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Letter to the Editor
This article originally appeared in the November 2007 Issue of INSIGHT
©2007 Collision Repair Industry INSIGHT All Rights Reserved
Sherwin-Williams Q3 Profit Up 12%
Total Resource Auctions Hosts Hertz Super Simulcast Sales
Progressive Q3 Earnings Drop 27%
CIECA Activates Salvage Committee
Summit Software to Release KPINet at NACE
PPG Reports Record Q3 Sales and Strong Earnings
True2Form Selects Mitchell’s ABS Enterprise for Management System
ACAR Says Collision Repair Industry Needs Code of Ethics
Manufacturers and Independent Repairers Mark 5th Anniversary of Service Information Agreement
AASP-MN’s Lights On For Safety Event Helps Motorists
INDUSTRY UPDATE
The Sherwin-Williams Company has announced its financial results for the third quarter and nine months ended September 30, 2007. Compared to the same periods in 2006, consolidated net sales in-creased $80.3 million, or 3.8 percent, to $2.20 billion in the quarter and $136.2 million, or 2.3 percent, to $6.15 billion in nine months due primarily to acquisitions, strong domestic paint sales to commercial contractors, improved industrial maintenance product sales, and strong international paint sales.
Four acquisitions completed in the third quarter, including Columbia Paint & Coatings Company, completed at the end of the quarter, and two acquisitions completed during the second quarter, including M. A. Bruder & Sons Incorporated, increased consolidated sales by 2.0 percent in the quarter and by 1.0 percent in nine months.
Consolidated net income increased $21.2 million, or 11.9 percent, to $200.3 million in the quarter and $37.4 million, or 7.8 percent, to $514.8 million in nine months. As a percent to net sales, consolidated net income improved to 9.1 percent from 8.5 percent in the quarter and to 8.4 percent from 7.9 percent in nine months due to improved profitability of operations.
Net sales in the Paint Stores Group increased $53.2 million, or 3.9 percent, to $1.40 billion in the quarter and $85.2 million, or 2.3 percent, to $3.82 billion in nine months. The acquisitions of Columbia and M. A. Bruder added 172 stores to the Group’s operations and increased the Group’s net sales by 2.7 percent in the quarter and 1.3 percent in nine months.
Net sales of the Consumer Group decreased $5.5 million, or 1.6 percent, to $349.4 million in the quarter and $38.5 million, or 3.5 percent, to $1.05 billion in nine months. The sales declines were due primarily to soft DIY demand at most of the Group’s retail customers and, during the first quarter of 2007, the final period in the elimination of a portion of a paint program with a large retail customer. Consumer Group segment profit increased $3.9 million, or 6.4 percent, to $64.1 million in the quarter and $9.6 million, or 4.9 percent, to $202.8 million in nine months.
Net sales of the Global Group increased $32.9 million, or 8.0 percent, to $444.9 million in the quarter and $90.1 million, or 7.6 percent, to $1.28 billion in nine months when stated in U.S. dollars. The second quarter acquisition of Nitco Paints Private Limited and the third quarter acquisitions of Napko, S.A. de C.V. and Pinturas Industriales S.A. increased this segment’s net sales in U.S. dollars by 1.6 percent in the quarter and 0.7 percent in nine months. This Group’s segment profits were favorably impacted by increased sales, improved operating efficiencies related to additional manufacturing volume, and expense control.
Commenting on the third quarter and nine months results, Christopher M. Connor, Chairman and Chief Executive Officer, said, “We are encouraged by the positive sales results generated by the Paint Stores Group as they more than offset a reduction in architectural paint sales .... The Global Group continued to generate positive sales momentum through the strength in their international business units. Despite the sluggish new residential and housing turnover markets, we continued to invest in our U.S. controlled distribution network, adding 59 net new stores and acquiring another 172 in our Paint Stores Group in nine months. Our Global Group also continued to invest, opening 17 net new stores and acquiring nine.”
“We are pleased that all our operating segments continue to achieve segment profit growth on a year-over-year basis," Connor continued. “Our Consumer Group management continues to drive efficiencies that have helped to partially offset that Group’s sales reductions. Consolidated gross margins continue to improve as our operating segment teams strive to return our gross margins to more normal run rates after being pressured by the significant rise in raw material costs over the past three years.... ”
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Total Resource Auctions saw record-breaking sales activity during its first two Hertz Super Simulcast Sales. The most recent sale, held October 12, was the second of six nationwide biweekly sales that will be held for Hertz, one of Manheim’s largest customers, this year. The first sale, held September 28, marked the first time Total Resource Auctions hosted a multi-location Manheim Simulcast event for Hertz.
