Getting payback for investments through repair rate

March 24, 2015
We can develop a new fair and reasonable way to overcome new technology and training costs, and a new structural aluminum rate may be one answer.

No matter how uncomfortable the topic, it is time to talk about shops getting a return on their investment in new technology equipment and education. For those of us who desire to keep up with new repair methodologies, we are investing a great deal. Of course, at the current forefront of public discussion is aluminum repair. Ford publically announced at the Collision Industry Conference in July 2014 that shops should plan on spending roughly $50,000 to equip themselves for repairing the new F-150. I know from personal experience it can be more.

Becoming certified for other manufacturers, especially with aluminum construction, can be significantly higher. Most manufacturers have their own requirements for equipment. Often it is brand specific and may not be acceptable to other manufacturers with similar requirements. In other words, your new welder or rivet tool may not be in compliance for another OE certification. Many charge a great deal for training and often expensive travel is involved. Some manufacturers charge registration fees to be certified that can be $5,000 or $10,000 or more per year. Some manufacturers require structural measuring/repair benches that can be $60,000 to $100,000 or more, depending upon brand and accessories. If you opt for an automated measuring system, you may spend another $20,000 or $30,000, or more. It’s very conceivable to spend upwards of $500,000 to equip your shop and train your staff to be certified to repair some of the new high-end vehicles.

Collision repair is no different than any other business in that the financial performance is a mathematical equation. To be successful at the end of a time period, the income must exceed the costs. Typical profit margins are more modest than they used to be. Over the years, rate increases have not kept up with cost increases and many of us have gone to great efforts to seek new efficiencies to reduce cost. At the same time, those of us who participate in DRP programs are doing much more of the administrative claim handling work for insurers with no additional fee, which increases our staffing costs. And of course there are lots of other areas where we are investing more, such as diagnostic equipment and lots of new automated systems to obtain and manage data.

All of these are areas where we as business operators always have to find ways to make the mathematical equation work. My point here is not to whine about our costs and profitability challenges. My point is that the new aluminum structural repairs are very expensive and as an industry, we must figure out a way for repairers to receive adequate compensation. The increased costs of repairing structural aluminum are not ones that can be absorbed in a modest body labor rate increase. There has to be a payback for the investment.

We had a similar situation some years ago when GM transitioned from primarily full-frame vehicles to unibody vehicles. There was a lot of anxiety expressed in the trade publications and in industry meetings. Some shops avoided it and some embraced it. (Some of those shops who avoided it are no longer with us, and today we have fewer shops.) As an industry, we figured it out and adjusted. About that time, I-CAR was created to help with educating us on new repair methodologies. New, and often expensive, equipment was developed. New companies appeared and many styles of drive-on racks and benches and measuring systems were created. To offset costs, it became the norm that shops charged a higher rate for structural repair. Information providers accommodated the new category in their systems. Insurers adjusted their estimating practices to accommodate it.

Similarly it is time to make adjustments again. Is a new structural aluminum rate the answer? Perhaps. Maybe there are other options. It is certainly the time to start the discussion and to start taking action. I believe, as we did in the past, we can develop a new fair and reasonable way to overcome these new costs as we keep our repair methodology current with new technologies.

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