October 2004 INSIGHT Industry Update

Progressive Insurance has announced the launch of Drive Insurance, a new brand of auto insurance developed expressly for independent agents and brokers. The new brand was introduced at a meeting in Las Vegas on September 20th of over 1,200 of the insurer's largest independent agents and brokers.

At the event agents got an exclusive first look at the brand name and logo of Drive, that Progressive plans to build into one of the most recognizable in the insurance industry.

The Drive brand is intended to send a clear message to consumers that independent agents and brokers offer expert advice and personal service, choice, low rates, and superior claims service provided by Progressive.

The independent agents and brokers were told that the Drive brand will help agencies grow their business through:

A distinctive new name combined with the existing Progressive name and logo.
A bold new marketing campaign highlighting the expert advice, choice and service agents deliver. The campaign will include national television and print advertising and a new consumer Web site devoted to the Drive brand.
Opportunities for agents and brokers to participate on a local level in a way that complements their current marketing efforts. These opportunities will include consumer referrals and online "find an agent" listings on the Drive Web site.

"Since we began advertising in the early 90s, agents have told us they value our brand building activities, but they've wanted to participate more actively in them," said Bob Williams, agency group president. "Drive Insurance from Progressive is designed expressly for our independent agents and brokers. It leverages Progressive's brand equity while highlighting the value that independent agents and brokers provide."

While current agency customers will notice the new name and logo on their policy documents, little else will change for them. The launch of Drive will not affect their policy, and they will still call Progressive for its 24/7 claims service.

Progressive plans to inform its remaining 30,000 agencies in coming weeks through regional meetings.

"The introduction of Drive Insurance from Progressive is intended to help our independent agents and brokers sell and retain more business. We feel the local agency market is huge and holds untapped potential," said Williams.

The scheduled official launch date of Drive Insurance from Progressive is December 10, 2004. Progressive will launch a new website and begin to print the Drive logo on agency and customer correspondence and other materials. National television advertising is scheduled to begin in January 2005, with additional marketing initiatives rolling out throughout the year. Full conversion is expected to take 12-18 months, as agency signs, Yellow Pages listings and other collateral materials are replaced.

Progressive companies not offering the Drive brand will continue to sell directly to consumers, by phone and online, through the Progressive Direct brand.

The Progressive group of insurance companies, in business since 1937, is the nation's third largest auto insurance group based on premiums written. Progressive companies using the Drive Insurance from Progressive brand comprise a group that is the largest writer of auto insurance through independent agents and brokers in the U.S.

Agents and brokers can log in to Drive's agency-dedicated website, ForAgentsOnly.com (FAO), to access customer policies, state and countrywide news, and other interactive features.

Former Owner Todd Fox Reacquires Service Body Shops in Kansas from Boyd Group

Todd Fox, the former Wichita, Kansas shop owner whose parents founded Service Body Shop in 1974, sold the company to Canada-based The Boyd Group in 1999. Service was Boyd’s first entry into the U.S. market and a platform acquisition into the midwestern United States.

Fox stayed on with Boyd for a few years as Midwest Operations Manager, but moved out on his own in 2001 to Tulsa, Oklahoma, where he opened three collision repair facilities there called Fox Collision Centers, with combined sales of $8.5 million a year.

In early September, after his non-compete contract ended, Fox repurchased the stores in Wichita from Boyd, and is building a new location there, too. All the Wichita shops will bear the Fox Collision Centers name.

Caliber Collision Centers Agrees to $5.8 Million Settlement in California Repair Fraud Case

California Attorney General Bill Lockyer has announced a $5.8 million settlement with Caliber Collision Centers to resolve a consumer fraud lawsuit filed by his office and disciplinary actions initiated by the state Department of Consumer Affairs (DCA) that alleged Caliber billed customers for parts and services that were not provided.

Lockyer filed in Orange County Superior Court a $5.3 million settlement of a consumer protection lawsuit brought against Caliber in December 2003 by Lockyer and Fresno County District Attorney Elizabeth A. Egan. Superior Court Judge Michael Brenner approved the settlement. Separately, the state Bureau of Automotive Repair (BAR), a division of DCA, reached a $500,000 settlement to resolve its disciplinary actions against Caliber. The BAR launched those proceedings in 2003.

