When Things Make No Sense

Jan. 1, 2020
This in itself is a blatant example of cost shifting and is providing false pricing on our final bills, which may be considered fraudulent practices. I have discussed this with many local adjusters and apprasiers and it simply does not seem to regist

There are situations and rules in life that make no sense. Sometimes they are changeable and other times they appear not to be changeable. Notice I didn't say are not changeable, but appear to be so. Some 30 years ago it appeared Germany would always remain divided, and our ultimate enemy was Russia and communism. That has certainly changed, has it not? I don't believe what is today will always be, and what is not will never be obtainable. History has over and over again proved otherwise.

In our industry there are many "things" that make no sense, but I hope with awareness and education, and forums such as the Collision Industry Conference (CIC), these things may change too. A few quickly come to mind. "Why are calculated paint and materials rates different across the country?" The price list is the same for everyone before the volume discounts negotiated with the supplier are taken. There are not major differences in market share within an area that one paint provider's prices are lower than their competitors, hence the whole area is lower. How can there be areas within the United States where the calculated rate used is only $13 per paint hour, and in other areas it is over $30 per hour? And by the way, what basis is there for paint "thresholds" (caps) anyway?

The answer to these above questions is simple. We as repairers have allowed it to happen. We have often established pricing without any knowledge or basis of our margins or costs over the years. Our pricing is said to be market-based without third-party verification to validate the market conditions, and not justifiable by analysis of costs, our profit needs and future business considerations. Often we live only for today and do not realize the future (and its costs) are changing while we are not looking.

Another area that simply does not make sense to any stakeholder in the customer-insurer-repairer triangle is recycled parts. I am not talking about using them when appropriate, but how the "rules" of the process really need an overhaul.

For a number of years, recyclers have invested in promoting their industry to all of us. They have invested in online ordering that has replaced the "squawk box networks." They have become dismantlers and recyclers rather than "used or junk part" distributors. They also have grading systems and locating software to source parts by unique bid numbers. But even though technology is advanced to accommodate it, and we have used it for decades, why isn't every part cataloged with digital images of a cleaned surface and in good light? Why do we have to wait to see an unusable or damaged part upon delivery? Why aren't paint thicknesses and prior repairs checked before delivery? How can a damaged OEM part, replaced by the provider with a non-certified aftermarket part, be allowed? For what reason are we as repairers required to negotiate any damage that needs to be repaired with the supplier and not be an additional operation just to use the part?

The current "rule" is that when a price is provided it indicates that there is no damage to repair. So if there is damage or wear and tear that requires labor to be performed, why do we keep the price of the part the same, and add markup to the part from the original cost price, not the "real price," and then simply add a labor line to repair the part?

This in itself is a blatant example of cost shifting and is providing false pricing on our final bills, which may be considered fraudulent practices. I have discussed this with many local adjusters and appraisers and it simply does not seem to register. However, if this one simple "rule" that makes no sense is changed, it will benefit repairers and insurers in many states.

The repairer benefits if the pricing is adjusted to reflect the true cost-plus markup because it allows for proper assigning of repair tasks and allocation of labor. Plus, then they are able to pay employees properly to fix the damages. If you use a management system, you certainly understand this dilemma.

Your final bill in any case with this issue, left uncorrected, will reflect a higher cost of labor for the repairs to the recycled part without a sale, and an inflated parts profit that is not correct. Yes, we have uploaded the final bill in the estimating system to the insurer, and made the changes in our management system before accounting for years, but why do we need to do this? It simply increases our operating costs, and is not a correct reflection of what was done on this specific vehicle.

Now to the insurer's benefit. In many states there is no sales tax for labor. When the part price is artificially left higher than it should be, sales tax liability increases inappropriately. How much difference can this make? If a part that costs $300 is marked up 33 percent to provide a 25 percent gross margin to the shop, it is listed on the estimate at $399. Using 6 percent as an average sales tax calculation, it would reflect $23.94 of sales tax on this item. When damage was identified on the received part, that reduces the cost by just $80. The corrected part price on the estimate with the same example markup would then be $292.60 and using the same sales tax calculation as before of $17.56. This would save $6.38 on this simple example of sales tax liability. This amounts to millions of dollars each year.

To see a complete analysis you can download it by registering as a guest or subscriber on www.TheBOSs-Online.com and searching documents with the keywords "LKQ Analysis."

If there are other "things" that do not make sense to you, please e-mail me at [email protected] and in a future column we may address your concerns.

Please send your comments, questions and potential discussion topics you would like to see addressed in future columns to [email protected]. For additional information you can also visit www.aeii.net.

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