I am always amazed with the lack of support many members of our industry have for their associations and organizations that work to support, protect and represent them. These organizations on national, state and local levels are the "front line" for the industry. They also are often just the "messenger" that everyone wants to shoot, but not the cause of the message no one wants to hear. That claim to fame goes to the actions (or lack of action) by the majority of our industry over the last 50 years. These actions include all the business decisions, compromises and bad choices we have made over the years focusing only on our own businesses and not on what is happening around us.
Another great phrase I like is, "Be careful what you wish for ... you just might get it!" In the early '90s that phrase was being used by many when referring to the introduction of direct repair programs (DRPs). The short-sighted thought was it would allow "us" to do what we do best ... just fix the car. Little long-term thought was given to the "downsides." These have included the increase in administrative costs, the "rules," the audits and finally the controls.
Look at us now. The top issue that surfaces in just about every industry meeting revolves around how the insurance industry has entered directly into our business. How did this happen? Who let it happen? The answer is pretty blunt ... WE DID. Now we have a major overcapacity in our industry in most metro markets, and we are subject to the laws of economics. Could this have been avoided? Could we have been wiser and learned from others? Several other nations have gone through similar transitions. There are other countries where their daily operations would be our worst nightmare. Could their nightmares be our future?
I have had an opportunity to visit a few countries outside North America to observe, work in and gain firsthand knowledge about what others face every day. My first visit outside North America was in 1994. I visited South Korea to find an industry that was very active and fairly technologically advanced in many ways. They utilized dedicated bench systems, GMAW welding and paint mixing systems. They had very cool stud welding dent pullers (that later entered our market), prep stations and downdraft booths. Even though there were unique processes compared to the U.S., the South Koreans produced a good product.
In May I went back to South Korea and was surprised to find an industry that has gone backwards over the last 13 years. In fact the concept of an independent collision repair facility as we know it is almost extinct. So what happened?
To begin, in South Korea, the estimating system data was developed by the insurance industry. It is the only system that can be used, there are no other options available and there is no independence to the data, and not subject to third-party validation. As an example, comparing the labor times for a Hyundai quarter panel in their system to the same vehicle in our estimating systems found 5.0 labor units in theirs to 14.0 labor units in ours. What would this do to your business future?
There are also no aftermarket sheet metal parts in South Korea; everything is ordered from a distributor of OEM parts. The shop orders the parts in much the same way we do — by telephone and fax — handles the receiving, and all the issues that occur such as wrong parts, damaged parts and delayed parts. There, however, is one very important difference — the payment is made directly to parts distributors by the insurance companies. There are no profits or administrative fees for the shops. Can you envision what parts procurement can really become in the United States?
Then there is the labor rate paid based on the above mentioned labor times. The labor rates vary based on what one of the 12 insurers decides to pay. It translates to approximately $20 to $30 (U.S.) per hour. The salary with benefits required to keep a good technician in Seoul is $3,000 to $3,600 (U.S.) per month, and good technicians are as scarce as they are here.
It doesn't even take a "smart" person to do the math for this equation. Even if you could get 100 percent time utilization in a 45-hour workweek (or overtime applies), you are barely breaking even for the labor sales to your direct costs.
Does any of this sound familiar? Do you believe that when a "new program" is rolled out here, it was invented here and now? Did you know the Progressive concierge program was a direct result of a visit by Progressive executives to insurer AAMI in Australia in the early '90s?
We have a lot of very "smart" people in our industry, but do we have "wise" ones? Does history have to continually repeat itself while those involved believe this has only occurred to them? Worse yet, if they actually see it occurring somewhere else they believe it won't ever happen here. This type of thought process is like burying your head in the sand and thinking it will just go away. It certainly has been a large factor in where we are today and, perhaps, what our future holds.
In the last Collision Industry Conference (CIC) meeting in Atlanta, there was some talk about dropping line item negotiating and just going with a bottom-line agreement. Before doing this, perhaps it makes sense to look at several other countries that have done this, such as Malaysia and in South America. What you envision will take place may be very different than what will evolve.
Paying attention to history abroad may help us become wiser and not just smarter.
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