By John Yoswick
A panel discussion at a recent Collision Industry Conference (CIC) related to the impacts of inflation focused primarily on how body shops can address increases in the costs of paint and materials — including how to discuss rising costs with insurers.
No matter which of the major refinish paint lines is being used within a shop, virtually all collision repair businesses have received at least one letter — and generally multiple — in the past 18 months announcing price increases for those materials. One paint company, for example, notified its U.S. shop customers in January 2021 of a “weighted average increase of 4.1 percent.” That was followed by a similar “weighted average increase of 4.25 percent” in May of 2021, and one of 9.8 percent in February of this year.
Panelists at CIC noted that some shops may be confused by the term “weighted average,” particularly if they see their paint costs rising above the percentages noted in the letters. Paint company representatives said those average increases are an aggregate average across all the various products that manufacturer may include in the notice.
“So some products may be raised more, some will be raised less,” Braxton Ewing of BASF said. “A lot of that is dependent on supply chain issues and raw material availability.”
Tim Ronak, senior services consultant for AkzoNobel, concurred.
“An individual shop may not buy that entire weighted range of products in the same distribution that we’ve averaged it,” Ronak said, noting that most companies offer a variety of clearcoats, for example, that might increase in price at different rates. “What that means is that each shop may see its own unique price increase, irrespective of what’s published. A 10 percent published number might be, for an individual shop, a 12 percent increase in actual expenses, whereas another might see an 8 percent increase.”
Track and document costs
Panelists noted that one way a shop can better document its costs is through the use of a paint materials calculator or billing system other than the traditional “paint labor hours times a given rate.” (A “Who Pays for What?” survey in January found that although the percentage of shops using that method has been falling, about half still do.) Committee co-chairman Aaron Schulenburg pointed to an article on the CCC Intelligent Solutions website stating that although most of its customers use the “rate times hours” method for calculating materials charges, “this is also usually inaccurate.”
Ronak, said most shops in the “20 groups” he oversees have moved away from using a “rate times paint labor hours” billing method for materials.
“In fact, they’re becoming far more specific about what is a paint material, and creating invoices and documentation for that,” Ronak said. “They’re taking some of the things that used to be called materials, like panel bonding adhesive and seam sealers, and billing for those independently on a per-job, documented basis.”
He said “knowing your numbers” is even more crucial for shops in inflationary periods.
“Be able to break down how you look at your business, rather than just sales versus a pile of costs,” he recommended. “You need to truly understand job-costing. The transformative moment for most shops that I’ve worked with in all the years I’ve been doing this is when they understand job-costing and they stop doing the things that take money away. That’s typically all you need to do: Stop doing the stuff that costs you money, and start doing more of the things that make you money.”
Ewing, a performance group manager for BASF, noted that shops using the Mitchell Refinishing Materials Calculator, PMCLogic from Computer Logic or their paint scale to more accurately track and invoice for the actual materials used will see that two otherwise identical jobs may have different paint costs just because of the color. Charging based on paint labor hours doesn’t take into account so many factors like that, he said.
“You may have a weak estimator who writes lower hours than should be expected for that repair, or may have missed something during the estimating process,” Ewing said. He said paint and materials documentation and invoicing will continue to become more detailed over the long term, just as estimates themselves were once as basic as “replace and paint fender for $xxx.”
Shorter-term, he said, shops need to work with the manufacturer of the paint they are spraying “to really understand how to be profitable with their products,” and then “learn how to document and communicate that” to whoever is paying the bill for repairs.
Addressing costs with insurers
An insurance company representative on the panel said that, like shops, insurers are seeing their costs rise quickly. Dan Tessadri, auto physical damage business consultant for CSAA Insurance, said that at least in some states, there can be a long lag time before insurers can reflect their higher costs in premiums. In California (and some other states), insurers must get the premium increases approved in advance. Between the process of determining the increases needed and getting approval, he said, it can take up to two years to see the increase reflected in premiums.
“That’s a little different than what [a paint company CEO said in a news clip played at the meeting] where every quarter they look to adjust prices,” Tessadri said.
Tessadri was asked about shops’ approach in seeking rate increases.
“There is an incredible difference in the documentation, in the communication, in the overall sort of understanding of the impact inflation is having on their store,” Tessadri said.
The most effective way he sees for a shop to start that conversation?
“From my perspective, it’s understanding that you’re not operating in a vacuum. We’re not all in the same boat, but we’re in the same storm,” Tessadri said. Work for some open discussion, he recommended. “‘This is what I want, but this is what I could potentially live with,’” Tessadri suggested. “Those are the discussions that end up probably more successful. I’m a data guy. So I do sort of enjoy seeing [someone who has] gone to the length of crunching that information to explain it to me.” •
John Yoswick, a freelance writer based in Portland, Ore., who has been writing about the automotive industry since 1988, is also the editor of the weekly CRASH Network bulletin (www.CrashNetwork.com). He can be contacted by email at john@CrashNetwork.com.