Combined, the Hertz Super Simulcast Sales offered 222 damaged and disabled vehicles, 158 of which were sold. Record-level online activity contributed to the success of the sales, as 97 percent of the vehicles sold were purchased remotely via Manheim Simulcast. Bidders from 21 states placed a record 3,112 bids and 168 proxy bids during the sale.
“We were happy with the results of both sales in terms of percent of units sold and sale price, as well as the ease of selling these units online,” said Joe Alesandro, director of field and car sales maintenance operations for Hertz. “These sales are part of a six-sale test run for Hertz, which for years has kept stringent procedures regarding how we handle and remarket our salvage vehicles.”
“The results of both sales indicate a promising future of online selling for Total Resource Auctions,” said Bill Tiedemann, vice president and general manager of Total Resource Auctions. “We had fantastic coordination among all parties involved, and we couldn’t be happier with the outcome of these sales.”
“Because the volume of Hertz’s damaged and disabled inventory is spread across a number of locations, there hasn’t been enough volume to warrant a free-standing sale,” Alesandro said. “By consolidating the vehicles from various locations in a single online sale, we are able to test the viability of offering all of our salvage inventory via Manheim Simulcast.”
Total Resource Auctions allows buyers and sellers to securely exchange damaged, inoperative and salvage vehicles at 37 locations throughout the United States and via web-based products, including Manheim Simulcast.
Auto insurer Progressive Corporation's fiscal third quarter earnings fell 27 percent from the year-ago quarter, as its net premiums written decreased and combined ratio increased. Progressive's quarterly earnings fell to $299.2 million, or 42 cents per share, from $409.6 million, or 53 cents per share, during the same quarter a year ago.
Net premiums written in the third quarter fell three percent to $3.48 billion, from $3.58 billion during the same quarter in 2006.
Progressive's combined ratio increased to 93.7 percent from 87.3 percent. Combined ratio measures the percentage of each premium dollar the company spends on claims and expenses. A ratio of more than 100 means the insurer is spending more on claims and expenses that it receives from premiums.
CIECA has re-chartered the Salvage Committee. Renewed interest by member companies, American Salvage Pool Association (ASPA), and the industry in general has initiated this action. The newly organized Salvage Committee will begin work on new messages for Disposition and Salvage Procurement for the industry.
Salvage Committee Chair Al Tate, of Salvage Direct, said, “I am excited to chair and participate in this committee. The timing is good for leaders in our industry to begin taking steps towards realizing efficiencies gained via leveraging technology for more than just the initial disposition of salvage; but also opening potential doors down the road for integration of the greater total loss decision process.”
“The Mission of the CIECA Salvage Committee is to help shorten salvage vehicle disposition and acquisition cycle time, make the process more efficient, and reduce the perceived risks by facilitating the electronic transfer of transaction information between all parties,” said Fred Iantorno, CIECA Executive Director. “As part of our Cross Industry Research and Coordination program, CIECA is pleased to announce that ASPA will be participating on the newly constituted Salvage Committee.”
“CIECA’s timing could not be better. ASPA looks forward to working closely with the committee and utilizing the standards they have developed in its own quest to complete our industry wide electronic interface for insurers and salvage auctions,” said Patrick Walsh, 2007-08 ASPA President.
Summit Software will launch KPINet(TM), a new data mining, analysis, and reporting system for collision repair businesses at this year’s NACE trade show. According to Summit, this portable solution will allow single shops, regional or national consolidators, and collision repair networks of any size to select, consolidate, create, view, export, print, manage, and share literally millions of data combinations with a simple “drag and drop” interface.
Frank Terlep, Summit’s president and co-founder, said, "The KPINet System could be the most powerful and important data mining, analysis, and management tool ever offered to the collision repairers. While I know this is a bold statement, I have never seen anything like this in my 20+ years in this business. Think of KPINet as Excel on steroids. It offers the power of a data warehouse and the custom reporting capabilities of high priced custom reporting software without the expense or programming exper-tise. Users simply select data elements from a list that includes hundreds of estimate, repair order, parts, insurance, production, financial, and other pertinent management data, drag and drop the specific data points they want to measure, align and select the columns, and then select the data range and/or number of locations they want to report on, and the users have the management information they need in the format they want, when they need it. The combinations of data, information, and reporting is virtually unlimited.”
