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Letter to the Editor
This article originally appeared in the January 2001 Issue of INSIGHT
©2000 Collision Repair Industry INSIGHT All Rights Reserved
NACE Nearly Ends 2000 with a Bang
Auto Insurance Rates Expected to Rise
Copart Reports Record First Quarter Results
United Recyclers Group Announces Recycled Parts Provider Program for Insurers and Repairers
INDUSTRY UPDATE
The addition of dozens of dot-com firms swelled the trade show floor at this year’s International Autobody Congress and Exposition (NACE) to a record-setting 277,800 square feet.
But despite the buzz and discussion the internet-based parts ordering and claims processing firms tried to create, their booths seemed largely ignored by attendees at the 3-day show in Orlando. It wasn’t unusual to walk past a dot-com booth and see more employees than potential customers.
Instead, the 30,000 people (according to show organizers) visiting the show seemed more drawn to the mammoth paint company booths and the newer offerings from these "Old Economy" vendors. Shop operators seemed interested in the online paint ordering and business and financial analysis and benchmarking offered by BASF; by the expanded offerings in DuPont’s Assurance of Quality (AOQ) value-added program; and by PPG’s new "Certified First Network" shop marketing effort.
There also was some increase in the "international feel" of the event, with about one in ten attendees hailing from outside the United States. More than 70 countries were represented, and even a Chinese trade publication had a booth at the show.
California shop owner Kevin Caldwell kicked off his third NACE as chairman with a "state of the industry" speech in a slightly different format. The entire general session was modeled after a television talk show, with Caldwell being "interviewed" about the industry by a show host. Attendees seemed to appreciate the change, although Caldwell’s message seemed to lack some of the hard-hitting messages to insurers, vendors and fellow shop owners of his previous two speeches at NACE.
Perhaps the highlight of the show – other than a more than fabulous Saturday night concert by the Beach Boys – was a presentation by Brian Sullivan, editor of several insurance industry publications. Sullivan said insurers are currently mired in a price war, having been unable to differentiate themselves in any other way in the market. This suggests downward pressure on costs – including auto repair costs – will continue. INSIGHT will offer a more in-depth report on Sullivan’s presentation in the February issue.
NACE 2000 ended with a bang – or at least the possibility of one. On Sunday afternoon about an hour prior to the show’s close, a bomb threat forced the evacuation of the convention center. Little information about the threat was made public, but it came at a generally quiet time on the show floor, making it disruptive to show organizers and exhibitors but very few attendees.
The event returns to Las Vegas next November 29-December 2, with show organizers hoping for a rebound in attendance; NACE ‘97 in Vegas drew 41,000 people, the most ever. No doubt that’s why the Nevada city will soon host the show every other year, with "off-years" expected to be held in Orlando and Dallas.
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Automobile insurance rates are expected to rise by 1.5 percent this year, the first increase in three years. Additional increases of 2 to 4 percent are likely in 2001. Among the factors driving rates upward are higher costs to treat people injured in accidents, a sharp acceleration in the cost of vehicle repairs, and bigger jury awards in vehicular liability cases, according to the Insurance Information Institute (I.I.I.). This year's expected increase will end the recent trend toward falling prices for auto insurance. Rates fell by 3.2 percent in 1999 and 2.8 percent in 1998, the first decreases since 1973.
While many motorists with good driving records continued to see savings in 2000, many drivers-especially those with poor driving records-saw increases. "Costs associated with settling automobile claims are on the rise," said Dr. Robert P. Hartwig, vice president and chief economist, I.I.I. Hartwig says medical costs are rising at their fastest pace in six years and that the average jury award in vehicular liability cases is up 81 percent since 1994. Moreover, a 1999 Illinois court decision that led many insurers to suspend their use of aftermarket (generic) crash parts in automobile repairs gave manufacturers of name-brand parts a virtual monopoly on this multi-billion dollar market.
