA. She was named the organization’s Deputy Executive Director in 1994. Ms. Fierst’s responsibilities included strategic planning, industry relations, government affairs, program management, development and implementation of technical and public policy. INSIGHT would like to wish Karen luck with her new endeavor. To reach Karen, contact KerenOr Consultants at: (301)681-4383.
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