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Letter to the Editor
This article originally appeared in the November 2001 Issue of INSIGHT
©2001 Collision Repair Industry INSIGHT All Rights Reserved
CIC Alaska: Are Claims Staff Hampering Goals of Both Insurers and Shops?
New GM Collision Parts Program Offers Dealer Discounts on GM Fascias
CCC QAAR Plus Allows Insurers to Customize Estimate Reinspection Rules
IBIS Presentation by Sheila Loftus for Charlie Baker a Smashing Success
PPG Launches Electronic Hub for Glass Shops
OEConnection's CollisionLink Offers VIN Scrubbing for Accuracy Check
Insurance Auto Auctions Discontinues Purchase Agreement Sales; Hopes to Break Even in 2001
Japan and U.S. Create Automotive Consultative Group
INDUSTRY UPDATE
Insurers risk losing market share because their field claims staff focuses too much on reducing costs and not enough on customer retention, according to industry consultant Dale Delmege.
In a presentation at the Collision Industry Conference (CIC) in Anchorage, Alaska, in October, Delmege said such claims staff often are "driven powerfully and instinctively by self-preservation, are isolated and entrenched, are insulated from such issues as policyholder defection, are impervious to their own employer's goals, are institutionally incapable of acknowledging reality, and share none of the common interests" of shops, vehicle-owners and insurer upper management.
Delmege, a past chairman of CIC, emphasized that the views he was sharing were only his own based on some research he conducted for a client interested in what factors would likely result in U.S. insurers gaining or losing market share.
He said you generally have to look six or more management levels above field staff in an insurance company before you find someone with accountability for both expenses (severity and loss adjusting expense) and marketing or customer retention. Staff below that level cares primarily for one or the other but not for both.
"Even if the insurer knows what it takes to keep the customer, if their repairers are controlled by field practices that have no direct and compelling interest in that objective, then what power on earth can prevent that insurer's loss of [market] share?" Delmege said. "Some [insurers] are talking a great game from headquarters and have in this room for ten years, but [their] objectives are being frustrated by a powerfully-entrenched, massively-resistant field claims culture."
He suggested that because consumers often base their decision on whether or not to switch insurers on the "claims experience," an insurer could retain and gain market share by transferring accountability for both cost-containment and customer retention closer to those controlling that experience.
"By that I mean a regional executive who sweats both bullets, who makes decisions about the administration of claims as a function of his other responsibility, which is retention of policyholders," Delmege said.
Delmege and others at the meeting pointed out that insurers could also reduce field staff by shifting more of the responsibility for - and benefit from - both cost-containment and customer retention to shops.
"Never before have insurers had so many opportunities to have claims repaired honestly, to have policyholders treated superbly, to have repairers make a massive contribution to loss adjusting expense," Delmege said.
At least one shop owner at CIC agreed that the right partnership between shops and insurers could benefit all involved.
"You could triple customer retention and reduce your claims staff by 50-75 percent, and if repair costs go up 10 percent; so what?" Georgia shop owner Gene Hamilton said.
In other CIC work discussed in Anchorage:
- Two CIC committees are gathering information from insurers as they work toward identifying claims processes that could be streamlined or more standardized.
- A newly-established CIC task force on cycle time plans to have a preliminary report prepared by early next year. CARSTAR's Roger Wright, who is leading the task force, said its initial goal is to outline the various cycles that can be measured - such as date of loss to close of claim file, or date of assignment to date of completion of repairs - the factors that influence those cycle times, potential ways to improve cycle time, and the potential cost savings for doing so. Wright said some research he's done found that each of the top six insurers averaging 10,000 or more claims a week could each save over $18 million a year with modest reductions in cycle time.
- The CIC Legislative Committee is creating a search engine on its section of the CIC website (www.ciclink.com) that will enable users to quickly find information about pending state legislation impacting the industry.
- March Taylor, co-chairman of the Estimating Committee, encouraged shops to post questions about labor times or other aspects of the estimating databases on the CIC website for response by all three of the major estimating system providers.