To settle the consumer fraud lawsuit, Caliber, while admitting no wrong-doing, will pay $3.3 million in civil penalties and $2 million to cover the costs of investigating and prosecuting the case, and monitoring Caliber's compliance with the settlement. Additionally, Caliber will provide free repairs to victims identified by BAR, and thousands of other eligible customers who had their vehicles repaired at Caliber shops between August 1, 2002 and July 31, 2004.

In the separate settlement with BAR, Caliber will pay BAR $500,000 to cover costs, and all 38 Caliber shops in California will be placed on probation for three years. In addition, 19 of the 38 shops will be suspended from operating for a period of one to five days. Additionally, Caliber must provide its Costa Mesa employees 24 hours of training.

During the three-year probation period, the BAR settlement requires Caliber to allow BAR to conduct random inspections of vehicles undergoing repairs.

Under the settlement, consumers eligible for restitution will fall into two categories.

The first includes approximately 100 customers identified by BAR as victims of fraudulent practices alleged in the lawsuit. For those customers, Caliber either will repair the vehicle free of charge, or, if the customer chooses to take the vehicle to another shop, pay for those repairs. If consumers in this category already have had their vehicles repaired at another shop, Caliber will provide full reimbursement of those costs.

The second category of customers eligible for restitution includes about 56,000 consumers who had their cars repaired at Caliber shops between August 1, 2002 and July 31, 2004, and paid more than $1,000 for the repairs.

Caliber must send each customer in this category a letter notifying them they are entitled to a free vehicle inspection at a Caliber shop. All such consumers will receive the notification letter within 170 days from today. If the inspection reveals the repairs failed to conform to accepted trade standards, or to Caliber's initial estimate and final invoice, Caliber must repair the vehicle again at no cost to the consumer.

Consumers in the second category who have their vehicles re-repaired by Caliber can ask BAR to inspect those repairs. If BAR conducts an inspection and deems the repairs deficient, Caliber must repair the vehicle again free of charge.

Farmers Sues LA Body Shop for Fraud

Farmers Insurance Exchange has begun serving civil summons and complaints upon a Los Angeles body shop and its director, accusing them of taking part in a scheme designed to defraud Farmers and its policyholders. The civil complaint, which is similar to prior successful lawsuits against body shops that submitted false insurance claims, seeks damages for the fraud committed.

The lawsuit details a systematic scheme where the body shop billed Farmers for services that were never performed. This includes billing for parts and labor that were never provided. Once Farmers suspected fraud, it immediately inspected the cars involved and exposed physical evidence of fraud.

“When faced with concrete evidence that someone has tried to defraud Farmers and its policyholders, Farmers faces a choice: Do nothing or take action against such unscrupulous individuals. Farmers will not sit idly by and allow profiteers to succeed with their schemes,” said Doug Ashbridge, Director of Special Investigations. “We want the word to get out that Farmers will fight insurance fraud no matter what form it takes. Farmers will work with law enforcement, as well as institute its own civil actions in hopes of deterring these individuals, and anyone else who is contemplating submitting fraudulent insurance claims. It is our commitment to our policyholders to take fraud out of their premium dollars.”

Farmers’ Special Investigations Unit, which includes body shop experts, inspected ten vehicles repaired by Bracha, Inc., DBA Best of the West Auto Body and DBA Exclusive Collision Center. The unit documented fraud in the repair invoice for each vehicle. Farmers is seeking over $250,000 in statutory damages.

Editor's Note: CARSTAR has issued a statement clarifying that Best of the West IS NOT a CARSTAR franchise.

Allstate Versus Abbott Trial Begins in Texas

The Allstate v. Abbott trial on Texas’ new Insurer Owned Repair shop law began on September 20, according to an Automotive Service Association (ASA) bulletin.

Allstate Insurance Company, Sterling Collision Centers Inc. v. Greg Abbott, Texas Attorney General is taking place in United States District Court for the Northern District of Texas, Dallas Division, with District Judge Ed Kinkeade presiding.

ASA is following the trial, and INSIGHT will be posting updates at our website when received.

Testimony was heard from the following witnesses for the plaintiff, Allstate: Bob Thompson, a founder of Sterling Collision Centers and currently the vice president of new store development and process; and a representative from Automotive Collision Consultants.

