By Sheila Loftus
January 2008

Question: What does it say about the state of a collision repair industry when the owner of 18 collision repair centers grossing $28 million annually is throwing in the towel because he’s losing money?

Answer: Nothing good.

Todd Fox, the 43-year-old owner of Fox Collision Centers Inc., based in Tulsa, Okla., said his business couldn’t survive because of the way insurers are squeezing repairers, particularly repairers who are on insurers’ direct repair programs (DRPs).

Fox’s situation is even graver than he admitted in his farewell letter to the collision repair industry. He is being sued by a bank that lent him more than $8 million and by 50 of his former employees for failure to make good on their last paychecks. (Some employees say they’ve been shortchanged by as much as $4000.)

The insurance industry would probably say that, given the lawsuits he faces, Fox is no longer a credible critic. But here’s an instance when the man and the message need to be separated. Despite the legal woes Fox faces, his message is pertinent and powerful. Here what he said in his farewell letter:

“With my regional group of shops operating on the lowest gross profit margins in our history, and the next evolution of DRP being implemented by the largest insurer in North America, I asked myself, ‘How can my group of shops survive in the years to come?’ Unfortunately, the answer that became obvious was, ‘We cannot!’”

The largest insurer in North America is, of course, State Farm, which recently rolled out an OEM parts discount test program in Indianapolis and San Diego. State Farm’s Select Service repair facilities in those areas must participate in the program, which gives the insurer discounts on parts ranging from 2.8 percent (for Ford parts) to 3.4 percent (for Toyota parts).

When I asked the representative of a car manufacturer why his company agreed to go along with State Farm’s program, he said his company was afraid not to.

If even the car manufacturers are afraid of insurers, what does it say about how intimidating insurers are to collision repairers?

If insurers are the chief culprit in pushing collision repair facilities to the brink of bankruptcy, collision repairers have been complicit in the dire economic circumstances they face. “We are killing the profitability of this industry by participating in concession-based DRPs,” Fox wrote.

Just as bad—or worse—collision repairers “are possibly putting people’s lives at risk as we fight futilely for survival by submitting to the concession-based DRPs’ demands for faster and cheaper repairs in exchange for more work volume,” Fox wrote.

When a repair is a choice between profitability and safety, the collision repair loses either way. As Fox said about doing cheap work in order to survive financially, “How long can we live with that on our consciences?”

Skeptics of DRPs have been around since DRPs were formally introduced in 1988. At first, Fox believed insurers and collision repairers wanted the same outcome from the DRP relationship: quality work and happy mutual customers. But in the long run, this hasn’t proved the case.

And during the last two years, insurers have been especially egregious in what they’ve demanded of their DRP shops, Fox believes. “DRP contracts now list pages of requirements and concessions,” he wrote. “And I don’t mean only labor and parts discounts, paint caps, and zero mark-ups on sublet items, but also concessions on the quality, integrity, and safety of repairs.”

Collision repairers have begun to push back. During an open microphone session at a Collision Industry Conference meeting in November, collision industry observer Scott Biggs issued a white paper calling for DRP reform. (To view it, go to www.CollisionIndustryNews.com).

According to Biggs, “Direct repair/referral programs (DRPs) are in reality cost mitigation systems for insurers. Anyone examining how the current DRPs are utilized and executed in the market will conclude that customer service and reduced friction with shops is no longer the objective. However, the DRP has proven to be highly effective for insurers in drastically reducing and containing their loss severity.”

Biggs called for DRPs to be based on transparent standards and to undergo public scrutiny.

A group called ACAR (Accountability for Collision Auto Repair) met in Washington, D.C., in October in order to have collision repairers focus on the one aspect of the claims handling process they can control: standards. ACAR participants began work on a Code of Ethics, as well as started to define words relevant to their field.

“The collision repair industry needs a Code of Ethics,” said Erica Eversman, the attorney who drafted the Code and moderated the event. “It will assist people in understanding who the real customer is and what they owe that customer.”

She added, “To have an industry that deals with people’s safety with no Code of Ethics or pre-set technical repair standards is mind-boggling.”

The draft Code of Ethics says that collision repairers owe “a duty of professional care to the customer and shall act in the best interests of the customer in repair decisions and recommendations.”

The group will meet again in late March at the Northeast Regional Autobody/Automotive Trade Show in Suffern, N.Y. ACAR participants hoped their industry would be able to speak with one voice, echoing the words of Darrell Amberson, the chairman of the 2007 International Autobody Congress and Exposition (NACE), who said as much in his state-of-the-industry remarks in November.

Indeed, if the collision repair industry would speak in one voice to the people who matter most—vehicle owners—they might make headway in their effort to reclaim the ground they’ve lost to insurers. But if a significant number of collision repair shop owners continue to recognize the insurer as the customer—and continue to give in to whatever concessions insurers ask of them—Todd Fox won’t be alone in bowing out of the business (nor, I suspect, in leaving his employees empty-handed).

“We are like drug addicts, addicted to what we thought was going to be a good thing,” Fox wrote. “Though it will be hard, we must ‘dry out,’ get ‘clean,’ and take a stand. I call on fellow collision repair operators to recover and rehabilitate your businesses, even if it means starting over!”

Fox may be finished in the collision repair industry. But his message still applies.

© 2007 Sheila’s Information Network Inc.

Sheila Loftus (sheilaloftus@yahoo.com), past publisher of the CRASH Network, has written about the auto collision repair industry for 32 years. She lives in Washington, D.C.