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Letter to the Editor
This article originally appeared in the January 2001 Issue of INSIGHT
TrendLine:
TrendLine: Shop Satisfaction with Direct Repair Programs
For 2000, USAA moves into lead as highest shop satisfaction with a Direct Repair Program. Last year’s insurer with the highest CSI rating from DRP shops was Farmers, whose score dropped dramatically this year. USAA increased its rating from 3.81 in 1999 on a 1-5 scale to 3.84 in 2000. While not a huge gain, USAA, along with State Farm, were the only insurers to show any gain.
Interestingly, both State Farm and USAA got their highest rating for speed of claims handling, and you have to believe, looking further at the numbers, that this had a strong positive impact on cycle time reduction, to the benefit of shop, insurer, and vehicle owner.
At the bottom of the barrel for shop satisfaction with a DRP was GEICO, with an average score of 2.57 on a 1-5 scale. Nationwide, along with GEICO, got slammed on the "fairness of agreement" issue, with Nationwide at 2.11 compared to 3.79 for State Farm or 3.65 for USAA.
In January, we plan to phone interview those shops that are in both the Service First program for State Farm and the Blue Ribbon DRP for Nationwide, when they rated Nationwide poorly and State Farm or USAA high.
We don’t know just why Nationwide and GEICO were rated so low. We have our suspicions, but we will try to get the facts from the shops.
When it comes to the shops’satisfaction with increased business, USAA continued from 1999 in first place, followed by State Farm, which moved up significantly in the eyes of shop owners in this important area.
High satisfaction with program elements doesn’t really mean much if you don’t get the cars. On average, Allstate, with a reported eighteen cars per month per reporting shop, was the highest, although its average per month car count dropped from 24 in 1999, followed by State Farm with sixteen cars. Average number of DRP assignments was down slightly from the 1999 level overall, with the exception of Progressive assignments, up from nine last year to fifteen in 2000.
When it comes to repair volume overall for the year we believe that on a units repaired basis the market will be up about four percent primarily as a result of an expanded insured fleet size based on strong new and used car sales over the past seven years. Claim frequency per 1,000 insured vehicle years was down slightly, while at the same time severity or average cost per claim may end up the year rising by over ten percent to a new high of close to $2,900. This includes totals and, as a result, the average repair total would be less than that $2,900 plus any deductible. All in all we think we will end up with close to a $29 billion year for collision repair - details in the February issue of INSIGHT.
| 2000 | 1999 | |
| Overall percentage of insurance-paid work that was DRP | 45% | 38 |
State Farm
| 2000 | 1999 | |
| Average assignments per month | 16 | 16 |
| Percent giving parts discount | 0% | 12% |
| Average parts discount | 0% | 11% |
| Percent giving labor discount | 5% | 7% |
| Average labor discount per hour | $2.00 | $2.40 |
| Percent getting electronic assignments | 85% | 89% |
| CSI (On a scale of 1 - 5, with 1=POOR and 5=EXCELLENT) | ||
| Speed of claims handling | 4.18 | 4.01 |
| Increased business | 3.34 | 3.00 |
| Cycle time reduction | 3.82 | 3.69 |
| Timeliness of payment | 3.69 | 3.71 |
| Fairness of agreement | 3.79 | 3.92 |
| Average overall CSI | 3.76 | 3.67 |
| 2000 | 1999 | |
| Average assignments per month | 18 | 24 |
| Percent giving parts discount | 50% | 55% |
| Average parts discount | 6% | 8% |
| Percent giving labor discount | 14% | 23% |
| Average labor discount per hour | $2.00 | $2.61 |
| Percent getting electronic assignments | 68% | 83% |
| CSI (On a scale of 1 - 5, with 1=POOR and 5=EXCELLENT) | ||
| Speed of claims handling | 3.81 | 4.03 |
| Increased business | 3.38 | 3.32 |
| Cycle time reduction | 3.67 | 3.68 |
| Timeliness of payment | 3.86 | 3.92 |
| Fairness of agreement | 3.00 | 3.10 |
| Average overall CSI | 3.54 | 3.61 |
| 2000 | 1999 | |
| Average assignments per month | 12 | 22 |
| Percent giving parts discount | 0% | 0% |
| Average parts discount | 0% | 0% |
| Percent giving labor discount | 0% | 4% |
| Average labor discount per hour | $0.00 | $2.00 |
| Percent getting electronic assignments | 25% | 29% |
| CSI (On a scale of 1 - 5, with 1=POOR and 5=EXCELLENT) | ||
| Speed of claims handling | 3.64 | 3.93 |
| Increased business | 3.18 | 3.74 |
| Cycle time reduction | 3.55 | 3.85 |
| Timeliness of payment | 3.27 | 3.96 |
| Fairness of agreement | 3.60 | 4.20 |
| Average overall CSI | 3.45 | 3.94 |
| 2000 | 1999 | |
| Average assignments per month | 7 | 17 |
| Percent giving parts discount | 9% | 24% |
| Average parts discount | 5% | 9% |
| Percent giving labor discount | 9% | 0% |
| Average labor discount per hour | $1.00 | $0.00 |
| Percent getting electronic assignments | 45% | 77% |
| CSI (On a scale of 1 - 5, with 1=POOR and 5=EXCELLENT) | ||
| Speed of claims handling | 2.80 | 3.35 |
| Increased business | 2.80 | 3.24 |
| Cycle time reduction | 2.70 | 3.18 |
| Timeliness of payment | 2.90 | 2.76 |
| Fairness of agreement | 2.11 | 2.88 |
| Average overall CSI | 2.66 | 3.08 |
| 2000 | 1999 | |
| Average assignments per month | 15 | 17 |
| Percent giving parts discount | 11% | 29% |
| Average parts discount | 8% | 8% |
| Percent giving labor discount | 21% | 8% |