More than two dozen such inquiries have been received, most resulting in increases in labor allowances and other changes, such as adding footnotes or other information that will be helpful to estimators and technicians.
General Motors Service Parts Operations (GM SPO) has launched a new program that allows GM dealers to put what GM is dubbing their "Best Fascias Forward".
The goal of the program is to improve customer service and satisfaction by offering dealers the opportunity to purchase genuine GM Parts fascias and grilles at significant discounts.
"We piloted the program to dealers in the Chicago and Houston areas and had very positive results," said Paul Maxwell, GM SPO Collision Parts Product Specialist. "Now available to all dealers in the U.S., this fascia and grille program is all about satisfying customers by getting quality parts to them faster and at a better price. It puts the dealer in a better position to support collision repairers with high quality genuine GM fascias and grilles," says Maxwell.
The program has over 300 high volume fascias and grilles and reflects the emphasis GM Collision Parts has placed on offering OEM products specifically designed, engineered and tested for GM vehicles. According to a study of collision repair shops conducted by the National Collision Marketing Institute, "On a scale of 1 to 5, where 5 means 'fits very well' and 1 means 'fits very poorly', OEM parts were given a rating of 4.9."
GM SPO, headquartered in Grand Blanc, Mich., markets automotive replacement parts and accessories worldwide under the GM and ACDelco brand names.
CCC Information Services Inc. has introduced QAAR Plus(TM) version 1.2, an enhanced audit tool within Pathways Appraisal Quality Solution, geared to help insurance companies monitor the quality and accuracy of the appraisal process and management of the reinspection process.
"CCC has been a pioneer with claims reinspection and auditing tools, as we introduced the first appraisal review product to the claims process in 1993," said Mary Jo Prigge, President of CCC U.S. Sales and Service.
Armed with this reinspection workflow software tool, insurers can use a customized set of rules established by the insurance company, rather than by the system with which to evaluate estimates line-by-line.
Users create and edit a virtually unlimited number of reinspection rules in non-technical language. In addition, each rule may be customized to focus specifically on a region, a particular office, or even an individual appraisal source to identify opportunities for improvement in appraisal quality. The tool's aim, according to a CCC press release, is to help customers increase their speed, accuracy, and flexibility in producing appraisal audit results by detecting, capturing, and reporting on user-established rules for the insurer reinspection process.
(Editor's Note: It will be interesting to see if collision repair facilities appreciate these insurer-user-friendly tools.)
Charlie Baker was supposed to speak about the U.S. collision repair industry at IBIS (The International Bodyshop Indus-try Symposium) held in September at the Celtic Manor Resort in Wales, but was unable to attend the event. Sheila Loftus, editor and publisher of Hammer and Dolly, generously agreed to deliver Charlie's presentation. Reprinted with her permission, the following is her synopsis of the presentation.
Last year, about 18 to 19 million cars were repaired in the United States at a cost of $27.5 billion, up six percent from 1999. The trend this year, according to Baker, is down about three percent.
DRP work is about 20 percent of insurer-paid work, with the smaller carriers representing about 18 percent and Allstate as high as 32 to 33 percent.
The breakdown of sales dollars on the average repair is as follows: metal labor, 22 percent; structural labor, five percent; parts, 37 percent; refinish labor, 21 percent; paint and material, 10 percent; and sublet, five percent. The average metal and refinish rate is $36 an hour. A true average door rate, Baker said, is $61.20 an hour.
The average repair claim is $2200, with a $325 deductible. The collision repair market continues to be dominated by independent shops (62 percent), although OE dealers (23 percent) are growing. Franchises and consolidators make up eight percent of the market; fleet dealers represent seven percent.
Baker sees five key trends in the collision repair industry:
- Direct repair programs and referral programs will continue to grow.
- Insurers will exercise tighter controls on the collision repair industry, including developing and expanding their repair cost database.
- Consolidators are struggling with two having folded. Corporate overhead and an inability to reduce production costs have made it difficult for consolidators to realize a profit. However, two consolidators, ABRA and Caliber, are headed for a run rate of $200 million, which will help them increase profitability through economies of scale.