Congressional Hearing Scheduled for Right to Repair Act

The Automotive Aftermarket Industry Association (AAIA) has reported that a congressional hearing for the Motor Vehicle Owners' Right to Repair Act, H.R. 2735, was set for Wednesday, Sept. 22 in Washington, D.C. The hearing is an important milestone and will continue to fuel momentum behind this piece of legislation. The hearing will take place before the House Subcommittee on Commerce, Trade and Consumer Protection of the House Energy and Commerce Committee.

The Right to Repair Act, a top priority for AAIA, concerns the right of motorists to choose where, how, and by whom to have their vehicles maintained and repaired. It ensures that all vehicle owners and independent auto service centers have access to the information necessary to diagnose and repair vehicles at an affordable cost.

In addition to AAIA and thousands of consumers who have signed petitions, numerous consumer and small business groups such as the American Automobile Association (AAA), National Federa-tion of Independent Business (NFIB), Consumers Union, Automotive Oil Change Association and Service Station Dealers of America (SSDA) have endorsed the Right to Repair Act.

In the House of Representatives, House Energy and Commerce Committee chairman Joe Barton, R-Texas and Rep. Edolphus Towns, D-N.Y. introduced the measure, which now has 113 sponsors. Sen. Lindsey Graham, R-S.C. introduced a Senate companion bill, S. 2138, which has 10 cosponsors.

I-CAR Develops and Conducts Training for All-Aluminum Audi A8

Aluminum welding and body and structural repair training for the all-aluminum Audi A8 will take place at the I-CAR Tech Centre in Appleton, Wisconsin. Through this relationship between I-CAR and Audi, the two-week Audi A8 training program will consist of program development and live delivery for the training participants.

To prepare for the program, I-CAR Tech Centre Technical Specialist/Trainers Joel McClung and Nathan Rebarchik attended a train-the-trainer program conducted by Audi in Neckar-sulm, Germany.

Using the train-the-trainer materials received in Germany, the Tech Centre staff developed the customized two-week Audi A8 program. During the first week, participants will learn about Audi aluminum welding technology. They will then prepare and test for the TÜV Aluminum Welding Certifica-tion.

Week two consists of Audi A8 Body and Structural Repair, which covers A8 design and construction, damage analysis, structural repair guidelines, riveting and adhesive repairs, cosmetic panel repairs, and a discussion of mechanical and restraint systems. To offer the best learning environment, a complete Audi A8 repair bay has been installed at the I CAR Tech Centre just for the training program.

Each of the two-week training programs will allow six students per session with extensive hands-on exercises. Poten-tial students must enter into this program through Audi of America.

Two additional 2004 training sessions are already scheduled for the fall, with additional sessions to follow in 2005. Several one-week training programs to re-certify existing A8 technicians will begin in 2005.

I-CAR Tech Centre Video Production and Research Manager Bob Wipf said, “Our objective is to help Audi of America deliver this important training to its North American market and allow I-CAR to learn more about the vehicle-specific repair processes used on the all-new Audi A8. Learning early about how the Audi A8 is constructed and which repair procedures are recommended allow us to make sure that future I-CAR and I-CAR Education Foundation training is on target for the collision industry.”

Copart Q4 Revenue Up 15 Percent

Copart, Inc. has reported results for the fourth quarter and fiscal year ended July 31, 2004.

In the fourth quarter of fiscal 2004 Copart earned net income of $21.4 million on revenues of $100.1 million. In the same period last year the company earned $13.3 million on revenues of $87.2 million. These represent increases in net income and revenue of 61 percent and 15 percent, respectively.

For fiscal 2004 Copart earned net income of $79.2 million on revenues of $400.8 million. In the same period last year the company earned $57.2 million on revenues of $347.4 million. These represent increases in net income and revenue of 38 percent and 15 percent, respectively. Fully diluted earnings per share for the twelve months was $.87 compared to $.62 last year, an increase of 40 percent.

"VB2 continues to prove that its unique method within the marketplace removes barriers between buyers and sellers," stated A. Jayson Adair, President of Copart. "Sales of vehicles during the fourth quarter to buyers outside the state where the vehicle is located accounted for 43 percent of total vehicles sold; 25 percent out of state and 18 percent out of country."

One example of the breadth and versatility of VB2 occurred recently in Florida. VB2 allowed Copart's Tampa, Florida facility to complete its scheduled sale despite being engulfed by Hurricane Charlie. On the day that Charlie struck the Tampa area, with the facility closed and all employees evacuated, 448 vehicles were sold to buyers throughout the world. Of the 448 vehicles sold, 11 percent were sold to buyers outside the state, and 30 percent were sold to buyers outside the United States.