"Monopolies are invariably bad for consumers," said Hartwig. "According to federal statistics, the cost of motor vehicle body work is rising nearly three times faster than it was in 1999 and is accelerating. This means the price of insurance to pay for those repairs will have to rise, too. The effective prohibition on the use of generic parts of like kind and quality in the repair of damaged vehicles is a factor that could ultimately add $4 to $5 billion annually to the cost of automobile insurance," he added.
Higher medical costs have re-emerged as a major concern for insurers. Hartwig said that the same factors that are pushing up employer health care costs across the country are pushing up the costs of treating people injured in car accidents. "The pace of medical inflation is up more than 50 percent since 1997," said Hartwig.
Hartwig also noted that sharply higher jury awards in vehicular liability cases are putting additional upward pressure on auto insurance rates. "The average jury award in auto liability cases rose from $175,000 in 1994 to $316,000 in 1999-an increase of 81 percent -compared to and increase of just 15 percent in the Consumer Price Index (CPI) over the same period," said Hartwig, adding that liability issues are much more important than people realize. "About 60 percent of auto premiums paid in 1999-nearly $70 billion-were for liability coverages," he said.
The average auto insurance expenditure per vehicle will rise by an estimated $10 this year to $707 compared to a decline of $7 in 1999. In 2001, the average expenditure on auto insurance is expected to rise by $22 per vehicle to $729. Auto insurance expenditure measures what the average consumer actually spends for insurance on each vehicle and takes into account many factors besides rate changes, including driving record, price trends for new and used vehicles, eligibility for discounts, consumer automobile purchasing trends (e.g., cars vs. SUVs), and consumer choice of elective coverages (e.g., collision, comprehensive).
According to Hartwig, the typical two-car family in the suburbs will probably notice the increase because it is the first in several years for most drivers. Moreover, many families are already paying more for auto insurance than they were a few years ago because they likely purchased at least one new car during that period. "Expensive SUVs and trucks are accounting for an ever higher share of vehicle sales-nearly 50 percent today vs. 32 percent in 1987."
Hartwig noted that despite rising costs, competition between insurers will likely help keep a lid on the cost of automobile insurance, leading to an expected increase of just 1.5 percent in this year's average expenditure for auto insurance. "Drivers with poor driving records will see the largest increases-double digits in some cases," said Hartwig. Because higher medical, repair and liability costs affect the cost of insuring all drivers, even those with relatively good records can expect to see a modest increase in the cost of insuring their vehicles in the year ahead.
The Insurance Information Institute is a fact-finding, communications organization sponsored by the property/casualty insurance industry.
Copart, Inc. has reported record profits for its first fiscal quarter ended October 31, 2000.
Copart earned net income of $8,919,200 or $.16 per diluted share in the first quarter of fiscal 2001, generating a 45 percent increase in earnings per share over the same period in fiscal 2000, on revenues of $57,139,400. The Company had net income of $6,312,600, or $.11 per diluted share, on revenues of $40,507,600 for the same period in fiscal 2000.
"Fiscal 2001 is off to a great start," said A. Jayson Adair, Copart's President. "In this quarter we accomplished record financial results and added powerful new web features. We also saw continued growth of Internet sales and received recognition as one of Forbes 200 Best Small Companies in the October 30, 2000 issue.
"Financial results were ahead of expectations due to strong performance from new and existing stores. Same store sales for the quarter were up 28 percent over the first quarter of last year. In addition, new stores this quarter generated $5.3 million of new revenues and over $800 thousand of net operating profits. Overall operating profits were 24 percent of sales despite higher transportation and labor costs. For the quarter we auctioned over $249 million in gross proceeds and generated $17.8 million of EBITDA.
"On the Internet we added a number of new features to benefit our buyers and suppliers. For buyers we added the ability to see future sales -- cars that are in the final phase of processing but are not yet assigned to a firm auction date. This means that buyers can now see and bid on almost twice as many cars. Today, Copart.com displays over 32,000 vehicles for scheduled or future auctions -- that's over 100 percent higher than just three months ago. We also added a number of web tools for buyers such as account statistics and the ability to drill-down on the details and images of vehicles they've purchased from Copart.