- Use of the Internet will increase. The Internet will be used to assign repairs as well as to exchange photos related to the repair. It will also increasingly be used for parts ordering, exchange of technical data, and customer service issues.
- Despite the struggles of some consolidators, consolidation will continue, as will industrialization of the industry. Baker believes that industrialization represents an important opportunity for collision repairers to reduce production costs. With industrialization, Baker sees labor specialization, new repair and refinish technologies, and a high parts to labor ratio. Baker believes collision repair facilities can model themselves after Toyota factories.
Another issue Baker addressed is the long-term impact of consolidation in the collision repair industry. As consolidators gobble up more and more of the market. Baker believes there will be pressure for regulatory control over the industry, with the smaller repair facilities wanting some balance in their effort to compete with consolidators.
In addition, related industries may continue to enter the collision repair industry, as Allstate has done with its purchase of collision repair consolidator Sterling.
For insurers, consolidation means lower adjustment costs, as insurers don't have to visit as many repair facilities and will have fewer shops to deal with in general.
Insurers will also be watching closely how Allstate does with its Sterling acquisition to see if becoming a direct player in the collision repair industry is worthwhile.
PPG Industries and wholly owned subsidiary GTS Services have launched an open electronic hub of services to help auto glass retailers manage and grow their businesses more effectively by connecting them with claims providers and distributors and reducing the cost and time of managing insurance claims.
According to Jim Latch, president, LYNX Services, and general manager, of insurance and services, retailers participating in the electronic hub will receive work assignments from LYNX Services through their point-of-sale (POS) software. "Retailers spend less time on the phone and do not have to enter work assignment information manually,"
Latch also said the electronic hub reduces costly billing errors that often occur if information on an invoice does not match the information in claim providers' systems.
Through their GTS systems, retailers will soon be able to submit authorization requests, which traditionally require an outbound phone call to a claims provider. This can also be a costly step if information is mistakenly left out of an invoice or inaccurately entered.
According to Tom Molenda, general manager of GTS Services, GTS software has been modified to identify parts that require authorization approval and prompt the retailer if the part is selected.
"Retailers will receive automated on-line approval by submitting the authorization request electronically. They'll get an instant response and eliminate the need for additional telephone calls," Molenda stated.
According to Garry Goudy, "PPG's electronic hub will be the only fully integrated Internet solution available for retailers." He added that retailers will be able to perform all the necessary functions in processing claims and ordering parts from their preferred distributors without placing telephone calls or switching applications.
Distributors will be able to confirm product availability, delivery schedules and accept orders directly into their system without receiving a telephone call.
Pittsburgh-based PPG is North America's largest producer of flat and fabricated glass, and is a leading producer of automotive replacement glass.
BASF Corporation's automotive coatings manufacturing plant in Belvidere, N.J., has been accepted into the U.S. Environmental Protection Agency's (EPA) National Environmental Performance Track, a program that is designed to motivate and reward top environmental performance.
The Belvidere plant is one of 253 facilities nationwide participating in Performance Track, which the EPA launched in Summer 2000, and is the first BASF site to be accepted into the program.
In her congratulatory letter to the Belvidere site, EPA Administrator Christie Whit-man said, "Performance Track is an important public/private partnership that encourages environmental excellence, involves communities in environmental protection, and focuses on measurable results. Performance Track members demonstrate in their daily business operations that economic prosperity and environmental protection can go hand in hand."
According to Scott Elliott, Belvidere Site Manager, BASF needed to demonstrate an excellent compliance history, have an established Environ-mental Management System and a community outreach program in place, and show significant improvement in two environmental aspects over the last two years in order to be considered for Performance Track.
"In addition to meeting the EPA's criteria, our site is also certified for ISO 14001, the international quality standard for management systems for maintaining and improving the quality of the environment and protecting human health," he said.
