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Letter to the Editor

Networks Networks Everywhere

Are networks a better way for independent shops to compete with consolidators, or an unnecessary added cost?

During his opening address as chairman of NACE2002 in Dallas, Texas last December, Chris Dameron pulled no punches in urging shops to be careful about the variety of shop networks being organized by paint companies, OEMs, estimating system providers and independent businesses.

"This is adding a fourth party to our already complicated business [on top of the shop/insurer/insured relationship] , and will add to the ever-mounting administration work," Dameron said. "In these programs, not only may some shops have to 'buy their work,' but they have to meet the [network's] requirements and may even be audited by one more entity besides the insurer and consumer."

Some in the audience that morning suggested that Dameron's view might be based at least in part on a concern that networks may offer independent shops a way to better compete with larger shop organizations and consolidators. After all, Dameron is an executive with True2Form, a shop consolidator with 33 stores (including several Dameron owned in North Carolina).

But others point to dramatic (and some would describe as negative) changes in the auto glass industry over the past 20 years - changes brought about largely by the growth of networks - and say Dameron's warnings may serve the collision industry well.

Vendors see a role

The dozen or so collision repair networks announced in the past two years are designed to link insurers and consumers with shops participating in the network, offering a variety of enticements to attract both buyers and sellers to the network.

The paint companies were among the first to launch networks. PPG was first out of the gate with its CertifiedFirst program, launched in the fall of 2001. It now includes about 1,000 shops.

Joining the network requires an on-site audit - conducted by Underwriters Laboratories Inc. (UL) - of shop equipment and CSI (based on at least quarterly surveys by the shop, and an annual survey by a specific outside company). There is also a $2,000 annual fee, with reduced per-location fees for multi-shop operations. CertifiedFirst shops must use one of PPG's top three product lines: Deltron, Global or AutoColor. All three have earned the Good Housekeeping Seal of Approval, a fact played up in the signage, consumer marketing and point-of-sale materials available for use by CertifiedFirst shops. The network is also being promoted through national ads in consumer magazines and a website.

PPG has negotiated with two smaller insurers (including Unitrin, which last year acquired Kemper Insurance) to assist CertifiedFirst shops with participation in the insurers' direct repair programs.

Akzo Nobel about a year ago hired a director for "accident management services" for its Acoat selected network of shops. That network is being modeled after a company that Akzo established in Europe which has call centers to take claims calls for insurers, makes claims assignments to shops in the program, and offers the insurers centralized billing.

In order to make the network appealing to a larger number of shops, Akzo has slashed the Acoat annual fee (from over $5,000 to just a few hundred), which had covered a bundled set of services, and instead offers an a la carte menu of service options (some fee-based).

Just as State Farm doesn't like to call its Service First program a DRP, DuPont isn't referring to the DuPont Performance Alliance it announced last fall as a network.

Insurers "don't want a paint company network; they want their DRPs to be performing at a higher level," DuPont's Fred Wisseman said.

The goal of the Alliance, according to program manager Tim Carmack, is to offer shops assistance with paint shop and internal processes to improve interactions between shops, jobbers, insurers and consumers. It includes a consumer feedback system to help collision repair facilities pinpoint problem areas.

The Alliance is initially being tested with shops in the various value-added programs within DuPont's product brands: Assurance of Quality (DuPont), Partnership In Excellence (Standox), and Colors Unlimited International (Spies Hecker). DuPont said a number of insurers are also working on elements of the Performance Alliance, but declined to say which insurers.

The other two large refinish paint manufacturers, BASF and Sherwin-Williams, are both in the process of evaluating the network situation. BASF is asking its shop customers if a paint company-backed network is wanted and/or needed.

But the paint companies are not the only industry vendors launching networks. Nick Notte, a former Allstate executive (who most recently oversaw Allstate's direct repair program) is overseeing Mitchell International's Open Repair Network, announced last August.

Notte said the network will allow insurers without a DRP to have access to a network of shops, and will allow insurers that are already involved in DRPs to expand their programs. The goal, he said, is to allow shops to receive more work from insurers.

The Mitchell network features an "open repair program" model that allows any shop to compete for an insurer's business based on that shop's "key performance indicators," according to Notte.

"The current DRP environment creates significant redundant and unnecessary administrative expenses and friction costs for both insurers and repairers," he said. "Our open network eliminates redundancies and provides insurers and shops with the tools necessary to increase efficiencies, lower costs, reduce friction and enhance customer satisfaction."

