I don't think you need to sign up to read the article, but if necessary please do so. The comments at the bottom of the article are so worth reading!
"The program, which is being tested in Tucson, Ariz., Grand Rapids, Mich., Charlotte, N.C., and Birmingham, Ala., requires shops affiliated with State Farm’s Select Service direct repair network to source parts from vendors through a Web-based process facilitated by Parts Trader. Repairers are required to submit parts orders through Parts Trader, and vendors bid for the sale by offering their lowest possible price quote.
Marvin Windham, parts manager for Benchmark Chrysler Dodge Jeep Ram in Birmingham, Ala., and co-owner of Overnight Parts Alliance, which distributes wholesale OEM parts for 31 franchises, says his company is choosing not to participate in the program.
Windham says the Parts Trader program—which State Farm says is meant to curb problems with parts returns and cycle time by improving quality, part availability, process efficiency, order accuracy and competitive pricing—does not provide any value to his operation. He cites three main concerns:
First, State Farm has said that the repair process will be enhanced as repairers gain the ability to see a larger selection of available parts to make purchasing decisions. The electronic parts ordering application is another resource that can assist repairers in managing their overall performance. But Windham says his shop customers already have efficient means of submitting parts orders electronically.
“I’ve chosen not to use it because Parts Trader provides no value to us at all,” he says. “It’s ultimately just a portal for shops to send estimates to us. But they already have a way to send orders to us electronically without charge.”
Second, State Farm has said its new parts process should reduce the amount of time and effort shops spend searching, locating and sourcing all part types. But Windham says the program creates extra administrative work on the dealer side, and the program does not lend itself to productivity gains.
When parts come in for bidding, Windham says they have to look up and verify each part the same way they would if actually selling the order. They have to specify the order, input price information and send it back to the shop via Parts Trader. That process takes up to 15 minutes per order, without knowing whether the bid will even get selected. It ends up being all wasted time if the shop doesn’t select the bid, Windham says.
Third, State Farm has said its bidding program is designed to promote price competition within the parts industry. Windham says his company already offers its lowest possible parts prices. And he wants to ensure that shops continue to benefit from any parts discounts offered.
“I want to give discounts to my shops, but this program gives discounts to State Farm. I don’t want to take part of my discount that I offer to body shops, which I have built relationships with over the course of 35 years, and turn around and give it to State Farm,” Windham says.
Windham says profit margins within wholesale parts operations are already very low, and high fixed costs don’t allow him to reduce the MSRP on parts and still offer normal discounts to shops.
“I can’t give my standard shop discount off of a discounted MSRP. I can only offer so many dollars off of a part,” Windham says. “If I give a 5 percent discount to State Farm, then I have to take 5 percent away from my shop customer. I’m not willing to do that. I have relationships strictly with the shops, not with State Farm.”
Windham says several wholesale parts dealers could be run out of business if State Farm’s program continues and becomes a national program. There are many wholesale dealers that provide additional services to shops, such as huge parts inventories, technical information for repairs, several delivery routes in operation, and customer service representatives that offer high levels of service."
One important thing to note is that State Farm can see the prices the shops are paying for the parts. In an industry where shops are lucky to make a 30% margin on OEM parts we now have a nationwide insurer trying to set a precedent as to the insurers ability to cut the margins. 30% of a 200 list price part is 60 dollars, but when a part is bid down to below list price the 30% is now a percentage of a lesser value if what was a 60 dollar markup is now based on a part costing 100 the shop only makes 30 dollars. Who wins? not the shop, not the supplier, as the supplier will have to cut the 30% profit margin to 15% to keep there very small profit margin that the supplier gets from the Manufacturer.
Of course State Farm claims that the shops do not *have* to use the best supplier bid the problem is that if a shop chooses there preferred supplier they loose points on the State Farms DRP KPI or key performance indicator and could be ranked as a lesser shop than one who does everything the insurer tells them to do.
Again there is a reason not to participate in any insurer's direct, select etc.. "partner" program. That reason is ethics and morals and looking out for the client by being a high quality profitable business.
