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Letter to the Editor
This article originally appeared in the September 2005 Issue of INSIGHT
©2005 Collision Repair Industry INSIGHT All Rights Reserved
Allstate and ProcessClaims Partner for Claims Quality Assurance
PPG Posts Record Sales for Any Quarter
Mitchell International Amends Panel-Bonding Information
Sherwin-Williams Q2 Net Sales Up 21%
BASF Coatings de México Awarded GM Supplier of the Year
Illinois Supreme Court Overturns Avery Verdict
Ford CCRN and PPG Business Services Group Form Strategic Alliance
Keystone Automotive Industries Reports Record Sales for Q1 2006
LKQ Corporation Q2 Net Income Up 42%
CIC Report: Shops Like What They Heard from Mitchell & CCC in Phoenix
I-CAR Announces Results, Plans at Annual Meeting
INDUSTRY UPDATE
Allstate Insurance Company has engaged ProcessClaims to develop and test new claim quality assurance technology. Allstate says computer software is being designed to streamline quality assurance processes and ensure accuracy in vehicle estimate preparation. The companies are also exploring broader new technology approaches to drive e-business in the rapidly evolving collision repair inter-industry.
“We look forward to working with ProcessClaims and the potential that this software offers,” said John Edelen, Allstate Assistant Vice President of Claims Strategy. “Technology is key to Allstate’s commitment to providing products and services that meet customer’s needs.”
ProcessClaims, which was selected after extensive review, is a provider of software connectivity and business process automation for the Property and Casualty Industry.
“We’re extremely pleased to have been selected by such an industry leader as Allstate to assist in their plans to improve claims processes,” said Paul Farber, CEO of ProcessClaims. “Allstate has always had the reputation of being innovative in their drive to improve the customer experience and that includes deploying new technologies to achieve these goals.”
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PPG Industries has reported second quarter net income of $231 million, or $1.34 a share, including aftertax charges of $12 million, or 7 cents a share, for a previously announced debt refinancing, and $2 million, or 1 cent a share, to reflect the net increase in the current value of the company's obligation under its asbestos settlement agreement reported in May 2002. Sales were $2.66 billion, a record for any quarter.
That compares with second quarter 2004 net income of $187 million, or $1.08 a share, which includes an aftertax charge of $6 million, or 3 cents a share, to reflect the net increase in the value of the company's obligation under the asbestos settlement agreement. Sales for the second quarter of 2004 were $2.43 billion.
For the first six months of 2005, PPG recorded net income of $326 million, or $1.89 a share, which includes aftertax charges of $91 million, or 52 cents a share, for a nonrecurring legal settlement; $12 million, or 7 cents a share, for debt refinancing; and $7 million, or 4 cents a share, to reflect the increase in the value of the company's obligation under the asbestos settlement agreement. Sales for the first half of 2005 were $5.15 billion.
For the first six months of 2004, PPG recorded net income of $306 million, or $1.77 a share, which includes an aftertax charge of $9 million, or 5 cents a share, to reflect the increase in the value of the company's obligation under the asbestos settlement agreement. Sales for the first half of 2004 were $4.69 billion.
Coatings sales increased $96 million, or 7 percent, as a result of improved selling prices across all businesses except automotive, the impact of foreign currencies and higher volumes in architectural, aero-space and automotive.
Operating earnings were down $14 million largely because of the impact of inflation, primarily raw materials, which exceeded the benefits of higher selling prices, higher volumes, slightly better costs and the impact of foreign currencies.
Glass sales decreased $3 million, or 1 percent, as lower selling prices and lower volumes across all businesses except automotive replacement glass exceeded the impact of foreign currencies. Despite improved manufacturing efficiencies, operating earnings were down $18 million as a result of inflation, including higher energy costs; lower selling prices; and lower other income.
Mitchell International, Inc. will amend the panel bonding information and procedures in its Parts & Labor Database. Going forward, users will only be able to select panel bonding as an alternative to welding for those procedures where the Original Equipment Manufacturer (OEM) has explicitly approved the use of adhesives as a valid, alternative repair method.
This decision was reached in consultation with both Mitchell's insurance and shop customers, and to address concerns raised by some industry participants over potential ambiguities in the original configuration of this information within the database.
Mitchell's stated goal is to ensure that estimators can write estimates efficiently according to their best judgment and that these estimates accurately reflect the repair procedures. The increasing acceptance of adhesives as a repair alternative by the industry led to the decision of including this information in the database, now subject to the aforementioned limitation of OEM approval.
Mitchell makes no endorsement of one repair technique over another, or one type of part over another, encouraging all industry participants to follow best practices and to reference the appropriate OEM, welding, and adhesive manufacturer information when selecting and performing any repair operation.
"Adhesive bonding is a fairly new procedure in the industry," said Jim Lindner, CEO & Chairman for Mitchell International. "While it is not universally accepted, we chose to include it in our database because of its widespread use. With this, as with similar items such as Alternate Parts, we defer to the professional judgment of those directly involved with a specific vehicle or claim to determine the most appropriate repair procedure. But it is important for us to clearly distinguish where bonding is and is not approved by the OEMs. Beginning with the August CD release, and apart from those OEM procedures for which it has been approved, all other panel-bonding options will be disabled."
Mitchell was the first database provider to supply information on emerging technologies and industry trends such as TECH-COR's sectioning labor times, SMC panel sectioning labor times, adjacent panel blending, plus developing the Refinish Materials Calculator(R) to accurately determine those same costs.
The application of panel bonding has become widespread among collision repair centers over the last several years as adhesive materials have advanced and more OEMs affirmed the validity of bonding as a repair operation. Mitchell has conducted numerous collision repair studies in working shops where the procedure was used, and was - as early as 1999 - sufficiently well recognized by industry associations such as I-CAR for it to provide training in adhesives techniques.
To complement the inclusion of panel bonding options, Mitchell has also included Procedure Pages/Reference to panel bonding techniques. Labor notes have been applied to the individual allowances indicating included/not-included operations.
Users are advised that replacement labor times for panel bonding include all necessary weld applications identified by adhesive materials manufacturers and OEM guidelines. Users are also urged to reference best practices procedures from adhesives manufacturers and/ or OEM guidelines before opting for panel bonding.
The Sherwin-Williams Company has announced its financial results for the second quarter and first six months ended June 30, 2005.
Consolidated net sales increased 21.5 percent to $1.97 billion in the quarter and 19.3 percent to $3.50 billion in the first six months versus 2004.
Diluted net income per common share increased 24.1 percent in the quarter to $1.08 per share from $.87 per share in 2004 and 36.1 percent in the first six months to $1.66 per share from $1.22 per share a year ago.
The net sales gains in both the quarter and first six months were due primarily to strong sales performances by stores open for more than twelve calendar months, acquisitions in the Paint Stores and Consumer Segments and improvement in the Automotive Finishes and International Coatings Segments.
Acquisitions completed since the comparable periods of 2004, including Duron, Inc. and Paint Sundry Brands Corporation acquired in September 2004, added $144.1 million, or 8.9 percent, to net sales in the second quarter and $265.0 million, or 9.0 percent, to net sales in the first six months of 2005.
Net sales in the Automotive Finishes Segment increased 9.2 percent in the quarter to $143.6 million and 8.6 percent in the first six months to $273.5 million. The sales increases were due primarily to the impact of favorable currency exchange rates and selling price increases. The impact of favorable currency exchange rates increased net sales of this Segment by 3.1 percent in the quarter and 2.2 percent in the first half. In addition, the April 2004 acquisition of a majority interest in an automotive coatings company in China added 2.4 percent to net sales in the first half.
Operating profit of this Segment improved 7.6 percent to $17.5 million in the quarter and 15.1 percent to $32.5 million in the first six months. This Segment's operating profit in the first half of the year increased as a percent to net sales to 11.9 percent from 11.2 percent last year.
The company acquired 1,000,100 shares of its common stock through open market purchases during the quarter and had remaining authorization at June 30, 2005 to purchase 6,722,900 shares.
Commenting on the second quarter results, Christopher M. Connor, Chairman, President and Chief Executive Officer, said, in part, "Though significant raw material cost increases continue to adversely impact our gross margins, the implementation of certain price increases and tight control over expenses will support our continued earnings improvement.... We are encouraged by the steady improvements in sales and operational performance of our Automotive Finishes and International Coatings Segments...."
For the second time since 2002, BASF Coatings de Mexico has received the prestigious General Motors Supplier of the Year award, during a ceremony held on June 28th in Mexico City, for outstanding performance as an automotive coatings supplier for GM’s Silao and Ramos Arizpe assembly plants.
The Supplier of the Year award recognizes suppliers that have consistently met GM’s high standards in a number of key areas, including product quality and excellent service. Of approximately 417 GM suppliers in Mexico, only 16 have received the award for 2004. Earlier this year, GM also recognized BASF as a global Supplier of the Year for 2004 — the second time since 2002 that BASF has received the global award.
“We are very honored to receive this recognition,” said Peter Fischer, Manager Director of BASF Coatings de Mexico. “Only a few GM suppliers qualify for the award each year, and we are proud of the fact that BASF is the only coatings supplier to receive the award worldwide as well as in México. This outstanding achievement by BASF de México reflects our ongoing commitment to delivering intelligent solutions that help GM to be more successful.”
“To receive the GM Supplier of the Year award means to be recognized as the best among the best, with the best quality, service, technology and price,” said Rafael Laguna, Purchasing Supply Chain Director of GM Mexico. “BASF delivers all of those. The BASF 2015 vision is aligned with GM’s expectations, and BASF offers something very important that is uniquely focused on GM — the commitment to help GM be more competitive.”
The largest Mexican manufacturing plant of BASF Coatings is located in Tultitlán town, 35 kilometers north of Mexico City. The other Mexican site is a "satellite" coil coatings plant, located in Monterrey. BASF Coatings in Mexico employs about 400 people and is certified in the international standards ISO 9001:2000, ISO TS 16949 and ISO 14001.
After almost three years of deliberation, the Illinois Supreme Court has overturned the verdict in the Avery v. State Farm case.
Back on October 8, 1999, State Farm was hit with $1.18 Billion in damages for what a Williamson County judge in Illinois called the fraudulent use of non-OEM parts on policyholders’ vehicles. This month’s overturning of that ruling is anticipated to have a large and positive impact on the aftermarket parts market in the U.S.
The Avery case hinged on how to define “like kind and quality” parts. At that time, the Illinois county court concluded that plaintiffs may be able to show that non-OEM parts are, in fact, categorically inferior through the use of common proof.
Since the Avery decision, courts across the country have wrestled with the certification of classes in aftermarket parts litigation, with some courts following the Avery trend, and others rejecting the notion that all aftermarket crash parts can be proven inferior to OEM parts.
"We welcome this landmark decision by the Court to endorse competition instead of the car company monopoly that has kept the cost of collision repair artificially high and contributed to high numbers of vehicles totaled because of those high costs," said Jack Gillis, Executive Director of the non-profit Certified Automotive Parts Association (CAPA).
"Hopefully, this decision will reverse a trend in the crash repair industry since the decision by the lower court in 1999," continued Gillis. "Unfortunately, consumers needing crash repairs since 1999 have found themselves victims of this monopoly by paying too much for the parts they need or, worse, having a perfectly repairable car totaled because the parts are so expensive. Ironically, car companies can charge what ever they want for their parts until they get to a price point that forces us to buy another one of their cars. Until now it has been a lose-lose situation for consumers and a win-win for the car companies."
Aftermarket parts manufacturers and suppliers see this decision as a victory for consumers across the country who they say will benefit from the presence of high quality, competitively priced crash repair parts.
Gillis concluded, "It is now up to insurers to step up to the plate and do the right thing by insisting on the use of high quality certified aftermarket crash parts."
INSIGHT will continue to report on the verdict and its impact on the Collision Repair Industry as more comments and information are obtained.
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The PPG Business Services Group has been selected by Ford Motor Company as the exclusive training provider for the Ford Certified Collision Repair Network (CCRN) curriculum. PPG has been working closely with Ford through its PPG Business Services Group to develop and implement the CCRN program content at Ford and Lincoln Mercury dealerships for the past four years.
“PPG demonstrated that they were the best supplier to help Ford design and execute the CCRN program. They competed against several other suppliers for the business and it was evident that PPG had the resources and the expertise to implement the program at the dealer level,” said Dan Townsend, Ford's CCRN Program Manager.
A key success and component of the CCRN program is “The Quality Process” methodology (patent pending). Using this methodology, Ford has utilized OEConnection’s web-based technology to create the Quality Process Tracking (QPT) product, an online tool that documents the quality of the repair on every vehicle that goes through the shop. The Quality Process system and OEConnection’s QPT product are installed by PPG consultants as part of the extensive on-site training required of all dealers prior to certification.
“PPG has demonstrated its ability to deliver value to all parties involved in Ford’s CCRN program,” said Dave Brocious, Manager OEM & Dealer Business Development for PPG.
Ford launched the program in 2001 with pilot markets in Cincinnati, Cleveland, and Detroit. The national rollout of the program, which began in November 2003, will eventually cover over 150 dealers in approximately 30 markets.
Tom Wenzel, Ford’s Collision Repair Products Manager, commented, “Not only will it provide customers in each participating market with top-quality vehicle repairs, but it will also meet the needs of both the insurance industry and dealers who want to enhance and improve their current operations.”
Keystone Automotive Industries, Inc. has reported record sales for its fiscal 2006 first quarter ended July 1, 2005. Net sales for the 13-week 2006 fiscal quarter reached a record $144.8 million compared with $141.1 million last year - an increase of 2.6 percent. After adjusting for an additional week in the same quarter a year earlier, the increase was 10.5 percent.
Net income for the fiscal first quarter climbed 34.5 percent to $4.7 million, or $0.30 per diluted share, from $3.5 million, or $0.22 per diluted share, a year ago.
"Overall results for the quarter slightly exceeded our internal expectations. With the exception of lighting, we experienced strong sales momentum in our core product categories," said Richard L. Keister, president and chief executive officer. "Same store sales growth of 9.5 percent (after adjusting for the additional week in the prior-year period) is the strongest we have seen in several quarters and I believe validates our short-term strategy of having enough inventory available to service customers as we address our supply chain re-engineering.
"I am also pleased," he continued, "to report that our two largest headlight suppliers and CAPA, an independent certifying agency, have agreed on procedures to begin certification. We believe that light applications, although limited, will be available during the second half of this year."
Gross margin for the first quarter was 44.3 percent compared with 43.4 percent last year. The gross margin improvement is the result of pricing and improved mix.
Keystone has now completed the company's domestic enterprise system rollout.
"With the domestic portion of this project now behind us, we can concentrate on opportunities to leverage the company's expanding distribution network by strengthening our inventory systems, processes and improving and enhancing IT systems," Keister said.
Keystone Automotive Industries, Inc. distributes its products primarily to collision repair shops through its 129 distribution facilities, of which 22 serve as regional hubs, located in 38 states and Canada.
LKQ Corporation has reported results for its second quarter ended June 30, 2005, with revenue of $136.0 million, net income of $7.6 million and diluted earnings per share of $0.33.
"We once again achieved a record revenue quarter with impressive revenue growth of approximately 30 percent. This included very strong organic revenue growth of almost 15 percent. Our net income increased by close to 43 percent and our earnings per share increased by just over 37 percent...," said Joe Holsten, President and Chief Executive Officer.
For the second quarter of 2005, revenue increased 29.7 percent to $136.0 million. For the six months ended June 30, 2005, revenue increased 31.7 percent to $269.8 million.
LKQ's consolidated aftermarket collision replacement parts revenue for the quarter was $19.4 million and for the six months ended June 30, 2005 was $39.7 million.
LKQ Corporation is the largest nationwide provider of recycled OEM automotive replacement parts, with 47 sales and processing facilities, nine self-service retail automotive parts facilities and 13 redistribution centers that reach most major markets in the United States.
Mitchell International, responding to protests from three repairer trade associations, is amending the panel bonding allowances it added to its estimating database in April.
Speaking at the Collision Industry Conference (CIC) in Phoenix in late July, Mitchell's Tom Fleming said last spring's change to the system had allowed the user to select an adhesive bonding labor allowances for many cosmetic panels. Concerns about this change has been one of the issues raised by the CIC Estimating Taskforce, which is made up of several representatives from the Automotive Service Association (ASA), the Alliance of Automotive Service Providers (AASP) and the Society of Collision Repair Specialists (SCRS). The taskforce objected to the widespread addition of panel bonding times to the database in part because automakers have not endorsed panel bonding in many of the operations for which Mitchell had made it an option in the database.
"Going forward, users will only be able to select panel bonding as an alternative to welding for those procedures where the OEM has explicitly approved the use of adhesive as a valid, alternative repair method," Fleming announced at CIC.
The change was made in Mitchell's August CD, Fleming said.
Mitchell's announcement drew applause at CIC, and taskforce member Lou DiLisio said he appreciated Mitchell's willingness to respond promptly.
"On behalf of the task force, I want to add my thanks to Mitchell for recognizing and addressing our concerns, and making the necessary changes as quickly as they did," DiLisio said.
The taskforce did not receive as positive a response to its request to ADP to speak at the Phoenix CIC meeting to address questions and concerns about widespread reductions in paint labor times in the ADP database last fall.
DiLisio said ADP sent a letter to the taskforce outlining how it has responded to the October 2004 change in the labor times, which was first thought to have impacted about 150 vehicles in the database, but which the company earlier this year said actually involved nearly 250 vehicles.
DiLisio said that in its letter, ADP listed the actions it had taken in response to the problem, and said it felt it had adequately addressed the issue, by correcting the changes that had been made to the times, and developing and communicating to the industry processes for any necessary supplements or reimbursement.
