Management & Business Profitability Explored
Understanding the cost of doing business is crucial because it just may become the cost of you going out of business!
As a former body shop owner and manager, and in my role as an industry consultant to some of the nation’s finest collision repair facilities, I continue to hear a great deal of misinformation and just plain bull. It comes mostly from insurance claims representatives doing their best to mitigate their companies’ expenditures through cost containment.
Spreading misinformation is a tactic insurers use a lot — speaking untruths to claimants and service providers, such as collision repairers. Chances are likely you’ve heard some of these untruths:
- “We don’t pay for that — that’s the cost of doing business.”
- “We don’t pay for that since most shops don’t charge for it.”
- “This is the first time I’ve ever heard of someone charging for that — no other shops charge for that.”
I heard those same statements back in the mid-1980s in my shops when I was writing remove and replace (R&R) for outer door handles and moldings, removal of pinstripes, tinting paint for color match and other procedures that are now provided for on insurer estimates and not questioned as reasonable or necessary.
Not Your Father’s Body Shop
It goes without saying that today’s automobiles have more technology than ever before and are basically turning into computers with wheels and seats that convey us from one point to another. Hopefully, they will continue to evolve without concern for reliability and safety of occupants and others on the roadways.
All too often, we hear from insurers that our proposed charges, for example, “research original equipment manufacturer (OEM) procedures,” are “the cost of doing business.” Insurers often try to gaslight repairers by stating things like, “Well you, being the repairer, should know how to repair the vehicle you’re working on; we’re not going to pay you to learn to do your job.”
It is interesting to note that healthcare professionals have been working on the same two models of humans (male and female) for thousands of years. Watch how a doctor reacts when you say you’re not going to pay for the time spent researching treatment for a unique ailment. Try telling a contractor to build a building without comprehensive blueprints or researching local building codes. Watch what happens when you tell an attorney that he or she should not charge for time researching case law to effectively represent you, the client. Today’s collision repairers are no less professional and have no less importance when it comes to safeguarding the personal and economical welfare of their customers.
This is no longer our fathers’ auto body repairer industry. Times have changed, and so has the complexity and required specificity of repair-related processes and materials for each individual auto manufacturer and the various models they produce. Also, keep in mind that the potential liability involved in repairing today’s automobiles has increased exponentially.
To make things even more complicated, it’s common for OEMs to change and modify their manufacturing processes and specifications during the manufacturing of each model year. Therefore, even though it may be the same year, make and model vehicle, repairers cannot merely rely upon data and repair information from a prior unrelated repair. They must research and pull all the OEM repair procedures for each repair and, in doing so, should be compensated for their time and expense in accessing, reading, printing and providing the applicable information for each repair to their customers and insurers, if applicable.
Such charges may include:
- Fees to access OEM repair information from the manufacturer’s website for the timeframe required. Note: If it were me, I would add a standard markup, just as I would with any other incurred cost or sublet service.
- The time spent and costs involved in obtaining, reading/reviewing, copying and sending the information to the technician(s), customer, appraiser, insurer etc. — as well as retention of the acquired information for a period of time (as proscribed by your state — for example, Florida is five years).
- A reasonable copying fee that you can justify on the basis of cost, duplication charges, time of people involved, etc.
- Copying costs to compensate the shop for the labor, paper and ink required. Time assessed would apply to the printouts of electronic records and documents as well as the copying/printing of paper records. Check to see what your area charges for such costs. Contacting local attorneys’ offices may be a viable resource. Note: When acting as an expert for legal counsel, I assess a fee of $25 for the first 100 copies and 20 cents for each additional copy thereafter.
While preparing this article, I attended a Zoom meeting that featured an OEM’s collision certification manager as a guest, to whom I posed the following question: “Are the fees to access your repair specifications portal considered to be a cost of doing business, or can the cost be passed on to the consumer?”
The guest advised that in his “personal opinion,” it should be considered a cost of doing business, just like water in the shop. He was then asked, “If following your recommendations is so important to maintain the correct operation, longevity and loyalty to their brand, why then do you charge a fee for such information?” While it was apparent he heard the question, it went unanswered.
I personally believe OEMs should see it as their “cost of doing business” and, if they choose to assess access fees for such information, it should then be passed on to the customer by the repairer. Of course, I always tell my clients: “It’s your business, and you can give your services away if you like — you just can’t do it for very long!”
As a business owner, you must make the decisions that best serve your business and its continued profitability, growth and longevity. Repairers should look at other successful businesses and industries and emulate what they do to remain successful.
Cost of Doing Business
So just what is the cost of doing business? According to Law Insider, one definition is:
“Cost of doing business or ‘overhead expense’, means all costs of doing business incurred in the conduct of the business and, as examples, include without limitation the following items of expense: labor (including salaries of executives and officers); rent; interest on borrowed capital; depreciation; selling cost; maintenance of equipment; delivery costs; credit losses; all types of licenses, taxes, insurance and advertising.”
The costs of doing business are your standard operating costs required to be in business, including rent/lease/mortgage, phone, lights, internet, computers, equipment, equipment maintenance, depreciation, interest expenses, salaries, property taxes, marketing, some utilities (not including paint booth heat) and others. These may be referred to as “overhead,” “operating expense” or “fixed costs,” being independent of any specific business activities. In other words, the costs you would have to pay even if you had no work in the shop.
All other costs a business would incur in performing repairs (productive labor, parts, materials, research, etc.) would not be considered the cost of doing business but instead “direct” or “variable costs” and/or cost of goods sold (COGS) and/or “the cost to produce goods and services.”
One thing I’ve learned as a shop owner and manager is not to ask the party responsible for paying for the repairs how much I should charge. As silly as it may sound, this occurs daily across the country, and many repairers receive inaccurate information that serves to benefit others and not the repairer or the customer.
As I’ve said before, there are three simple reasons why an insurer will make incorrect statements or assertions and/or provide inaccurate information:
- Gross incompetence
- Intentional misrepresentation
It’s important to understand that because claims people are placed in a position of public trust, their failure to act in good faith violates most state laws and regulations and could be cause for loss or suspension of licensure, sanctions (fines) and potential jail time. It could also place an insurer in a position of defending itself from a lawsuit for bad faith dealings and/or deceptive business practices. If a pattern of such practices can be substantiated, the insurer could be sued for bad faith, resulting in massive fines and/or sanctions.
Remember: Accepting the payor’s explanation that a service you provide is “the cost of doing business” just may become the cost of you going out of business!
Article Credit to BodyShop BUSINESS.
Do you think insurers use misinformation to contain their costs and pass recoverable costs back to the repair shop? Let us know in the comments below. Also, if you found our content informative, do like it and share it with your friends.
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