"For our insurance company suppliers we increased the functions, reporting and speed of our web offerings. For example, we recently added drill-down capabilities to a number of on-line reports and created new inquiries to quickly show the details of Internet sales. This means that an insurance adjuster in San Francisco can be on Copart.com looking at a report and click on a link to look at receipts, invoices and images of a vehicle sold last month in Boston. As of today, over 14 million digital images of vehicles and scanned documents can be accessed at Copart.com.
"The web enhancements to our business are driving higher Internet sales. Approximately 18 percent of the first quarter's gross proceeds came from the sale of cars sold to Internet bidders or whose price was 'pushed' by Internet bidders. Total Internet sales for the quarter were $44.4 million, 122 percent higher than the first quarter of fiscal 2000. The $44.4 million consists of approximately $22.7 million of product sold and $21.7 million pushed by Internet bids. In the first quarter one year ago Internet sales were $20.0 million, 11 percent of gross proceeds, consisting of approximately $9.9 million of product sold and an additional $10.1 million pushed."
Copart, founded in 1982, provides vehicle suppliers, primarily insurance companies, with a full range of services to process and sell salvage vehicles through auctions, principally to licensed dismantlers, rebuilders and used vehicle dealers. Salvage vehicles are either damaged vehicles deemed a total loss for insurance or business purposes or are recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made. The Company operates 77 facilities in 36 states. It also provides services in other locations through its national network of independent salvage vehicle processors.
Bell & Howell, Ford Motor Company's Automotive Consumer Services Group, the Mopar Parts Division of DaimlerChrysler Corporation, and General Motors Service Parts Operations have jointly announced that they have combined efforts to form a business-to-business integrated original equipment manufacturer (OEM) parts and service portal.
This new, yet-to-be-named venture will be the OE connection for parts and service, providing dealers and their wholesale customers a secure single source for their parts and service needs. It will facilitate the flow of OEM parts between franchised dealers and their customers, beginning with independent collision shops. Plans are to first launch this portal in the U.S. and Canada, with the vision of going global.
"This venture creates a common OEM replacement parts and service portal that will automate and integrate the parts and service supply chain among the OE manufacturer, its dealers and each dealer's wholesale customers -- including collision shops, fleets and mechanical repair shops," said Chuck Rotuno, formerly senior vice president and general manager, Global Automotive Publishing, at Bell & Howell Publishing Services, and the venture's newly appointed president and CEO.
"The goals of this venture are to radically improve information flows between dealers and their customers; streamline transactions; reduce costs while improving efficiencies and customer satisfaction, and facilitate the sale of genuine OE quality parts in a secure environment," continued Rotuno. Expected products and services include business-to-business links between dealers and their customers; integration into existing business management systems; parts locating and transaction capabilities; electronic data validation and conversion, and OEM parts and service information.
The three automakers and Bell & Howell are equity participants in the new venture. Bell & Howell is the lead technology partner.
"Dozens of dot-coms have popped up, each with the promise of bringing an Internet-based solution to automotive parts retailing," said John F. Smith, GM vice president and general manager of GM Service Parts Operations. "This venture is different for two reasons. First, it represents the three largest vehicle manufacturers in the U.S. and the leading provider of automotive parts catalogs. These players have resources and their respective existing dealer and customer bases to assure success. Second, we have the bricks to go with the clicks. We have OE parts; up-to-date OE catalog data; OEM service information, and the largest dealer network in the world to service the automotive repair aftermarket. No other players have such extensive assets."
"By building upon our existing systems with the reach and real-time power of the Internet, our dealers will be able to provide increased levels of service to their customers," said Darrell Davis, senior vice president, DaimlerChrysler Corporation Service and Parts Operations. "This new portal will allow parts to flow more efficiently at the dealer level, as well as giving their customers unprecedented accuracy in choosing the right part and having it delivered faster than ever before."