Summit Software also claims that KPINet is extremely portable and can be used, customized, and accessed from anywhere in the world. By purchasing the Portable KPINet System, owners, managers, and repair network operators simply insert a simple and inexpensive portable memory stick into a USB port on any computer and they have access to individual as well as entire network performance data that can be customized and shared in any fashion they choose.
PPG Industries has reported record sales for the third quarter of $2.8 billion, surpassing the prior year’s third quarter results by 13 percent. Third quarter net income was $191 million, or $1.15 per share, and was comprised of net income from continuing operations of $215 million and a loss from discontinued operations, net of tax, of $24 million.
PPG reported in September 2007 the signing of agreements to sell its two automotive glass businesses and its fine chemicals business. Those transactions are expected to be completed in the fourth quarter 2007.
Reported net income from continuing operations includes aftertax charges of $4 million for costs related to the Barloworld Coatings Australia acquisition made during the third quarter and $3 million to reflect the net increase in the current value of the company’s obligation under its proposed asbestos settlement agreement, subject to pending court proceedings. Adjusted net income from continuing operations was $222 million. The reported loss from discontinued operations includes an initial non-cash, aftertax charge of $11 million related to the pending sale of the automotive glass businesses, and a $19 million charge related to the pending sale of the fine chemicals business.
PPG’s sales for the third quarter of 2006 were $2.5 billion. Third quarter net income was $90 million, and was comprised of net income from continuing operations of $70 million and income from discontinued operations, net of tax, of $20 million. Adjusted net income from continuing operations was $194 million.
“Our continuing operations delivered double-digit sales growth and a 15 percent increase in adjusted earnings per share,” said Charles E. Bunch, PPG’s chairman and chief executive officer. “Achieving this strong financial performance despite a slowing North American economy is largely a result of the successful execution of our strategies over the past few years to rapidly grow the specialty businesses in our portfolio and expand our global presence.”
Bunch noted that both of PPG’s coatings segments and its Optical and Specialty Products segment all reached third quarter sales records, and all of PPG’s business segments improved earnings by at least four percent year over year.
“In addition,” Bunch said, “we’re accelerating the transformation of our business portfolio. We recently announced the pending acquisition of SigmaKalon and the divestiture of our automotive glass and fine chemicals businesses. These pending transactions will dramatically enhance our focus on coatings and optical and specialty products and significantly shift our geographic presence. When these deals are completed, more than 50 percent of our sales will be outside the United States and Canada.
“Looking ahead, we expect the North American economy to soften further,” Bunch continued. “But it should still provide slight growth. Equally important to PPG, the economies outside of North America will continue to provide consistent opportunities for solid growth. Our global businesses enable us to continue to focus on creating shareholder value and improving returns.”
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True2Form Collision Repair Centers, one of the largest collision repair companies in the Eastern U.S., has selected Mitchell International’s ABS(TM) Enterprise as its preferred body shop management system for use in all of its 38 collision repair center locations.
“At True2Form, we pride ourselves on delivering cutting edge operational and managerial practices to the auto body industry, while delivering a superior customer experience. We believe that ABS Enterprise will help us sustain this advantage,” said Rex Dunn, President and CEO of True2Form. “We have a long-standing relationship with Mitchell and know that not only do they have the right product to support our operating practices, they also have the service and personnel infrastructure to back the product up in the years to come.”
“We are proud to partner with leading collision repair shops and high-performing networks like True2Form by providing them with innovative, best-in-class solutions that will help them better service their customers,” said Armin Price, Mitchell’s Senior Director of National Accounts. “We are very excited about launching our next-generation management system into the True2Form network.”
ABS Enterprise, a web-based management system for multi-location shops or those seeking an online solution, automates routine operations like job-costing, parts management, and scheduling, and generates more than 100 detailed productivity and profitability reports.
Nearly 40 members of the Collision Repair Industry met recently at the National Press Club in Washington, D.C., for the ACAR (Accountability for Collision Auto Repair) event.
The purpose of the event was to focus collision repairers on the one aspect of the claims handling process they can control: standards. ACAR participants began work on a Code of Ethics modeled after guidelines produced by attorney Erica Eversman, who moderated the event.