In other BASF news, the company has dedicated an expanded facility at its Whitehouse, Ohio, site that will house customer support services for the company's Industrial Coatings Regional Business Unit (RBU), as well as customer support for the Automotive Refinish RBU's eCommerce systems, including bodyshopmall.com.
The primary focus of BASF's Whitehouse site, also known as the Automotive Refinish Application and Training Center, is customer support. The new Industrial Coatings RBU customer support function will adopt the systems and practices of the Whitehouse site's "Call Center," which provides one-stop shopping for BASF customers and sales representatives for order placement and management, technical assistance and other service related matters.
Most recently, BASF Corporation announced that its employee-driven donations fund now totals more than $1 million.
The fund established to benefit families of police, fire, and emergency service workers lost in the September 11 tragedy was established in the United States.
Spontaneously, the fund spread throughout BASF's global operations. Employees from around the world contributed generously in a show of support and solidarity. All employee donations were matched by BASF.
OEConnection, LLC, the Internet-based original equipment parts and service portal, has announced that its CollisionLink(TM) release 1.4 product now offers a new and improved vehicle identification number (VIN) scrubbing of parts estimates, live via the www.OEConnection.com website.
CollisionLink sends collision facilities' parts orders to their parts supplying automotive dealerships electronically and scrubs the data for accuracy and completeness. Sscrubbing reduces the amount of time required to validate parts on a collision estimate and speeds up the delivery of correct parts to repair facilities striving to increase productivity and eliminate delays in the repair process.
Other new features in CollisionLink are a new member site with parts order transaction summary information and related news and events, expanded collision estimate importing capabilities, and a new dealership-to-collision shop invitation wizard.
CollisionLink(TM) will be demonstrated at the upcoming NACE and NADA tradeshows.
OEConnection was formed in December 2000 with the backing of DaimlerChrysler, Ford, GM and technology partner Bell & Howell.
Recently, Saturn Corporation, Volvo Cars of North America and Isuzu Motors America, Inc. agreed to participate in the online portal.
Insurance Auto Auctions, Inc. has accelerated its plan to discontinue offering the purchase agreement method of sale due to its continued under-performance.
According to Tom O'Brien, Chief Executive Officer, " We fully expect that the percentage of vehicle assignments under the purchase agreement method will be less than eight percent by the beginning of 2002.
“We began advising our significant purchase agreement customers of our decision in September and our objective is to convert these customers to more manageable consignment-based contracts,” he continued. “While our customers have been largely open to this change, there can be no guarantee that the company won't lose some unit volume as a result of this effort."
Other costs and expenses reflect the ongoing enterprise-wide system development project that was announced in July with SEI Information Technol-ogy to manage the salvage and auction process
The goal of this application is to speed and streamline branch operations, where continued high operating costs have caused the company to expect earnings from operations to be barely at or near break- even for the quarter.
The governments of Japan and the United States have agreed to create a new, stand-alone "Japan-U.S. Automotive Consultative Group (ACG)."
With a shared recognition of the automotive industry's vital importance to both countries as well as to the world economy, the ACG was created to foster a constructive Japan-U.S. dialogue on a broad range of matters related to this sector.
Although the ACG lies outside the "Economic Partnership for Growth (EPG)," which the leaders of the two countries agreed to establish in June, the ACG is based on the same principles and spirit as the broader Partnership.
It is widely recognized that the trend of globalization during the past years has profoundly changed the environment surrounding the auto and auto parts industries.
Through cross-border business alliances, the auto industry is undergoing a global restructuring. In fact, seven out of the eleven Japanese auto manufacturers are now affiliated with foreign manufacturers. Due to the revolution in information technology (IT), a borderless and efficient parts procurement system has emerged and spread throughout the industry.
The ACG will serve as a forum for the two governments to address policy and trade-related issues that arise as a result of these systemic changes. Meanwhile, the two governments are committed to continue to address such issues as open markets and regulatory reform.