Mike Jordan, president of Ford's Automotive Consumer Services Group, said, "U.S. dealers, many of whom have already invested heavily in technology solutions, are being bombarded by a dizzying array of dotcom wonders that promise to revolutionize their parts and service supply flow. Dealers are forced to spend more to keep up with the competition, but even the latest and greatest technology options are not providing the efficiencies and process enhancements they need. At the same time, their best customers are demanding more, better and faster service. Dealers know they've got to move, or risk being left behind. This new e-tool will greatly expand their e-potential and provide the OE parts and service connection they seek."
The initial product offering of this new venture is CollisionLink(TM) (patent pending) developed by Bell & Howell. CollisionLink(TM) electronically facilitates the parts quoting, ordering, and order validation processes between dealers and collision shops in a secure environment.
"Due to our integration with existing collision estimating systems, collision shops send their estimate by the Internet to their existing dealer provider of choice -- 24/7," said Jim Roemer, chief executive officer of Bell & Howell. "The estimate is electronically 'scrubbed' or validated, resulting in receiving the right part the first time, reducing returned parts, repair delays and other associated costs, decreasing repair cycle time, and getting customers back into their cars more quickly."
While initial product and service functionality will target dealer-to-collision shop and dealer-to-dealer transactions, this parts and service portal could eventually support all dealer wholesale parts transactions including those to fleet and independent service center customers. This OEM portal will be an Internet site for dealers selling genuine OEM parts to their customers.
Other affiliates and alliances of the three automakers are also planning to participate in this OEM parts and service portal. These include Isuzu, Jaguar, Land Rover, Mazda, Saab, Saturn, Subaru and Volvo.
United Recyclers Group, LLC (URG), a partnership of 330 auto recyclers, is unveiling its national insurer and repairer Premium Parts Providers Program, that will focus on URG regional group suppliers. These recycler groups share inventory and order processing procedures through their use of the Pinnacle inventory management system. The technology of the Pinnacle System (an inventory management system that many URG Partners utilize in their businesses) will allow the Partners of URG to offer the insurance companies and repairers enhanced inventory availability and advanced reporting options that are accurate, fast, and standardized from one region to the next, making them beneficial on a national level as well as regional.
Each of the URG facilities supplying parts directly to collision and mechanical repair shops go through a stringent accreditation process, to ensure only the highest quality recycled auto parts are being delivered. These URG accredited facilities also guarantee parts are delivered or shipped within twenty-four hours, carry a minimum one-year warranty on all parts, and ensure no surprises on arrival.
The regional supplier program that URG has developed will allow the insurance estimator to quickly and effectively receive quotes on recycled auto parts. These quotes will be available via regional call centers, the Internet, or fax line to allow the estimators to get the quotes they need, when they need them. Response time on the requests via phone and Internet are immediate and fax quotes are guaranteed within ten minutes. The quotes are guaranteed for five business days.
Currently there are five regional supplier groups within URG located in Minnesota, Arizona, Texas, Ohio, and California, with more groups forming.
The URG supplier program hopes to allow the insurance industry, collision, and mechanical repairer accurate and timely reports on recycled auto part purchases, reduced cycle time on repairs, and quick quoting on the highest quality recycled auto parts available in the industry.
United Recyclers Group, LLC is a group of over 330 progressive auto recyclers that formed a partnership to work together in key areas of their business. Together, this partnership has created Pinnacle, a state of the art inventory management system, a buying co-op, group marketing, the URG Brand Parts, an E-commerce solution for recyclers (http://www.autopartsearch.com/), and quality and service accreditation standards.
In one of the most heated debates at the Collision Industry Conference (CIC) in several years, shop owners and others at CIC in Orlando in December railed against what they view as unfair restrictions on their ability to transmit estimate and claims data over the internet.
"I believe this is a ploy by these information providers to restrict competition [because] they have not been able to deliver [open standard] products quickly enough to the marketplace that appeal to the users in this industry" said Frank Terlep, senior vice president of program management for CarStation.com, one of the companies that hopes to serve as a new electronic link between shops, insurers and vendors.
Terlep’s ire was aimed at ADP and CCC Information Services, both of which plan to "encrypt" the computerized estimate file data that shops and insurers currently exchange through ADP and CCC’s proprietary networks. Without the encryption, shops and insurers could exchange the data through a growing list of internet-based options.