“The collision industry needs a Code of Ethics,” said Eversman. “It will assist people in understanding who the real customer is and what they owe that customer. To have an industry that deals with people’s safety with no Code of Ethics or pre-set technical repair standards is mind-boggling. You have to have governing principles. If you don’t do this, then less-knowledgeable people will.”
Although participants represented many different repair associations and industry segments, attendees unanimously agreed that the collision repair industry needs a code of ethics. ACAR meeting participants worked their way through Eversman’s draft Code of Ethics, beginning with defining terms as basic as “collision repairer” and “collision repair facility” and drawing a distinction between a “consumer” and a “customer” (neither of which is the insurance company).
The draft Code makes allowances for an industry peer review board, which would self-regulate the industry. Meeting participants discussed qualifications for potential review board members, stressing that they should not only have years of experience, but should be up-to-date on the latest training, as well.
Eversman said she drafted the Code of Ethics specifically with consumer protection in mind. “The Code will make everyone aware of the conflict between insurance regulations and the consumer protection laws that you must follow,” she said. “Many repairers are currently breaching consumer protection laws.”
The draft Code says that collision repairers owe “a duty of professional care to the customer and shall act in the best interests of the customer in repair decisions and recommendations.”
“I still hear repairers saying, ‘The insurance company will take liability if I repair according to their estimate,’” said Eversman. “I cannot disabuse people enough of that idea.”
Regarding the section of the draft Code that deals with damage analysis, Eversman said, “It is absolutely inappropriate for a repairer to underwrite an estimate just to get the vehicle in the shop. It’s a safety issue. If the vehicle should be a total loss, and you underwrite to get it in your shop, that is wrong.”
Meeting participants agreed that today’s gathering was a start. Those in attendance will now look over the draft Code of Ethics individually or with their repair associations at home and submit comments.
A second meeting to discuss the draft Code has been tentatively scheduled for March 28, 2008, to coincide with the Northeast Regional Autobody/Automotive Trade Show in Suffern, N.Y.
Meeting attendees also agreed that the draft Code may serve as a foundation for minimum industry standards from coast to coast, though individual states will be free to make additions to the Code as their situations dictate.
ACAR meeting participants hope that the draft Code of Ethics will, at last, permit the auto collision repair industry to speak with one voice.
On October 17, 2007 the Alliance of Automobile Manufacturers (Alliance), the Association of International Automobile Manufacturers (AIAM), and the Automotive Service Association (ASA) marked the fifth anniversary of the successful voluntary agreement to provide the same service, repair, and training information to independent repairers as is made available to franchised auto dealers.
Dave McCurdy, Alliance CEO, said, “Manufacturers recognize the importance of the independent repair industry and remain committed to ensuring that consumers have the option of having their vehicles serviced by the repairer of their choice.”
Approximately 75 percent of all post-warranty repairs are performed by independent repair facilities. This voluntary agreement has aimed to ensure the continuing viability of the automotive service industry and to eliminate the need for current and future legislation.
Mike Stanton, AIAM president and CEO, said, “We believe our customers should be able to seek vehicle repair services wherever reliable and first-rate service is offered. Automakers work very hard to make high-quality cars and trucks, and their reputations could be jeopardized if customers felt they could not go to the service and repair shop of their choosing.”
To help resolve service and repair related issues, independent repairers are encouraged to work through the National Automotive Service Task Force (NASTF). NASTF serves as a forum to identify and resolve gaps involving motor vehicle repair information and tools. This national, voluntary solution has proven to be an effective resource for repairers and manufacturers alike, and has become a productive forum for dialogue between independent repairers, other industry stakeholders and automakers, as well as an effective mechanism to help identify and resolve the few information gaps that remain.
Ron Pyle, ASA president and chief staff executive, added, “ASA is proud of the progress made for independent repairers relative to service, training and tool information. The 2002 ASA-Automaker agreement has provided our industry with a model for information that will ensure repairers have the necessary information for the foreseeable future. This model is indicative of the industry’s ability to resolve many important issues in the marketplace without government intervention when the automotive industry works together.”
By Sheila Loftus
Insurance companies want collision repair shops to be four-star restaurants but charge McDonald’s prices, according to Allen Wood, executive director of the Collision Repair Association of California (CRA). “A quality shop that is well-equipped can justify higher rates than a hole-in-the-wall, shade-tree shop,” Wood said.
