Collision Industry Issues
Narrowing down the collision industry issues to watch in the coming year is a bit like deciding what to keep your eyes on at a three-ring circus - there's a lot of exciting things going on, and much of what is occurring holds an element of danger.
With more than 31,000 industry participants having just converged on New Orleans for the 1995 International Autobody Congress and Exposition (NACE) last month, and with a new year upon us, let's take a look at what's come out of NACE and what are some of the key issues to watch in 1996.
PPO
Many shop owners at NACE '95 sported "Just Say No To PPO" buttons. In addition, the Automotive Service Association (ASA) Collision Division, in response to recent articles published in Business Week and the Washington Post is urging industrywide action against managed care in the repair of collision damage vehicles. Both articles detail the emergence of preferred provider organizations (PPOs) as a more restrictive form of the direct repair programs (DRPs) insurance companies have offered for years.Under the PPO concept, insurance companies could offer policies whereby policyholders agree to use only certain pre-approved repair facilities in exchange for a reduced premium. Under DRPs, policyholders can be referred to shops in a network after an accident occurs, and typically, can choose to use a shop outside the network if they wish.
A committee policy statement on PPOs says that, "Given our current level of information, we believe the PPO concept would neither be in the best interest of the collision repair industry nor the consumers we serve. The PPO concept does not provide for an objective means to judge the quality of repairs; does not account for standardized collision repair industry specifications; and does not define price reductions. Accordingly, we also reject statutory or regulatory actions taken by state governments to codify the PPO concept without the full consent and participation of the collision repair industry and others affected by this initiative."
At the NACE '95 seminar titled "Steering Customers ... Right or Wrong?" panelist Michael York, founder of Parnet, said that Parnet is a PPO offering affordable auto insurance and quality repairs in inner city areas of Los Angeles. York said Parnet uses a network of shops to provide quality repairs at savings to the consumer of 50 percent to 60 percent over what traditional policies can offer in those areas. "[Parnet shops] have to take pride in their work. That's the kind of shops we want," said York.
Mike Melfi, president of ASA-Illinois and an outspoken critic of the PPO concept, said at the NACE steering seminar that one of the dangers of managed care is that it would reduce a shop's incentive for providing quality repairs, since work would automatically be directed to certain shops.
"You don't have to be so concerned about pure quality, because you have that volume going through your door," Melfi said.
ASA has contacted several major insurance companies and has been told the companies have no immediate plans for PPOs. Though the short-term prospects for large PPO programs seem minimal, managed care will certainly be an issue to monitor this year.
DRP Developments
DRPs continue to evolve, with insurers compiling more data on shops in their DRP networks. Meanwhile, State Farm, the nation's largest auto insurer, is close to a decision on whether to launch Service First - its new "claims handling" program - nationwide.Bill Hardt, assistant vice president of property claims for State Farm, says a national roll out of Service First "looks promising," though a decision will not be announced until this month.
Hardt did confirm that a warning letter had been sent to Service First shops in Dallas last November regarding things such as not bidding used or aftermarket parts when available, as well as the bidding of excessive structural repair time. The letter threatened to remove shops from the program if they didn't adhere to the Service First agreement and criteria.
Hardt said that State Farm is not setting specific thresholds for factors such as a Service First shop's use of aftermarket parts, but is merely comparing trends under the program to those before the program - when State Farm was writing the estimates.
"[Service First] is not a blank check. It's a working relationship built on trust and that's what it will continue to be," said Hardt, who added that overall, the pilot is going well in Dallas.
Allstate is also monitoring its 7,500 PRO shops for performance on items such as the use of recycled parts and repair/replace trends. According to Gerald Harn, director of industry relations for Allstate, such management reports aren't meant to automatically penalize a shop for not meeting a threshold, but deviation from the norm could be an "indicator" of a problem.
"What we are doing is measuring the high-quality facilities and comparing them to other high-quality facilities," said Harn.
