In my 15 years as a body shop broker, I have visited hundreds of body shops across the state. Almost 100% of the owners complain that, if they are being honest with me, they work too hard for too little money. They want to sell their body shop business to some other poor sucker who will run into the exact same problems.
The most common complaints about the industry are:
- The market prices are too low to make a profit.
- They do not have enough volume of business.
- They need DRP contracts (direct repair programs through insurance companies); if they had those, they would be doing great.
- They have no time to go out and look for business.
- Rents are too high.
- Labor is too high.
- They cannot find good body men and painters.
The three most common reasons shop owners give for wanting to get out of the business are:
- I am sick of the business.
- I am losing money.
- I am burned out.
The Problem with Auto Body Shops
When we take all of this into account, we come down to the real problem:
The insurance companies have driven prices down by intimidating business owners to take the business on the insurance company’s terms—if they don’t there are ten other shops that will take that business!
This makes sense when we are referring to shops that have DRP contracts with the insurance companies but what about the shops that do not?
The problem is this:
Non-DRP shops keep their prices low because they think their next-door neighbor steal business from them by charging less. Furthermore, they’re worried that insurance companies will be unhappy with them and never send them business or give them DRP contracts in the future.
These situations result in no one making any money: not the DRP shops and not the non-DRP shops. Even when the insurance companies tried owning their own body shops they found that they could not make a profit at the prices that they forced the body shops to charge.
The industry is in fear of the insurance companies, but in truth the power rests with the non-DRP body shop owners who are not bound to any agreements with insurance companies. It is these medium and small body shops with no DRP agreements that can change the industry for everyone.
GIVE ME LIBERTY OR GIVE ME DEATH!
Over 200 years ago, a third of our nation said that they were tired of taxation without representation, and they went to war against the strongest nation in the world, England.
They risked their lives and their property for what they believed. To fight the strongest power in the auto industry you do not have to risk your lives and you will not even be risking your fortune. It only requires that you stand up and say, “Enough is enough!” If what I say excites you, please read on. I have a plan.
If not, stop reading; put this article down. Tomorrow when you go to work pull out your most recent profit and loss statement, and read it very closely. Calculate what will happen to your profits when your costs, including rent, go up another 10% in the next year or two. Make an estimate as to how rapidly the insurance companies are going to respond to your request that they let you raise your rates. Then go home and tell your wife and kids that they all better get jobs to support dear old dad.
“I AM MAD AS HELL, AND I AM NOT GOING TO TAKE IT ANYMORE!”
Any plan has to workable. If you expect everyone in the industry to work together in trust against the common enemy, you’re dreaming; it will not work. There will always be a Benedict Arnold who will be willing to steal the business away from his “friends” while they are working to raise the industry rates. This plan does not rely on trust, but it does take cooperation.
THE AUTO BODY SHOP BATTLE PLAN
The big body shop owners are the leaders of the auto body associations, and the industry as a whole. They are the generals in this war. They can participate in some of the encounters but must depend on the independents for the direct attacks. The big boys must organize and instruct the troops.
This war can be started anywhere. The attacks can be done in one region at a time, but preferably will be done in multiple regions at the same time. Here is the plan:
- All the local body shop owners are invited to an association meeting or a meeting at one of the bigger auto body shops. All attendees are asked to participate and to encourage others to do the same.
- Everyone raises his or her posted rate by 20%. We do not want everyone to raise the rates to the same price: this is collusion and price fixing. Each shop can pick their price, but it just doesn’t make sense to charge less than $50.00 per hour.
- The posted rate is only charged for non-DRP work, which helps the little shops a lot, as well as the big boys. It doesn’t change any prices for clients under DRP contracts but it sure makes a difference on any other work that comes in the door.
- When the insurance companies do their survey of posted rates in your area, they will find them above the $50.00 per hour benchmark.
- When a non-DRP shop has a client with insurance, the insurance company must pay the posted rate. The adjusters can kick and scream, but legally they must pay the average posted rate for that area. That is why it is critical to get every body shop, large and small, to change his or her posted rates.
- The little body shops can continue to charge below the posted rate, but they must at least raise the posted rates. This is the only action required of every body shop: changing the posted rates. No other agreements are required.
- Over a period of time, everyone will start demanding the posted rates from the insurance companies. This will happen while the DRP contracts are still sitting at lower rates. After that, many shops will drop their DRP contracts so as to be able to collect the posted rate. The remaining shops still under contracts will start complaining to the insurance companies about their low rates and threaten to quit.
- At some point the insurance companies will raise the DRP rate, and everyone will be better off.
- The following year, the association members can discuss the need to raise the posted rate again. Of course, each person must individually decide how much he or she wants to raise the posted rates. Collusion is a crime.
I have laid out the whole plan for you, and it will work. The insurance companies will bring in the Hessians troops*, under some other name, as they did in the Revolutionary War, but if we remember the battle cry we will win: “I am mad as hell, and I am not going to take it anymore!”
“During the American Revolutionary War, Landgrave Frederick II of Hesse-Kassel (a small independent country in northern Hesse) and other German princes hired out some of their regular army units to Great Britain for use to fight against the rebels in the American revolution. About 30,000 of these men served in North America. They were called Hessians, because the largest group (12,992 of the total 30,067 men) came from Hesse-Kassel…
Units were sent by Count William of Hesse-Hanau; Duke Charles I of Brunswick-Wolfenbüttel; Prince Frederick of Waldeck; MargraveKarl Alexander of Ansbach-Bayreuth; and Prince Frederick Augustus of Anhalt-Zerbst.”
Image: Surrender of Lord Cornwallis