Unfortunately, insurers are unwilling to recognize the difference in the quality of work shops produce. Their labor rate surveys, which determine a prevailing competitive price in a given area “make mediocrity the norm,” Wood said. “There is no reward for quality work or level of expertise. Labor rate surveys facilitate a dumbing down of the industry.”
Wood’s remarks were prompted by the California Department of Insurance’s recent decision to withdraw its proposed changes to rules relating to insurance labor rate surveys. The new rules, Wood and other California collision repairers believe, would have sanctioned the surveys.
Currently in California, Wood noted, the burden of proof is on insurers to prove a collision repair shop’s rate is too high. Changes in the rules would have given the surveys a credibility they don’t deserve. Moreover, they would have made it difficult for shops to recover increases in the sudden rise of items such as paint and materials.
“In the proposed regulation package, the burden of proof was going to be switched to the repairer,” Wood said. “This was unacceptable.”
The current language the California Department of Insurance uses pertaining to insurance company surveys, put in place in 2002, says, “Any insurer that conducts an auto body repair labor rate survey to determine and set a specific prevailing auto body rate in a specific geographical area shall report the results of that survey to the department, which shall make the information available upon request. The survey information shall include the names and addresses of the auto body repair shops and the total number of shops surveyed.”
Even this language is not entirely satisfying to shops, said David McCune, the executive director of the California Autobody Association (CAA). “Originally we had a lot of other stipulations relating to how insurance companies should do labor rates,” he stated. “Our position had always been that a non-biased, third-party should be involved [in conducting the survey].”
However, collision repairers “have to keep pushing the department to enforce the regulations,” McClure said.
Even in California, which is tougher on insurers than most states, collision repairers need to be vigilant just to have existing laws enforced. The Department of Insurance, Wood said, “is so insurance-centered that it is certainly not going to be fair to the repair industry.”
Because of price surveys, collision repair facilities around the United States cannot operate like most businesses. Imagine if restaurants could only charge what a survey said they could charge - a survey conducted, no less, by an entity with a vested interest in low meal prices. What if all cars had to be priced the same? All computers? Mediocrity would reign. One might argue that a repaired car is a repaired car, no matter who repaired it. But where would you rather have your vehicle repaired, the Four Seasons of collision repair shops or the Joe’s Diner of collision repair shops?
“I have never seen another industry in which you can’t raise your labor rate without asking someone else,” Wood noted. “I always thought that when you were in business for yourself, you did what you needed to do to cover the bottom end. Here you are always asking permission of someone else.”
The recent news out of California might seem like a grand victory for body shops. Certainly it was preferable to instituting new, damaging language to the California Department of Insurance’s rules on insurance company labor surveys. But here’s something to dampen the triumph: Insurers did not like the proposed changes either.
Reprinted with permission from Sheila’s Information Network Inc.
On Saturday, October 6th, the Alliance of Automotive Service Providers of Minnesota (AASP-MN) held its 13th annual Lights On For Safety event. AASP-MN volunteers, with help from automotive technical students, conducted a free inspection and replacement of exterior vehicle light bulbs and headlamps for the motoring public.
Volunteers at eight sites serviced 412 vehicles and collected over 1,600 pounds of food and $1,270 for local food shelves. In addition, $4,000 in scholarships was distributed to automotive tech students who participated in the event. At most of the locations, troopers were on hand to answer traffic safety questions.
Pat Whelan, Lights On For Safety Committee Chair, stated, “The AASP-MN member community came together once again to benefit the motoring public as well as the Hunger Solutions network of food banks. This volunteer effort of industry suppliers, vocational schools, professional technicians and shop owners showcases the generosity of our independent auto service community in Minnesota.”
In addition to AASP-MN, sponsors of Lights On For Safety include: AAA Minnesota/Iowa, Auto Value Parts Stores, NAPA Auto Parts, and Parts Plus/Red Rooster Auto Stores. Volunteers from the Northern Collision Business Association in Duluth and Fargo-Moorhead Auto Body Association also participated in the event.
The primary objectives of Lights On For Safety are to improve vehicle safety; stock local food shelves, support automotive students with scholarships and industry connections, encourage interaction and build rapport among all sectors of the automotive service industry, and increase public awareness and goodwill toward the automotive service industry.
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