A Critical Crossroads: Second Labor Rate Special Committee Hearing Draws National Attention
by Chasidy Rae Sisk
On March 22, nearly 40 repair professionals signed up to provide testimony at the Labor Rate Special Commission hearing, created to review issues related to auto body rates.
“The collision repair industry in Massachusetts continues to suffer from failure to thrive in comparison to repairers across the nation, and we are at a critical crossroad of being able to survive,” Molly Brodeur (Al Brodeur’s Auto Body; Marlborough) warned during the first hearing of the Labor Rate Special Commission (LRSC) back in January.
(Read the recap at bit.ly/Fail2Thrive.)
Established pursuant to Chapter 24, Section 130 of the Acts of 2021, the LRSC was created to review issues related to auto body rates and the auto body industry in an effort to determine whether legislative action is needed to protect consumers and ensure an adequate reimbursement rate to the claimant in an environment where those rates have remained nearly stagnant for the past 30 years.
When the LRSC held its second meeting on March 22 – less than two months later! – nearly 40 individuals signed up to give testimony, including Donald Dowling (Marblehead Collision; Marblehead) who shared a dismal update.
“The last time I spoke in front of this panel, I owned Marblehead Collision and Swampscott Collision, but today, I come to you as the owner only of Marblehead Collision. Although we had plenty of work, I had to sell my Swampscott location because staffing issues in this industry continue to affect us all. I’m losing techs and office staff…not to other body shops, but to other fields that can afford to pay more.
“At the last hearing, I said legislation for this crisis is clearly needed and that I know my shops cannot last in this environment. Well, I was right. One of my shops could not last. Hopefully, something is done soon so I can stay in business and provide for the remaining families I employ,” Dowling continued, pleading, “We can’t wait anymore. Please help us!”
In recent months, similar appeals have been heard from Massachusetts body shops as they fight for fair and equitable consumer reimbursement rates, and several national industry leaders answered the call, appearing on the Zoom hearing to provide testimony. Since each person’s testimony was limited to three minutes, several repairers signed up to cede their time to Aaron Schulenburg, executive director of the Society of Collision Repair Specialists (SCRS), Sam Valenzuela of National AutoBody Research (NABR) and AASP/NJ President Jerry McNee.
“Nationally, Massachusetts is recognized for the very low rate, and while collision repairers across the country face challenges with appropriate reimbursement rates, it’s not as much as those in your state,” Schulenburg emphasized, offering a “national perspective on just how damaging it can be to small businesses to uphold a structure that’s effectively kept some of the country’s lowest collision repair rates stagnant for decades, a system that has really failed to allow small businesses to distinctly differentiate themselves and prices based on their different capabilities, sizes, investments and specialized skill sets.”
Noting that no business in America, including the insurance industry, has been immune to rising costs, Schulenburg recounted a February earnings call where Allstate CEO Tom Wilson shared how their company has successfully made the case for rate increases by describing it as “less a political issue than it is a reality issue of looking at the numbers and what is the justifiable and supportable rate increase.”
“It’s simple: Costs rise, so they adjust rates. And it’s not hard to look at the numbers in the collision repair space and justify the need for rate increases,” Schulenburg insisted. “Virtually every cost went up this past year, and the only place that shops can account for those rising costs is through their Labor Rate. Rates must evolve for our industry and our businesses to remain sustainable.”
Valenzuela began by explaining how NABR collects data from shops around the country before diving into repair records collected from body shops in the Commonwealth.
“Our data shows that the open free marketplace in Massachusetts actually accepts and pays higher rates than the rates insurers use to settle claims with their customers for that customer’s loss to their vehicle. When we examine the open marketplace, we look at Labor Rates that customers will pay because that’s the best indicator of what the free market accepts. We typically see a range of prices for everything other than commodities like a barrel of oil – and collision repairs aren’t a commodity; it’s actually skilled labor.”
Of the 3,600 records NABR has acquired from Massachusetts shops, approximately 2,400 were covered through insurance claims, while vehicle owners paid the full cost of the repair without insurer assistance on the remaining 1,200 repairs. The most common rate paid among the insurance claims was $40 an hour, and 94 percent of the time those rates were $42 or lower.
“For customer-paid repairs, we found $50 an hour was the most common rate paid – that’s $10 an hour, or 25 percent, higher than what insurers are commonly paying,” Valenzuela noted, reiterating that there’s a range of rates paid. “Of those 1,200 repairs, customers paid $50 or more 87 percent of the time, with customers paying as high as $95 an hour for common vehicles or as high as $125 for a luxury or specialty vehicle. From our perspective, this clearly shows that the free market in Massachusetts absolutely would accept these higher rates that are necessary for shops to have a sustainably profitable business.”
Noting that Massachusetts is “typically tied into California when things happen, whether it be emissions or pollution,” Representative Steve Howitt (R-Bristol) asked about Labor Rates in California. In Southern California, paid rates run slightly higher than the national average, but in Northern California, “rates are much higher,” Valenzuela said. “We commonly see rates in the triple digits, so depending on which part of the state you’re in, we see double or triple the common rate in Massachusetts.”