Parts Procurement
An issue that emerged in 1995 is the "parts procurement" issue. The parts procurement issue does not refer to direct purchasing of parts by insurance companies, but rather, insurers becoming involved with which specific vendors of parts shops will use and determining what profit margin would be fair for a shop to obtain for a part.Bob Anderson, an ASA board member and owner of Anderson Automotive, a collision repair shop in Sheffield Village, Ohio, is highly critical of the parts procurement trend. Anderson said the trend, if it continues, will hurt the profitability of shops.
"I'm being directed as to whom I have to do business with ... it takes away my room to negotiate," said Anderson.
Fraud
Due to an initiative in California, and bad press from a controversial segment in the CBS television news program "Eye to Eye" last year about collision repair practices, the issue of fraud will garner attention in 1996.By early 1996, all collision repair shops in California registered with the state's Bureau of Automotive Repair (BAR) will be mailed a BAR pamphlet on how to properly write estimates called "Write it Right." The BAR has previously issued a Write it Right pamphlet for general repair shops.
While most in the industry agree that such practices as billing for a new part and then only repairing a part are fraudulent, a draft of the BAR pamphlet gets down to details such as including separate line items for each type of material used on a job.
In addition to the development in California, the Collision Industry Conference (CIC) has a committee developing its own guidance booklet on ethical estimate writing. According to Keith Waldrop of USAA insurance, who has served on the CIC committee developing the booklet, the fraud question often boils down to common sense in estimating and invoicing procedures.
"This is not rocket science. This is putting together what the best management practices are," said Waldrop.
Some in the collision industry contend that the whole system of compensation is at the core of the fraud problem. As one audience member at a NACE '95 seminar discussion put it, "When [insurers] cap my materials at $200, and they really cost $300, where is that $100 supposed to come from? Am I supposed to eat it?"
Times And Pay
A disturbing trend noted by shops owners is that while times in estimating data bases are shrinking, the level of pay in the industry is not seeing much growth."We've seen the times getting down to real times, but what's been forgotten is the other side of the equation, the multiplier, and that's our low labor rates," says Kevin Caldwell, a member of the ASA Collision Division Operations Committee.
What can be done about the trend of funny pay for real time? ASA's Collision Division works closely with information providers to make sure data base times are as fair and accurate as possible. ASA has also obtained information from refinish companies on hard-to-cover colors, in order that data base times can be more accurate.
According to Joe Sanders, an ASA board member and collision shop owner, what makes the shrinking time issue particularly difficult is that estimating data bases are not used consistently by some insurance company personnel.
"Too many appraisers jump in and out of the procedure pages at will," said Sanders.
Sanders suggests that shops need to get an exact handle on their cost of doing business in order to more effectively deal with insurance companies. Shop owners as a whole also need to continue to improve their understanding of automated estimating systems, said Sanders.
"Half of this industry still thinks we're dealing in funny time, and that's causing some serious problems," said Sanders.
Legislative Front
An official look at ASA's federal legislative objectives can be found on page 44 of this issue, but two key regulatory issues to watch out for are salvage definitions, and rules controlling volatile organic compounds (VOCs) in refinish products.ASA is opposed to definitions of a "salvage" vehicle based on a subjective assessment of damage as a percentage of retail value. ASA contends that the decision to repair a vehicle or sell a vehicle as salvage should be determined by the owner's economic self-interest, not by an arbitrary percentage.
Last September, the U.S. Environmental Protection Agency (EPA) proposed a national rule on VOC standards for refinish coatings that could take effect by the end of this year. The proposal regulates the VOC content manufacturers may put in coatings for U.S. sale. While the VOC limits proposed are fairly lenient and could be met with conventional medium solids technology, to the disappointment of ASA, the rule contains no point-of-sale (POS) provisions to ensure the products are sold to qualified individuals. However, as 1995 NACE Chairman Russ Verona noted at NACE, POS controls are being considered in New York and Rhode Island.
With plenty of issues on the table already, 1996 promises to be another exciting year in the collision repair industry.
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AutoInc. Magazine ®, Vol. XLIV No. 1, January 1996