The Hidden Challenges of Collision Repair
It’s not a secret that the auto collision industry continues to battle hard with labor shortages and supply chain issues. But if both problems were solved tomorrow, what would store owners do when it came to overcoming their next set of hurdles to run a smooth and profitable business?
It’s a question that has a variety of answers, but if you pull the curtain a bit further, it becomes clear that there are a handful that continue (or will be) thorns alongside the Operators. Whether it’s growing concerns about getting fair labor rates from insurance companies, keeping up with rapidly changing automotive technology or, more recently, the increase business cost fast, there are many topics to keep an auto body repair owner up at night.
The battle over labor rates
According to the 2022 FenderBender Industry Survey, one of the biggest headaches for shop owners is the ongoing struggle with insurance companies to underpay shops for their work during a repair process.
The issue has not gone unnoticed by lawmakers, particularly in Massachusetts, where the state legislature is currently holding hearings to determine whether dealerships and body shops are being fairly reimbursed by insurers.
According to various news reports, the Alliance of Automotive Service Providers of Massachusetts has offered a recommendation that would involve a tiered approach to raising rates. He suggested a $33 increase for the minimum reimbursement rate and annual adjustments based on the consumer price index.
News outlets like WWLP in Springfield, Massachusetts, reported on a rally of collision repairers to draw attention to insurers’ reimbursement rates. A Springfield store owner said 30 of his employees traveled to Boston for the protest, according to the news station.
Legislation proposed by the Massachusetts Automobile Dealers Association would seek to authorize the state’s Division of Insurance to set the minimum for industry labor rates, which have not increased in 14 years .
Several other states, including California, Florida and Michigan, are considering legislation that would regulate reimbursement rates.
Stan Medina, owner of Certified Collision Works in Corpus Christi, Texas, says he’s glad to see collision repair operators speaking more clearly about industry issues.
“It’s a very interesting time in the collision industry,” he says. “I think we’ve built some momentum over the last two years, and we’re almost at that point of no return.”
He’s had tough conversations with adjusters who say they don’t pay for certain repair processes. One strategy Medina has adopted is to do a lot of homework before dealing with insurers. Explain why your labor rates are where they are and provide evidence.
“Be consistent with them,” Medina says. “We have documentation that we use that says based on the economy and increases in price and materials, it’s due to an increase in labor. And we share that with them.
When more repairers in a market demand better rates, insurers will take notice, he adds.
Keeping pace with advanced technology
With ever-changing vehicle technology from OEMs at breakneck speed, many shop owners are caught in the middle, having to make the difficult decision to invest a large chunk of their money in diagnostic and other diagnostic equipment. high tech so they can properly maintain a car when it comes to their fate.
Tim Wall, owner of TNT Body Shop in Virginia, says that while he realizes the need to invest in new tools to service vehicles, especially those equipped with ADAS, the price tag attached to this decision has forced him to deepen his research on emerging technologies. trends and whether any investment he makes will increase his store’s bottom line to the point that it is worth the price.
“My workshop is located in a rural area, so although I know that ADAS, for example, is becoming more common in cars, is it worth the massive investment I will have to make in order for my workshop to be able to maintain these specific vehicles? he asks.
At the moment, Wall says he plans to invest more than $100,000 in new diagnostic and calibration equipment, but even that doesn’t guarantee his store will reap the benefits in terms of increased revenue.
“You have to make the distinction between deciding exactly which vehicles your shop can afford to service and which ones aren’t,” he notes. “I have a son who is ready to take over the business, and I don’t want to burden him with crippling debt because of the bad decisions I’m making now.”
Wall acknowledges that investing in new technology will have positive benefits for the store, but adds that there is no clear formula that all store owners can follow.
“If your store is located in a large metropolitan area, you may have no choice but to invest in ADAS equipment,” he says. “At the same time, though, you really need to know your customer base, your market, and whether you want to offer a service that some of your competitors can’t or won’t. Yet ultimately there are no guarantees, and manufacturers offer little advice, so to a large extent you’re on an island when making these decisions.
The crippling effect of inflation
The rapid rise in inflation in the United States has had a crippling effect on just about everyone. As consumers grapple with gas prices hitting and surpassing the $4 a gallon mark and rising costs for hardware items at their favorite restaurants, businesses are just as hard hit by rising business cost.
According to statistics released by the US Department of Labor in April, the consumer price index jumped 8.5% a year, the fastest pace since December 1981. This jump contributed to the decision of the Reserve federal government to raise interest rates in early May. Inflation has now hit new 40-year highs for five consecutive months.
Prices rose 1.2% from February levels, the biggest monthly increase since September 2005.
Collision store owners are also feeling the slump, as the cost of store supplies and other essentials has in many cases forced them to pass on these increases to their customers.
“I’ve seen increases across the board when it comes to purchasing supplies for my shop,” says Mike Mashburn, owner of Mashburn’s Collision Center in Tennessee.
You’d be hard-pressed to find a carrier that doesn’t care about rising costs.
“The sad thing is that inflation always falls on the smallest,” Medina says.
He says he tries to do as much as he can within the walls of his store. He talks to his financial education staff and has brought in experts for a luncheon to review personal finances. This action does not make the cost of goods cheaper, but it does show staff members that Medina cares about how they use their pay.
What are the biggest challenges for store operators?
According to the FenderBender Industry Survey 2022, while the shortage of qualified technicians and the influence of insurers on repair processes still weigh heavily on the minds of shop owners, the subject of low labor rates increased significantly compared to 2021. And unsurprisingly, with inflation on the rise, owners also noted that the rising cost of doing business was a growing concern for them this year.
What is the biggest challenge facing body shop operators today?
Shortage of qualified technicians: 35%
Low labor rates: 22%
Insurer influence on the repair process: 15%
Increased cost of doing business: 12%
Advances in vehicle design: 3%
Technology and tool needs: 3%
Inconsistent repair standards:
Choice of parts (OEM versus aftermarket):
Other: 8% (most common answer: all of the above!)