by Jerry McNee, AASP/NJ President
We cannot afford to work for free, and our staff certainly doesn’t work for free! Yet, insurers seem to expect us to do exactly that.
All of us know a shop owner who gave up. They got sick of fighting, tired of the struggle between the investment in tools and equipment and the inability to find or pay their employees. We cannot afford to work for free, and our staff certainly doesn’t work for free!
Yet, insurers seem to expect us to do exactly that. They use this absurd notion of “prevailing rate” to argue that’s all our market warrants. And everyone just accepts it.
Let’s look at a scenario: If a shop is 150 percent efficient, that means it takes 10 hours to do a job that pays for 15 hours. Assuming the true labor cost for the technician (including benefits) is on the low side at $50/hour, what does the shop make?
Based on a so-called “prevailing rate” of $50, the shop collected $750 but paid $500 to their tech. That business owner now has $250 left over to pay office staff, rent, taxes and utilities…and they’re going to need to use that same $250 to invest in training, tools and equipment upgrades. That’s $25 per hour – as long as there are no issues, delays or redos – if there’s anything left over at all. Profits are practically non-existent; many shops’ profit percentages are in the single digits!
Typically, shop owners make up for this deficit by grasping at whatever work they can find and trying to turn those cars over as quickly as possible. They’re too busy to really invest in their business.
COVID provided a slowdown that allowed many of us to get a better handle on our business and to use the time to reinvest in our employees through training. Those shops focused on learning new processes, breaking it down and learning it again so that they have a better understanding of the backend of the business, including what it costs to run the shop and how much to charge to collect a reasonable profit.
But each time a shop establishes its labor rate based on actual data, like the cost of doing business, insurers accuse them of “unnecessary” and “exorbitant” prices! Who makes that determination? Because it’s not our prices that are exorbitant; it’s the costs! Everything is inflated; just look at the cost of filling your gas tank. And my cost of doing business is different from anyone else’s.
A lot of guys and gals are tired of fighting. We’re so prone to giving everything away for free that it’s essentially become the norm in our industry, and it just doesn’t seem like it’s worth the effort to have these conversations with appraisers over and over again. But unless you’re paying your bills and your employees in peanuts, that business model doesn’t work.
Meanwhile, let’s go back to our little scenario. Imagine that this shop has done their homework and identified the rate they need to charge based on their cost of doing business. They bill $85 an hour, invoicing a total of $1,275, which gives them $775 toward expenses beyond the technician’s pay. That’s a difference of $525 for the shop, yet insurers act like we’re asking for $500,000 more.
Adjusters claim they cannot pay our labor rate, but just look at the compensation received by insurance company CEOs in 2021.
• Jack Salzwedel (American Family): $6,808,360
• Jeffrey Daily (Farmers Insurance Exchange): $7,980,763
• Olza “Tony” Nicely (Berkshire Hathaway/GEICO): $8,087,616
• David Long (Liberty Mutual): $12,189,662
• Todd Combs (Berkshire Hathaway/GEICO): $13,604,002
• Susan Patricia Griffith (Progressive): $14,462,961
• Thomas Wilson (Allstate): $18,368,991
• Michael Tipsord (State Farm): $24,507,574
That’s a total of $106,009,929 paid out to eight individuals; that’s an average pay of $13,251,241. But $525 is “exorbitant?!” We would have to collect an additional $525 on 252 repair orders to reach $13,251 – just one-tenth (0.1) percent of the average CEO salary. But you want to tell us that you can’t pay a real market rate…c’mon man! That’s nothing but corporate greed and our lack of education.
We’re not talking about tons of money, but we are talking about the profitability of your facility. Know your true cost of labor, your hard costs and all the expenses associated with running your business, and then hold your ground.
Every single shop owner has invested thousands upon thousands into their business, yet advancing technology and associated requirements increase our costs every year. Where is that money coming from?
AASP/NJ offers more for its members than any other association in the country, including training on best practices and the opportunity to network with your industry peers. Getting involved with the association can help you identify a multitude of ways to improve your business, and talking to other shop owners just might really drive home the point that you’re not “the only one.”
Slow down and take time to smell the roses. It seems like our industry is on a race to the bottom – what’s it going to take for us to wake up?
Want more? Check out our October 2022 digital issue below: