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Letter to the Editor

Select Service Perspectives

Shops on - and off - State Farm’s new Select Service Program share their views on the program and what it may mean for the industry

Scott Kallemeyn is not thrilled with State Farm's new Select Service program that has been rolled out in his area since February, but he is not overly troubled by it either.

"I don't think it's been a bad thing; certainly we can work with it," said Kallemeyn, the owner of Kallemeyn Collision Center, which has two locations in Palos Heights and Lamont, Ill., southwest of Chicago. "And it actually could be a very, very good thing as long as our industry doesn't cave in."

Kallemeyn, who serves on the Collision Operations Committee of the Automotive Service Association (ASA), explains that one positive aspect of the new program that he sees is that it is not limited to consolidators or multi-location collision repair businesses.

"That's a huge advantage for the stronger independent shops that can perform as well or better than the consolidators," he said.

The program does require a participating shop to provide State Farm with the best discounts it offers any other carrier. If a shop offers any insurer a parts discount - regardless of what labor rate that insurer pays - State Farm wants that discount. Likewise with labor rates, State Farm expects the lowest rate the shop charges any of its customers.

Kallemeyn said that is not a problem for his company because he has offered few discounts - consolidators in his area have locked up most of the major direct repair programs - so he has not had to give up much to be on the new State Farm program.

But the potential upside for the industry as a whole that he sees as Select Service rolls out across the country (perhaps as early as this summer) is if shops take the opportunity to force other insurers to come up to State Farm rates rather than lower what they charge State Farm.

"Actually in our area, there have been several carriers that have raised their labor rates to match the State Farm prevailing rate, so that their [direct repair] shops don't have a real conflict with State Farm," Kallemeyn said. "Now they haven't done away with all the parts discounts, so that's still an issue, but at least it makes it a lot easier for a shop that wants to stick to its rates. It will be much better for the industry if rather than everybody saying, 'Oh woe is me, I have to give State Farm the same discounts as the others,' they instead approach it as, 'I would rather not give out any discounts so let's get [all insurers] on the same page.'"

Kallemeyn may have a better grasp of the details of State Farm's new program than some shop owners, given that the ASA Collision Operations Committee has met with State Farm executives in recent months. But he said nothing has come out of those meetings about the program that the insurer has not already made public.

In addition to the "best rates and discounts offered," the program requires free storage and free pick-up and delivery of vehicles when requested.

"But they aren't the first ones ever to do that," Kallemeyn pointed out. "The object of the whole program for State Farm is to level the playing field and save money where they can."

But Garry Lynn of Garry's Collision in Rochester, Mich., speaks to another aspect of the program: It's no longer "Everyone who qualifies is in."

"While we appreciate your interest, we are not accepting your facility into this program at this time," Lynn read from a February 13 letter he received from State Farm.

State Farm said the number or percentage of shops receiving such letters varies by market based on capacity within the market. Sources said the thinning has been heavier in California than in Michigan and Illinois markets

But for Lynn, the letter came as a shock. Though he never really liked the idea of direct repair programs, he saw State Farm's Service First program as beneficial to the shop, insurer, and vehicle owner.

"I was involved for six years or however long the program ran in my area, and I got excellent report cards," Lynn said. "I had zero customer complaints. I saw reinspectors in my shop maybe four or five times a year, which I think shows the integrity of my shop."

He views the new Select Service program as nothing more than State Farm's effort to extract the best deals from the biggest shops by promising them more work through exclusive agreements. It is too soon to judge how much less State Farm work his six-employee shop will see, he said, but he is going to take a more aggressive stand to keep customers from being steered away.

"If you lose your position [on a program] because of something you did or didn't do, that's your fault," he said. "But when you lose your position because of exclusive agreements, that's not your fault and it's totally unfair. They're going to eliminate some good shops."

While there are shops on the program in the markets in which it is being tested (parts of California, Illinois, and Michigan) and shops in those areas whose applications were not accepted, there is also a third category: Those shops who said 'no thanks' when they looked at what the new Select Service agreement entailed.

Count Jim Kuhlmey among that camp. After 42 years of owning Elite Auto Body in Chicago, Kuhlmey said he knows a bad deal when he sees one. He actually took himself off the State Farm Service First program a couple years ago and had no interest in the new Select Service.

"I put more used parts on in two years on the Service First program than I did in my first 40 years in business," he said. "It wasn't fair to the consumer."

He said he saw State Farm work fall from being 35 percent of his business down to about 20 percent. But it was largely a short-term loss for his 15-employee business, he said. State Farm work is now back up to about 31 percent of his business.

Kelly Swenson of Carty's Collision Center, in Ontario, Calif., is another shop owner who passed on applying for the new Select Service.

"I would not sign the contract as presented, and they told me it was non-negotiable," she said. "They want the lowest rate you charge, when I don't feel it is any of their business what I charge other people. They should be negotiating their own rate. Someone else may be easier to work with or give me more volume and be entitled to a better discount."

Of particular concern to Swenson was the State Farm expectation that shops share in the rental car costs.

"If they decide the repairs are overdue, and they feel it's the shop's fault, the shop has to pick up the rental," Swenson said. "And they get to decide that. It's so one-sided."

She said she's already seen long delays in getting State Farm representatives out to her shop to look at vehicles, which she does not see as boding well for shops, vehicle owners, or State Farm. And she has a hard time understanding how any shop owner who reads the Select Service agreement thoroughly could feel comfortable signing it.

"I don't think it's good for the industry," she said. "A bad deal is a bad deal. A bad contract, no matter how many cars they want to send you, is a bad contract."

For now, Swenson may have a hard time convincing some of those on the program that she is right.

Randy Booden at the nine-employee B & B Collision in Royal Oak, Mich., for example, had no complaints about the program.

"We're certainly busier right now than we have been, although that goes in cycles it seems lately, so I don't know if the program has really helped increase the business," said Booden.

But he said he likes how State Farm treats people and that it does not require the use of non-OEM parts (a stance that State Farm executives say could change and that the Select Service agreement certainly allows).

"They're putting the squeeze on us a little bit, especially on turn-around time, but the good part is that getting the car in and out quickly benefits the shop, too," he said. "And I like the way they want the best deal you're giving anybody else. I've never been a direct repair for Allstate or AAA because they always wanted those discounts."

Booden said the State Farm program will either require his competitors with those DRPs to do even more discounted work - or to change their strategy.

Like Booden, shop owner Kallemeyn said it is really the discounters in the industry that shops should view in a worse light than State Farm and its new program.

"It's something the industry has done to itself; if we give our discounts to everybody else, then State Farm feels entitled to those same discounts," Kallemeyn said. "If they're the biggest customer, I guess I'd have to agree with them."   o

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