If you're like most shops around the country these days, cash paying customers are growing by leaps and bounds. At a recent industry event one paint, body and equipment distributor told me one of his customers is getting 40 percent of his revenue from cash pay. Another shop owner ranks cash pay as his second-highest profit area, behind his State Farm DRP arrangement. Certainly your shop is seeing similar numbers, if not better.
The reason cash pay is growing seems fairly straightforward. According to the Insurance Information Institute, the cost of auto insurance rose from $683 in 1999 to an estimated $867 in 2006. In order for consumers to keep escalating premiums low they have agreed to pay higher deductibles. They've gambled on the fact that they wouldn't get into an accident — and of course, they've lost. The cost of getting minor damage repaired is less than or slightly more than the deductible, so most consumers would rather pay cash than submit a claim.
This wave of cash infiltrating the marketplace makes me wonder if shops are reaching a defining moment — when they can tell insurers, "Thanks, but no thanks" to the DRP deals that have eaten up office time and profits. Rather than having an office worker focused on maintaining two, three, six direct repair programs, perhaps it's time to pay that person to be just as astute in marketing your business.
At the end of the day I'm doubting this cash-pay trend will go away anytime soon. There's no motivation for insurers to lower premiums. They're getting off scot-free without having to pay for minor repairs, and they are pocketing the monthly premium payments from consumers. So why would insurers do anything different? The only way this trend turns is if legislators and consumer advocates push for major insurance industry reform, and we know how slow that process can be.
So if you haven't looked at your cash-pay business yet, start. Analyze these jobs and figure out how you can build this business. Most importantly, look at it from an operations standpoint and a strategic standpoint. Are you able to make more money on these jobs, given that you don't have insurers pressuring you on time and materials? Are consumers opting for premium products with premium prices or are they wanting lower-priced options to keep their costs down? What types of repairs generate the most cash-pay business? What materials will increase as a result of this growth? Are these consumers willing to be sold on other services, or do they just want the vehicle fixed on a budget? Are your techs able to make more money on these jobs?
The answers you find for these and other questions will impact your strategy going forward. For instance, where you regularly buy parts for cash-pay jobs may differ from DRP work. If you know you are doing more cash-pay, that may help you in your negotiations with your distributor partners. If techs are able to get a better wage on cash pay, don't you think that would be an attractive recruiting tool worth mentioning? Also, why did the consumer choose your shop for this work? Was it the result of some marketing effort or word-of-mouth? This will impact how you reach out to more cash-pay customers in the future.
Without question, analyzing this trend from all angles will improve your profitability. And who knows, it may give you the freedom to walk away from bad DRP deals that might be holding you back.