This does seem to be an unnecessary incursion of the insurance company into the auto parts/body shop business. Doesn't State Farm make enough selling overpriced insurance already? Why do they also have to get part of our auto repair bill as well?
XLFD said "Why do they also have to get part of our auto repair bill as well?" pretty much seems you grasp the concept.
There are actually shops down south(Texas) owned by Allstate ins. Co....Doesn't seem right to me but of course insurers are not bound by things like the Magnusen-ferguson act ( I think that is the one) that applies to anti-trust legislation---meaning the insurers are not bound by anti-trust laws!!!
I'm smarter than I look. As a rule of thumb, you don't trust insurance. It's based on communistic principles. Making themselves immune from anti-trust laws does not surprise this one.
I honestly don't see anything wrong with it. The insurance company is trying to keep some of the money which after all is theirs. If the repair shops don't like it then I would suggest not repairing cars that are insured by them. If enough repairs shops refuse to deal with them I'm sure they would think twice about doing business this way.
Willy. WE do not participate in the DRP's because we are here for the customer, as you said don't work for that company(at least through the DRP) because when not on the DRP(direct repair program) WE can make the repair decision as trained and qualified technicians.
In the collision repair industry a shop running at optimum production only makes a overall profit of 4-6% it is one industry where the older generation commonly talks on industry groups/forums about telling the younger gen to not get involved and to find a more profitable career as the ability to make a fair profit is consistently being undermined by the insurers.
Another thing, why do you think that money belongs to the insurer, it does not, the vehicle owner is the one who is owed the payment for the loss they suffer. The owner is then responsible to pay the repair facility, but when these DRP's get involved the vehicle owner never even see's his/her money as it goes direct to the facility.
Willy, Who do you think suffers when the shops can't make a fair profit? That money loss is going to come from somewhere and that is going to be in shoddy corner cutting on the clients vehicle by the shop to make up the difference. By doing post repair inspections on vehicles coming out of the DRP shops it has been proven that those repairs are sometimes done in an unethical manner through improper repairs and corner cutting to make up for the loss that the DRP programs force the shops who participate to take to stay profitable. Not only is that possibly going to lead to dangerous repairs but also to a diminished value of the vehicle post repair.
Another way of putting it would be to say, wherever you work, you get a paycheck, but now your boss(company) decides that it is his/their money so they are going to take back 20% of every paycheck because well,it's *their* money.
Willy, another thing is unjust enrichment pointed out by a gentleman over on the fender bender magazine LinkedIn group He says( I am gonna leave his name off and just abbreviate)
MP Says..."Research this. It cost the insurer, AMF, $4 million for not putting all the necessary procedures and materials on their estimates. It seems everyone forgets that the insurer owes the money to the claimant, not the shop. By the shop not charging for necessary items does not dismiss the insurer from owing and paying for them. This would also come to play with the SF parts procurement. That is why insurance companies should not profit from a loss. Unjust enrichment. You guys should know this one. I think it was Royal Drug VS> Etena Insurance in Florida.
NICHOLAS H. SMITH, ET AL.,
AMERICAN FAMILY MUTUAL INSURANCE COMPANY,
) ) ) ) )
WD68586 CONSOLIDATED WITH WD68610
FILED: MAY 5, 2009 "
I find it very hard to believe that body shops only have a 4-6% profit margin on fixing wrecks. First of all they usually charge $50-100/hr for labor that they pay $12-35 to their employees. They usually are NOT in a high profile area of high overhead either, staying to back streets and back roads from what I've noted. If they pay, for example, $150 wholesale for a car door, the customer/insurance pays $350. So,.....where's the 4% profit? I also don't agree with State Farms new policy, nor requiring body shops to accept their terms, but with all due respect, I think both companies are making big profits, whether the books reveal that or not. Example: man wants his small truck detailed: i.e. fix a little rust on one fender, then buff it to new shine, estimate was $600. We figured it could be done in less than 4 hours, and materials of about $75 maximum, so where is the 4% profit on this job?