The ACG will meet annually and will be co-chaired at the Director level by the Ministry of Economy, Trade and Industry (METI) and the Ministry of Land, Infrastruc-ture, and Transport (MLIT) on the Japanese side and the U.S. Trade Representative and the U.S. Department of Commerce on the U.S. side. It will include officials from other agencies as appropriate. Data provided by the two governments will also be reviewed at these meetings.
Caliber Collision Centers, the California-based consolidator of collision repair facilities in California and Texas, has been ranked ninth in Inc. Magazine's list of the Top 500 Fastest-Growing Private Companies in America, the only company with headquarters in California to break the top 10, and the only multi-location automobile collision repair business to make the list.
Caliber, founded in 1991, acquired its first centers in Hollywood, Rialto and Riverside, Calif. In the months following, the company began the rapid development of a comprehensive infrastructure to support its rapidly growing network of high-volume, high-quality, and state-of-the-art facilities. Today, with 62 locations throughout California and Texas, Caliber continues to acquire and develop centers in existing and new markets. Over the past several years, in addition to its robust acquisition strategy, Caliber has averaged solid double-digit same store annual revenue growth.
According to Bill Lawrence, Caliber's president, the honor was a very pleasant but unexpected surprise. Surprise does not appear to be an everyday emotion at the Caliber corporate offices, where plans have been laid for considerable yet carefully considered growth over these last ten years. In the company's Vision Statement are the words that guide the decision-makers at Caliber: "Foresight to recognize change in the industry and a determination to always think about the industry in non-traditional ways."
According to Caliber's Chairman and CEO, Matthew Ohrnstein, "We didn't expect to make such a prestigious list because our growth has been very deliberate, very controlled. If we maintain our disciplined approach to acquisitions and center development, and our focus on customer service while continuing to develop the next generation of collision repair professionals, we have every expectation that this growth trend can and will continue."
Caliber Collision Centers has funded its operations over the past several years with equity investments from Keystone Inc. (formerly The Robert M. Bass Group), an affiliate of Oak Hill Capital Partners, L.P., and Zurich Centre Investments Inc. In 1999, Caliber completed a $12.5 million financing with BNY Capital Partners, and another $20 million in 2000 from The 1818 Mezzanine Fund, L.P. and BNY Capital Partners, L.P.
Over the last five years, Caliber has acquired or developed 62 centers, and today has annual revenues exceeding $190 million.
To be eligible for this year's Inc. 500, a company had to be an independent, privately held corporation, proprietorship, or partnership; had sales of at least $200,000 in 1996; and had a five-year operating or sales history that included an increase in 2000 sales over 1999 sales.
Caliber has had a very busy two weeks, announcing three new acquisitions: Beardsley's Auto Body & Paint in San Diego, Cavender Collision Center in San Antonio, and Saturn Paint & Body in Fountain Valley, CA - the latter two operations both dealership auto body facilities.
The pace of acquisition may have quickened in October, but Caliber is picky about shops and always aware of the bottom line. This is not haphazard growth aimed at buying up as many operations in as many places as possible. So far the consolidator has been active in only the two states of California and Texas, and only buying top-notch facilities.
The addition of Beardsley's Auto Body & Paint further extends Caliber's position as the largest collision repair provider in San Diego County with 12 centers in operation.
With the acquisition of Cavender Collision Center, a member of the Cavender Auto Family, one of the largest dealership groups in San Antonio, and the recently opened Caliber Express location, which specializes in the repair of light to moderately damaged vehicles, Caliber now operates seven centers in the San Antonio market.
Caliber will rename the former Saturn Paint & Body to Caliber Collision Centers -- Fountain Valley and intends to retain its current customer base, while enhancing its appeal to all makes and models. "With the combination of Saturn-trained technicians and Caliber's proven best practices," said Tom Coleman, Caliber's vice president of California operations, "we're anxious to offer the highest quality collision repair in the area."
INSIGHT predicts that Caliber will stay on its well-plotted course through what may well be a somewhat rocky financial climate for all U.S. business as 2001 winds down.
Look for a few acquisitions in one or two new markets and a possible infusion of new investment money along the way.
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