Proponents of such open systems say this will allow greater competition by giving shops and insurers more options as to how they communicate electronically; shop wouldn’t be required, for example, to use a particular estimating system in order to exchange assignments and estimates with a particular insurer.
"Standards have provided us with a solution to this problem," said Erick Bickett of Fix Auto in Anaheim Hills, Calif. "Standards…enable the needed competition to ensure constant improvement in price, feature and functionality."
Paul Gange, vice president of product management for Mitchell International, said his company has no plans to encrypt data that would prevent Mitchell users from transmitting Mitchell estimates to insurers or vendors through internet-based service providers.
"We support open systems very ardently," Gange said at CIC. "We want to compete on the merit of our product and on the merit of our service offerings and allow you to use the data you create. It’s a very simple position: We place no restrictions."
But representatives of ADP and CCC defended their plans to encrypt data, saying it is necessary to protect information that belongs to its customers (shops and insurers), information it licenses to resell (such as OEM part numbers) and its own estimating database information. Rick Tuuri, director of industry relations for ADP, for example, said companies like CarStation.com and ProcessClaims.com can help transmit such information, but shouldn’t be allowed to do anything else with it.
"What we are saying is the third-party intermediaries do not have the right to look at that data, collect that data, sift that data, resell that data, package it in other ways or do anything with it," Tuuri said. "How do we know they won’t do that? We want to talk about licensing agreements, and set up parameters around which we can all legitimately use that information."
A CCC representative said his company is also looking into similar licensing agreements.
INSIGHT publisher Charlie Baker stated at the meeting that the crux of the problem could be the reselling of possibly copyrightable material – namely, OEM parts numbers – by the dot-coms to others.
But some observers contend the licensing and privacy issues are delaying tactics the companies are deploying as they develop their own internet-based claims processing systems.
"I’m your customer. I pay you a fee every month, and I’m telling you that I want this capability," Kelly Roe, owner of Carty’s Collision in Ontario, Calif., told the information providers at CIC. "I think you’re afraid to do it because you’ve got a huge customer base that has to buy your product. And once we have a choice, you’re going to have to step up to the plate and give us a product that we’re going to choose to buy, not buy because we have a trading partner who requires it. And when I have a choice, you’re going to have to give me a much better product, or you’re going to lose."
For Collision Business of the Year in category one, Single Location of Unlimited size, this year's winner was 427 Auto Collision from Toronto, Ontario Canada. In the Multi-Location Category, the winner was Masters Collision Group from Minnesota. The winner of the first International Collision Business of the Year Award was Tony Farugia’s Smash Repair from Australia. In addition to the Collision Business of the Year Awards, Bob Jones from R. Jones Collision took home the "Innovator" award and Bruce Yonkin and Bob Vance from Auto Body North won the CSI award.
It was also a "Night To Remember" for several other exceptional individuals receiving recognition as the Industry’s leaders among leaders with their induction into the "Hall of Eagles," the Industry’s "Hall of Fame." This years inductees were: Bruce Cooley from Cleveland, Ohio, Rick Tuuri from California. For the second year the ceremonies included an International flare with David Newton-Ross of Sydney, Australia.
Even among the Industry’s luminaries, the special recognition for John Loftus who is retiring at the end of 2000 brought an emotional level rarely observed. A special video recapping 30 years of service and a stirring presentation wished John and his wife Rosie a farewell and special thanks. The acknowledgement speech brought tears to nearly every eye.
Scott Biggs, founder of the program, said, "These awards are a way for the industry to recognize the best of the best, and honor those that have sacrificed over the years for all our benefit. These are the businesses and individuals setting the standards by which all others are measured." Biggs went on to outline the changes in the program for next year based upon the Internet, "Nominations for Collision Business of the Year will be accepted throughout the year accompanied by video tape footage of the business. The video can be home video or professionally produced. BodyshopTV.com will create Web-based programs that will be on-line to be reviewed by any interested person by simply logging onto bodyshopTV.com via the Internet. The three finalists in each category will then be featured in November with a ballot for everyone to vote."
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