"As you can see, they did put some things in place to address the effect of what took place with their CD issues," DiLisio said. "Unfortunately, from our perspective, they did not address one key question that we asked: How did it happen and what have they done to ensure that it doesn't happen again?"
Although ADP did have a representative for one panel discussion during the CIC meeting, the company was also a no-show when the CIC Electronic Communications Committee asked the information providers when their systems would allow a shop to have access to an insurer-prepared estimate in order to avoid re-keying it.
Representatives of CCC Information Services and Mitchell each said their systems currently do or will soon allow an insurer to make a copy of its estimate available electronically to a shop using the same estimating system, even if that shop is not part of the insurer's direct repair program.
This could greatly reduce the amount of estimate re-keying, which a taskforce tackling the issue says is costing the repair industry an estimated $17.64 million annually. The announcements from CCC and Mitchell came as welcome news to many CIC participants who have been calling for a solution to the re-keying problem for years.
Cindy Granse, chairman of CIC's Electronic Communication Committee said the re-keying taskforce has prepared a white paper outlining the scope of the re-keying problem and listing key elements that it believes need to be part of any solution. A copy of the white paper can be downloaded from the CIC website (www.CIClink.org).
Granse said the taskforce sees two ways in which shops could have access to an insurer-prepared estimate. An adjuster preparing an estimate at the shop could provide it to the shop via disk or other electronic media. Or if a shop receives a paper copy of an estimate from a customer or by fax, a code included on the estimate could enable the shop to download it from the insurer's library of estimates stored by the estimating and information provider.
Chad Taylor of Mitchell said his company currently has such a shop download system in place for Progressive Insurance and its direct repair shops, and is looking into expanding it to other insurers and non-DRP shops. Carlos Navarro of CCC said Pathways 4.3, which will be released this fall, will enable the face-to-face transfer of an estimate; the next version after that, due in the first quarter of 2006, will give shops electronic access to a participating insurer's estimate.
With nearly 750 people in attendance, this year's I-CAR annual meeting was the largest yet. I-CAR CEO Tom McGee pointed to a number of other positive numbers for the organization this past year. The number of active I-CAR instructors was up for the second year in a row; the number of classes offered throughout North America was up 4 percent to more than 7,000; and annual revenue was the second-highest ever.
It was clear, however, that I-CAR's revenue is not as solely reliant on students actually attending I-CAR classes as it once was. I-CAR "students units" (one unit equals one student taking one class) for the past year were about 106,000, the lowest in over a decade, and down from about 111,000 the previous year and a 30 percent drop from 2002 totals.
One relatively newer source of income for I-CAR is its efforts to create vehicle-specific and other training courses for various automakers. McGee said the entire industry benefits from such relationships because these courses become available to anyone in the industry, not just dealership technicians.
McGee admitted that technical problems have limited the success this past year of implementing other means of delivering I-CAR training beyond the traditional onsite instructor-led classes. But he said he foresees growth in the coming year for "CollisionTV," satellite television feeds of training classes that were originally limited to Canada but which should expand into the U.S. this coming year.
I-CAR is also launching online, self-study courses that will be available through the Internet 24 hours a day, seven days a week. McGee said this option will be used for some vehicle-specific content and some topics for which there is not enough material for a full 4-hour class. Eleven programs will be available initially including one free program to enable users to try the system. Those successfully completing each paid program will earn one-fourth of a Gold Class point.
I-CAR will also soon make it possible for students to log on through the I-CAR website to view their own training transcript and other information.
McGee said the organization is also nearing completion of its new world headquarters being built in a Chicago suburb. The staff will move into the new building in September.
"It's an investment for us," McGee said, adding that owning its own building is a long-term cost control by allowing I-CAR to avoid escalating rent costs. "This facility has a meeting room that will seat 90 people and can be divided into three smaller rooms. If any industry group needs to utilize that facility in Chicago, just call and ask."
Incoming I-CAR Board Chairman Rod Enlow, of the Coordinating Committee for Automotive Repair (CCAR), said all of these activities are positioning I-CAR for future growth.
"Today, at least in this business, learning is a life-long experience," Enlow said. "My advice to us all is to keep learning, keep working, keep striving to get better. You'll gain more value from doing that than from a lifetime of just drawing a paycheck. The collision industry is more dependent than ever on I-CAR training and what it brings to the table to allow technicians and everyone involved in the industry properly perform their job. We want to make that training experience valuable to you."
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