"VB2 removes barriers between our vehicle suppliers and buyers navigating the virtual marketplace," concluded Mr. Adair.

Copart, founded in 1982, operates 107 facilities in the United States and Canada.

ADP Claims Services Group Launches New Powerlink

ADP Claims Services Group has announced Powerlink version 2.1, a new update to help automotive recyclers increase sales and reduce labor. The yard management system now includes a wide area network capability and extended part warranty.

A wide area network connects multi-site recyclers so they can search all locations at once. Extended warranties built into the user's workflow are potential profit sources since there is a much lower claim-to-sold warranty ratio.

"For us, the wide area network is great for inventory," said Michael Mendez, manager of Like Kind Quality in Deer Park, NY, with a second site in Medford, NY. "They dismantle at the Medford location, tag parts with a bar code, we hit the bar code here with the scanner and call it a day. It cuts the labor in half."

Before Like Kind Quality installed the wide area network with Powerlink, the Medford location would inventory the vehicle and then drive the parts information to the Deer Park site, adding a 30-minute drive to their workflow and maybe missing a sale during that drive time.

"Offering warranties on recycled parts not only increases the perceived trustworthiness of the parts and business itself, it can create a profit center for recyclers," said Jose Rivero, ADP senior vice president. "Ninety-five percent of customers who buy warranties do not claim them, creating an extra immediate revenue source for automotive recyclers."

Users can customize the extended warranty feature to create fixed warranty amounts or percentage of base price warranties. Powerlink includes intelligent reporting tools so managers and owners can track counter people who are selling warranties and reward them.

The wide area network (WAN) option requires an on-site server, but does not affect monthly Powerlink fees.

National Glass Association Responds to Farmers Insurance Windshield Scam Article

The National Glass Association (NGA) is concerned that an article entitled “Farmers Insurance Cautions Vehicle Owners on Windshield Replacement Scams” may confuse consumers and, possibly, cause people to delay or cancel needed repair or replacement of damaged windshields. The article was written by Doug Ashbridge, Director of Special Investigations for the Farmers Insurance Group, and appeared on the Insurance Journal website on August 10, 2004.

According to Leo Cyr, vice president of NGA’s Auto Glass Division, “The NGA condemns any and all forms of fraud – insurance or otherwise. There can be no excuse for filing an insurance claim if the windshield is undamaged. By the same token, windshields are vital automotive safety components. To operate a vehicle with a damaged windshield could adversely affect proper deployment of some passenger side airbags, or, compromise the structural integrity and crush resistance of virtually all vehicles.”

The NGA recommends all auto glass service be performed by a trained, NGA certified professional technician.

“There should not be any confusion on this point,” said Cyr. “Replacement windshields must be installed properly to function as designed. If you are in doubt, ask your local auto glass service provider if they employ NGA certified technicians. In addition, many states have enacted laws to protect the consumer’s right to choose their own auto service provider. Some of the ‘Free Choice’ laws came about as a result of concern that some insurance companies were directing policyholders to the least costly service provider for service."

According to Cyr, “The cheapest auto glass service may not be consistent with the quality of materials and craftsmanship that are desirable when installing automotive safety-related parts. Sometimes people forget there is a major difference between buying a commodity, like a box of paperclips, and contracting for a skill-critical service like windshield replacement,” commented Cyr. “I’ll buy the cheapest paperclips in a heartbeat but our family compares prices only after we ensure the materials and craftsmanship are of the highest quality.”

“The last thing the NGA wishes to do is to trivialize Mr. Ashbridge’s concern for fraud,” concluded Cyr. “We are consumers too. We pay like everyone else when fraud causes insurance premiums to rise. That is precisely why the NGA, its members and allied organizations have invested 20 years in developing training, certification, business accreditation, installation standards and practitioner licensure programs to help consumers identify the true professionals in our industry. We would welcome any and all insurance company participation in our programs. In the final analysis, our mutual responsibility is to the customers we serve."

Founded in 1948, the National Glass Association is the largest trade association representing the entire flat glass industry. Based in McLean, VA, NGA offers certification, education and training, and serves the industry with the leading trade publications — Glass Magazine, Window & Door, and AutoGlass. NGA currently hosts GlassBuild America: The Glass, Window & Door Expo and the National Auto Glass Conference & EXPO.

