A new study released by Automatic Data Processing’s Claims Solution Group (CSG) shows that, contrary to popular belief, flat rate labor times have increased in the typical estimate over the past few years.
According to Rick Tuuri, product manager of the collision database for CSG, "Our data indicates that the common perception that flat rate labor times are declining is just not true- at least for ADP estimates. Changes in vehicle population, refinish technology and other factors have moved the number of flat rate replace and refinish hours in the average estimate upward."
The monthly data, presented by Tuuri at the recent Collision Industry Conference (CIC) held during April in Chicago, details the average flat rate replace times and the average refinish hours that were estimated using ADP products.
The data, presented in the charts at right, clearly shows that the average number of flat rate estimate hours is increasing. INSIGHT has applied a 12-Month Moving Average to the data to better show the growth in flat rate labor.
The 12-Month Moving Average of replace hours increased from 9.25 in June 1991 to 9.6 hours per estimate in December, 1996. This represents an approximate 4 percent increase during that time.
According to Tuuri, "Seasonal spikes in the number of hours are to be expected. During the winter months, crashes tend to be more severe due to slippery road conditions. Hence, higher labor hours for the repair."
The 12-Month Moving Average of refinish hours increase from 8.25 in June 1991 to 9.1 hours per estimate in December, 1996. This represents an increase of approximately 11 percent over the same time frame.
Commenting on the growth of refinish labor times, Tuuri explained, "Our best indication for the increase in refinish labor on the average estimate is the increase in the percentage of vehicles that require two-stage refinishing. In 1991, the percentage of vehicles with two-stage finishes applied by the OEMs was far lower than today. As these vehicles grew as a percentage of the overall vehicle population, the amount of clear coat time applied in estimates was bound to increase."
Combined, the total flat rate hours in the typical ADP estimate have shown a 7 percent increase during the period of June, 1991 to December, 1996. In June, 1991 the 12-Month Moving Average of combined replace and refinish hours totaled 17.5 hours. In December of 1996, this number stood at 18.7 hours per estimate.
Tuuri explains what this new data means from ADP’s perspective, "Our goal with conducting this research was to show that the common misconception that flat rate labor hours are declining is incorrect. Information providers have come under intense criticism from the collision repair industry that believes our flat rate times are declining. For estimates written on ADP systems, this is just not true. The data shows that the typical estimate written on our computerized system includes more flat rate hours than it did five years ago."
What about shop estimated repair times? While not covered in the ADP study, INSIGHT research suggests that repair hours have declined in the typical estimate. But, the decline in repair hours has been more than offset by the flat rate hour increases. Initial research suggest a decline of roughly 5 percent in shop estimated repair hours, or a decline of about 0.5 hours per estimate. This leaves a 0.7 hour increase in the total hours in ADP estimates.
What does this data mean for shop operators? For the typical shop, this data illustrates a realignment in the types of labor performed in the typical repair facility- evidenced by a transition from repair to replace operations- coupled with an increase in the percentage of refinish labor per estimate.
The most important consideration for a collision repair facility should then be achieving target productivity rates on replace and refinish operations.
Put more simply, if labor hours on the whole are holding steady, yet labor profits are declining, the problem lies in productivity ratios and labor rates.
(Editor’s Note: INSIGHT has contacted both Mitchell and CCC to determine what trends are evident in their average estimate data. Look for this information in a future issue of INSIGHT.)
Reprinted from the June 1997 Issue of Collision Repair Industry INSIGHT.
© 1997 Collision Repair Industry INSIGHT. All Rights Reserved
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