Essentially, shops can participate in the Mitchell network at one of three levels. The first requires little more than having a computer system and paying a $15 per transaction fee for each claim sent to the shop via the network.

The second level, for shops participating in PPG's CertifiedFirst or GM's Goodwrench Auto Body programs, requires a membership and per-transaction fee.

The third level is Mitchell's Value Added Network, which requires certification and per-transaction fees, CSI auditing by AutocheX (now owned by Mitchell), reinspection of 20 percent of repaired vehicles, and audit inspection of 25 percent. Not surprisingly, shops at this top level will be first in line for assignments.

Other networks launched

Not interested in a network that ties you into using a particular paint or estimating system? There are certainly other options.

CARSTAR, for example, continues to offer services designed to reduce costs and drive business to its franchise and company-owned locations.

Scott Biggs, known for his work with BodyShop Video and Business Development Group, has launched the Assured Performance Network (APN) to market accredited shops to consumers. Like Mitchell's program, APN offers several tiers of services, allowing participating shops to choose what they need without duplicating what they have on their own or through another network.

Fix Auto is another national network growing rapidly - now consisting of about 108 shops, up from about 35 almost two years ago (with a company goal of 500 shops by 2006).

Launched in Canada in the early 1990s, Fix Auto was brought to the United States in 1997 by Erick Bickett, a multi-shop owner in southern California.

Bickett said Fix Auto is designed to help independent collision repairers compete with large corporate-owned chains by providing claims processing, a 24/7 call center, customer satisfaction measurement, and benchmarking, along with training and technology - services that can be difficult and expensive for an independent shop to employ on its own.

DuPont is one of Fix Auto's preferred vendors, and DuPont customers can get a discount off their monthly Fix Auto fees (which include a base fee plus a percentage of growth, generally totaling less than one-half percent of annual sales, according to the company).

While Fix generally targets larger businesses - most are doing $2 million or more in annual sales and many have two or more shop locations within a market - eAutoclaims appears to be the network for shops willing and able to offer a generous discount.

The company markets its services and network of shops both to insurers and directly to consumers. Recently, for example, it was advertising a five percent discount on the total repair bill for vehicle-owners choosing a shop in the eAutoclaims network.

Shops participating in the eAutoclaims program (The company says there are about 3,100 in its network.) have agreed to a whopping 15 percent off-the-top discount to eAutoclaims, allowing it to pass along some of that savings to insurers and consumers.

A plus for the industry?

While programs heavily focused on discounts like eAutoclaims should ring obvious warning bells, are these networks overall a meddling cost-adding fourth-party as Dameron sees them - or a chance for mid-size and smaller shops to better compete with the big players? Opinions vary widely.

"I was figuring it would be a year or more before I really felt I was getting a lot out of it, but the benefits have been immediate," Terry Mostul of Artistic Auto Body, which operates three locations in the Portland, Oregon area, said about his recent sign-up with Fix Auto.

"I can't say it's done anything but take a chunk of money out of my bank account," said another shop owner, who participates in a paint company network but declined to identify which one. "It wasn't a big chunk of money, so something may still come of it, but still..."

Can the collision repair industry learn any lessons from the impact networks have had on the auto glass industry?

Many of those in the glass industry have little positive to say about the third-party networks connecting insurers with glass suppliers. They point out that one of the two largest glass networks, LYNX Services (which is owned by PPG), is now offering collision repair claims management in some markets.

"The only sure thing is that folks in this industry should look before they leap," a former shop owner, now an industry consultant, said.

Whether some shops are following that advice seems doubtful.

"A ton of shops have already called wanting to join," Mitchell's Notte told syndicated industry columnist Tom Slear during an interview at NACE. "When I asked them, 'Do you know anything about it?' they said no and didn't seem to care."

Although opinions about networks are varied, it is obvious from both sides that no shop owner wants to pay a large sum of money for nothing.

In developing their networks, paint companies, OEMs, estimating system providers, and independent third-party businesses all need to offer collision repair facilities something beneficial for their money. Mere membership is not going to be enough to justify the cost for most shop owners.

INSIGHT will continue to track networking offerings and activity throughout 2003 to assess whether the impact of network participation on a repair facility's bottom line is positive or negative.   o

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