Hatboro Auto Body Training Center Offers Welfare-to-Career Training

The Hatboro Auto Body Technology Center (HABTC) is a first of its kind welfare-to-career training program that offers free auto body training and guaranteed employment to the TANF (Temporary Assistance for Needy Families) population within Bucks, Montgomery and Philadelphia counties in Pennsylvania. HABTC has graduated 26 students into full time employment since it began in 2002. The four-month program graduates another class of eight students on September 30, 2004 and begins a new session on October 8, 2004.

The 5,000 square feet training center located in Hatboro, PA offers a forty-hour per week curriculum with state-of-the-art tools and equipment. A variety of skills vital to the auto body industry are taught, including welding, painting, assembly, disassembly, collision repair, refinishing, detailing and life skills. HABTC has rapidly facilitated graduates into full time employment. Strong case management provides weekly intensive counseling during training and up to one year into employment, which helps clients to overcome any obstacles and maintain self-sufficiency.

Responding to segments of area communities hit hard with economic hardship, HABTC has chosen to give back by reducing public assistance claims, improving quality of life for low-income families, and raising the bar for welfare training.

HABTC has results that include 100 percent placement into full time employment for all graduates with a minimum wage at $10.50/hr with benefits.

Case Manager Michele Soncini commented, “One student has even said that after graduating from this program and beginning employment, he finally earned respect from his children.”

Pennsylvania Body & Frame Expands Business

Pennsylvania Body & Frame, in St. Marys, PA, is hard at work on an extensive addition to its existing business, according to owners Matt Herzing and Duane Bucher.

"We are pleased to once again expand our capacity, At Pennsylvania Body & Frame," said Matt Herzing. "This center is being designed with cycle time and consistency of repair quality in mind. It will support and complement Pennsylvania Body & Frame's high standard of operating practices, ensuring greater efficiency and high quality collision repair."

The new facility adds 11,175 sq ft of new production space, furnished with the latest equipment, and will employ an administrative staff of four to six team members, including office support staff estimators, production & parts coordinators, and a shop manager. The technical staff will number seven to ten, with all the collision repair technicians ASE certified and I-CAR trained. Tony Thomas, an eight-year member of the company's team, will manage the new facility.

Thomas "is the best choice to keep the company on its profitable course," said Herzing. "He started out with us as a refinishing technician, and through hard work and dedication to the collision repair industry and with many hours of training and schooling, no one is more deserving of this position."

"Pennsylvania Body & Frame is committed to growth in St.Marys with our current emphasis on the surrounding area", concluded Herzing. "This expansion project will helps us meet the needs of our insurance partners and their policyholders."

CARCARE Collision Centers Opens Training Facility

CARCARE Collision Centers has announced the opening of their classroom training facility at their corporate location in Plainfield, Illinois.

The facility will be used for ongoing employee training, I-CAR classes, and ATEG, as well as training for insurance agents and company personnel.

According to Kevin Mehok, Director of Operations for the company, “It is imperative our staff stays on the cutting edge of the newest repair methodology. This classroom setting gives us the opportunity to keep our people honed to a razor sharp edge. We always strive to be the best, and this is one way we can do just that.”

CARCARE Collision Centers, headquartered in Plainfield Illinois, currently operates five collision repair facilities in Will and Dupage Counties in Illinois.

Insurance Fraud Hit on East and West Coasts

A five-month undercover sting of Southern California auto body shops has netted 38 arrests for auto insurance fraud, according to the state Department of Insurance. The accused allegedly filed false insurance claims through about 30 auto body shops.

The California Highway Patrol was involved in the operation, called Operation Cash-Out, along with investigators from the District Attorney's offices in both counties. All suspects were held on suspicion of automobile insurance fraud, a felony. They face up to five years in state prison and up to $50,000 in fines. Insurance officials said some of the shops may be shut down.

During the sting operation officers working undercover brought cars into repair facilities for paint jobs, and explained they did not want to pay for the job. Investigators discovered many auto body shops were more than willing to help the customers pay for the job through a fraudulent insurance claim. In some cases, the employees gave them instructions on how to pull it off.

In Essex County, Massachusetts, sixteen people, including three lawyers and four chiropractors, have been indicted by a special grand jury for their alleged involvement in auto insurance fraud in the city of Lawrence. The city's auto insurance fraud problems have been under the spotlight since a 65-year-old grandmother died last year in what authorities said was a staged car crash.

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