The great divide

Insurers and DRPs have taken advantage of a situation we created by not operating as true business professionals.

Back in middle school geography class, we learned that when a single land became divided and communication between the groups of people living on each piece was cut off, the culture and language of the two groups would drift apart. Eventually, there would be two unique cultures, each with its own language.

You can attach that same middle school geography concept to the collision repair industry.

When the era of the new unibody arrived in North America in the early 1980s, an immediate divide grew between two groups of shops. The first continued to repair using outdated techniques clearly not intended for the new generation of vehicles. This group damaged the integrity of the vehicle and compromised its durability, function and safety. The second group learned the proper techniques, purchased the necessary equipment and grew their businesses.

Another divide followed when paint systems changed from single stage to basecoat/clearcoat systems. New divides continue to crop up as shops face a host of new technologies and materials that they must invest time, money, training and new equipment to repair properly.

As the industry becomes more divided, all shops suffer. Today, whether your shop uses an oak tree for a pulling post or you invest chunks of money to become certified through Audi, Jaguar, Mercedes or BMW, we're all in a sense in the same bucket since consumers see all shops as the same. Customers and their vehicles should be protected from such "deceptions."

The gap between shops is not just technical. There also is a widening divide between repairers who truly know how to run a business and those who don't. Many repairers, if not the vast majority, fail to recognize that just being a craftsman, or the best technician owning a collision repair business, won't ensure their shop's survival. Too many view their shops as places that just fix cars instead of seeing them as professional businesses driven by a variety of factors.

Take this simple test to determine if you are actually running a business or just fixing cars:

Do you review your financial statements (profit, loss and balance sheet) each month by no later than the 10th of the following month?
Do you establish targets for sales, CSI, cost reduction, profit levels and then monitor them each month?
Do you share your vision of your business future with the rest of the employees, and hold yourself accountable for leading your company toward that vision?

If you answered "No" to each question, you're not running a business. I'm willing to bet that more than 95 percent of all repair businesses that do less than $1 million in total sales and probably at least 75 percent of those that do less than $2 million annually fall into this category.

I can remember a method many business owners used to test their business's financial strength. It was called the "left and right pocket system." Cash in the right pocket was for bills and expenses, while cash in the left pocket was the profitability gauge. If all the bills were paid from the right pocket, and there was some cash left over, it was transferred into the left pocket. If the left pocket contained a wad of cash at the end of the week, that meant times were good and the business was doing fine.

The hard fact is many collision business owners simply do not review their financials. If they did review them, most owners wouldn't understand what they were looking at. Other owners don't review them for months, which means necessary changes aren't implemented soon enough, and problems linger far longer than they should. Simply put, many shop owners run their businesses without taking key steps, such as reviewing the cost of doing business, setting profit targets and setting long-range strategies with business metrics in mind.

The divisions between shops are wider than they've ever been, and they're growing wider every day. These divisions have produced many of the most serious issues plaguing shops, such as labor rate suppression.

Insurers and DRPs have taken advantage of a situation we created by not operating as true business professionals. Many shops enter into a DRP agreement without determining if the rates and charges being agreed upon are financially justified. They enter because someone else has committed to them, not because it was a sound business decision based on a clear understanding of their businesses. This approach is tantamount to bringing a knife to a gunfight and has caused the entire industry to suffer while allowing the insurance industry to prosper.

In less than a month, NACE will be held Nov. 6-8 at the Mandalay Bay Convention Center in Las Vegas. There will be a gathering of those who attend regularly to gain knowledge, see new equipment and products, and network with others who have a clear vision for their business. At the same time, most of the industry will not attend and continue to conduct business as usual, and never acknowledge this divide as it gets greater and greater.

I hope to see many of you representing your businesses at NACE. Your industry needs you. Of course, the decision is yours. Just remember that your decision may determine whether the rest of us survive.

Please send comments, questions and potential discussion topics you would like to see addressed in future columns to [email protected] .