McNee forcefully objected to the “rates being forced upon or dictated to repair shops from insurance companies that report profits in the billions! People have mentioned billing the consumer co-pays, but car insurance isn’t an HMO. I don’t believe anybody’s policy states ‘we’re going to under-indemnify the claim and force the consumer to pick up the tab.’”
“It surprises me that the Labor Rate for body shops is so far out of whack,” admitted Representative Jim Hawkins (D-Attleboro), sponsor of House Bill 1111, an act to establish a minimum reimbursement for insurance claims. He went on to detail the significantly higher rates he’s paid for servicing his truck ($125), his camper ($175) and his snowblower ($110). “[Collision repair] is a much more technical business; they’re dealing with hazardous waste, increasingly expensive cars, electric vehicles, advancing technology, different specialty alloys, ADAS… Paying body shops just $40 an hour makes no sense to me.
“At the same time, another legislative initiative focuses on promoting the trades for young people,” Hawkins added. “But taking shops’ significant overhead costs into consideration, the current consumer reimbursement rate leaves barely enough money to pay minimum wage to their workers who are performing very difficult, technical work – and that just doesn’t make for a good trade; it’s not a good career opportunity.”
Shop owners and collision instructors agreed with Hawkins’s assessment that the suppressed Labor Rate in Massachusetts serves as a deterrent to students interested in the trade.
“Students are naturally drawn to this industry,” confirmed collision instructor Gabe Coutinho (Upper Cape Tech; Bourne). “They’re fascinated by cars, but ‘cool’ only gets you so far. These young people are focused on money, and if the money is not there, they can apply their skill set elsewhere. Why would anyone choose a career where their specific skills are not compensated equally to many other dynamic industries with similar skills? If this continues, there won’t be any future technicians.”
“In the last 10 years, I’ve seen the enrollment in the schools’ auto body departments drop to the point that some schools are threatening to close that shop down if the numbers don’t change,” reported Jim Marshall (Marshall’s Auto Body Experts; Billerica), who sits on the advisory board for Shawsheen Valley Technical High School in Billerica. “Classes have shrunk from a dozen to only two or three students. Although young, talented kids today have great computer skills, we can’t entice them into this field where they could be very helpful and do a great job – largely due to how the consumers are being compensated for their vehicles.”
“I looked into going to school to become an auto body technician, but who in their right mind is going to accrue $20,000 of debt to be paid $20 an hour with no hope in sight of an increase?” asked Sarah Mazzaferro, an appraiser at Custom Auto Body (East Longmeadow), acknowledging, “I work a second job because the business owner cannot afford to pay me what I’m worth, but I believe in this business so much. That’s how these rates affect us. How is a business supposed to continue to provide jobs and economic growth within a community when they are essentially having to fight tooth and nail for any dollar they earn from the insurance companies?”
As Attorney Michael Powers expressed concern about whether a Labor Rate increase would result in subsequent wage increases to technicians, AASP/MA Executive Director Lucky Papageorg took exception to the suggestion:
“Mr. Powers and the other insurance industry representatives continue to bring up this issue, but they’re obviously not hearing the underlying message that many body shop representatives have already testified to…If an increase comes to the collision repair shop, there’s no way it won’t be passed on to the technicians because those technicians are our lifeblood. This isn’t about lining the pockets of the shop owner; it’s about being able to pay for the training, equipment and – most importantly – being able to pay those technicians based on their knowledge and expertise. It’s insulting that this keeps coming up.”
Ipswich-based economist Frederic B. Jennings Jr., Ph.D. (EconoLogistics) also provided testimony, reminding the commission that “It’s important to understand that the Labor Rate needs to cover all shop expenses and costs, not just their labor costs.
“There’s been a lot of mystification expressed about these low Labor Rates, and the economics behind this story serves as an important illustration of the economic problem of monopsony power abuse, [which is where] a buyer puts a price squeeze on the suppliers to that buyers by reducing prices paid to the suppliers. It masquerades as efficiency, but this is not a story about efficiency; it’s a story about harm to suppliers and consumers.”
As the LRSC’s second hearing drew to a close, Representative James Murphy (D-Weymouth) suggested that scheduling a tour of a local collision school would be beneficial to the commission as it begins compiling its findings for the report due on July 1, 2022. Kenneth Stukonis, collision instructor at Assabet Valley High School (Marlborough) and the appointed vo-tech school representative for the LRSC, offered to host the proposed tour.
The LRSC is still accepting written testimony from those who were unable to attend the hearings, and AASP/MA urges Massachusetts body shops to share their concerns by emailing firstname.lastname@example.org. Repairers can also get involved by contacting local legislators to explain how important this issue is to your business and express support for House Bill 1111, an act to establish a minimum reimbursement for insurance claims which, if passed, will guarantee consumers won’t be limited to the amount an insurer is willing to pay for their vehicle’s repair.
A recording of the entire second LRSC hearing is available at bit.ly/LRSC0322.
Want more? Check out the May 2022 issue of New England Automotive Report!