| Average labor discount per hour | $2.00 | $2.50 |
| Percent getting electronic assignments | 79% | 79% |
| CSI (On a scale of 1 - 5, with 1=POOR and 5=EXCELLENT) | ||
| Speed of claims handling | 4.17 | 4.13 |
| Increased business | 3.67 | 3.67 |
| Cycle time reduction | 3.89 | 3.79 |
| Timeliness of payment | 3.83 | 3.83 |
| Fairness of agreement | 3.65 | 3.63 |
| Average overall CSI | 3.84 | 3.81 |
| 2000 | 1999 | |
| Average assignments per month | 3 | 10 |
| Percent giving parts discount | 11% | 0% |
| Average parts discount | 10% | 0% |
| Percent giving labor discount | 11% | 7% |
| Average labor discount per hour | $2.00 | $2.50 |
| Percent getting electronic assignments | 44% | 33% |
| CSI (On a scale of 1 - 5, with 1=POOR and 5=EXCELLENT) | ||
| Speed of claims handling | 2.75 | 3.60 |
| Increased business | 2.38 | 3.21 |
| Cycle time reduction | 2.63 | 3.57 |
| Timeliness of payment | 2.50 | 3.27 |
| Fairness of agreement | 2.57 | 3.47 |
| Average overall CSI | 2.57 | 3.42 |
| 2000 | 1999 | |
| Average assignments per month | 15 | 9 |
| Percent giving parts discount | 22% | 12% |
| Average parts discount | 8% | 10% |
| Percent giving labor discount | 11% | 18% |
| Average labor discount per hour | $2.00 | $3.00 |
| Percent getting electronic assignments | 22% | 29% |
| CSI (On a scale of 1 - 5, with 1=POOR and 5=EXCELLENT) | ||
| Speed of claims handling | 3.13 | 3.75 |
| Increased business | 2.63 | 3.31 |
| Cycle time reduction | 2.88 | 3.50 |
| Timeliness of payment | 3.00 | 3.88 |
| Fairness of agreement | 3.00 | 3.50 |
| Average overall CSI | 2.93 | 3.59 |
Our fax survey of the 2,000 shops in our I-NET network shows that the 28 percent continues to be a valid number, as shown in the TrendLine results and based on a weighted median of OE, maker, aftermarket, and salvage.
It is interesting that the two areas of lowest GPM on OE new were Saturn and European High Line, both of which showed an average discount or GPM of 20 percent. These two areas also had the lowest same day or next day fill rate, 68 percent for Saturn and 52 percent for European High Line. Perhaps both factors are a reflection of a lack of competition.
General Motors had the highest same day or next day fill rate of 80 percent, followed by Toyota, Ford, and Honda at 73-74 percent, with Chrysler slightly behind at 71 percent.
While the same day/next day fill rate of GM is impressive, what we do not know is just how long it takes to get the remaining 20 percent of the parts ordered.
Today, the efficient operators do not start the job until they are pretty darn sure they have all the parts needed. On a medium to heavy hit, where parts may well be ordered after teardown, that late 20 percent can kill cycle time.
In terms of the number of sources for parts, the typical answer was one main source per name for OE parts with a back-up source when required. When it came to aftermarket and salvage, more sources were used, two for aftermarket and two or three for salvage.
When it comes to Gross Profit Margin, the lowest in both percentage of the sales dollar and in overall dollars per part, salvage was at the bottom with an average markup of 25 percent, resulting in a GPM of 20 percent.
Aftermarket, with an average GPM of 30 percent, was better from a percentage standpoint, but if the part was priced significantly lower than OE the dollar profit becomes unattractive to the shop.
It is interesting that with Nationwide’s new program for re-introducing aftermarket parts to its direct repairers the discount from list offered by both Eagle and Keystone, the two approved suppliers, will be 35 percent, and on this basis the shop’s GPM and its dollars may equal or exceed new OE, based on vehicle make as shown in Chart 1.
Profit Comparison on Nationwide Parts Program for Covers and Lighting
| OE | Aftermarket | |
| Suggested List Paid to Shop by Nationwide | $100.00 | $85.00 |
| $70.00 - 80.00 | $55.25 | |
| Shop GPM | 20 -30% | 35% |
| Shop $ Gross Profit | $20.00 - 30.00 | $29.75 |
It is our understanding that, for the two parts lines being introduced in the Nationwide program, covering lighting and bumper covers, that the shop’s Operating Gross Margin will be approximately equal to OE while at the same time Nationwide’s claims cost will be reduced by the difference between aftermarket list and OE list.
We believe that the market for Ford and GM crash parts has become more competitive in the past year. Perhaps this is a function of the reduced specification of aftermarket parts or just aggressiveness between dealers.
At the dealer level, it is tough to show any net profit on parts when your total available gross is just over 40 percent and parts are discounted 30 to 35 percent, plus delivering, providing credit, and allowing returns. Bottom line is that shops, whether they are owned by consolidators or are large independents, are not likely to be showing any improvement in parts GPM, as dealers’ cost for money to finance inventory and fuel to operate delivery vehicles go up.
It would appear to us that for a dealer to operate a wholesale business on a 10 to 15 percent GPM, he has to have more reasons than just making a net on his wholesale business. Usually it’s that he wants a large inventory to back up his own service and/or body shop operation and/or the benefits of a larger return allowance or buying power for parts in quantity offsets the low or non-existent net on wholesale.
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