The Alliance of Automotive Service Providers (AASP) views State Farm’s newly- mandated bidding process for parts procurement as an unprecedented and uninvited intrusion into the business of collision repair. Despite posturing from the largest national insurance carrier on what it believes to be positive attributes of the program, collision repair facilities, parts suppliers, parts manufacturers and interested parties around the country have been consistent in their perception that this type of activity will ultimately harm their businesses and the customers they serve.
Collision repairers are in the business of selling parts, labor and materials at a retail level. Each of these revenue sources contributes to the overall success of the roughly 35,000 small businesses across the nation, allowing the business to provide employment opportunities to individuals within their community, and invest in the necessary equipment and training needed to provide customers with safe, quality repairs. As is the case with all types of business – including the business of insurance – the pursuit of a return on investment (profit) is a core principle, and one that collision repairers should neither apologize for nor relinquish to the influence of other parties.
Insurers are in the business of insuring risk and then settling losses at market value when those losses occur. As the payer of claims, insurers should not be “market makers” for pricing of individual products and services that are components of final invoices. To date, insurance pressure and influence over collision repair market pricing has driven average profit margins to low single-digit figures, despite the fact that the business of collision repair has a high cost of entry and requires ongoing capital investments to keep pace with automotive technologies.
Feedback from other markets outside the U.S. familiar with insurer-mandated bidding platforms indicates that the State Farm parts bidding program is a win-lose scenario, with repairers losing both profit and control of their business. Furthermore, the negative impact of this parts program has the very real potential to quickly spread beyond parts to other areas, such as paint, and beyond the boundaries of voluntary Direct Repair Program (DRP) agreements to the industry at-large. If State Farm contends that this parts program is indeed good for the collision industry, surely the industry would embrace the program on a voluntary basis – assuming the benefits of the program did indeed extend to more participants than just the carrier.
The collision repair industry has gradually transitioned from a proud trade of hard- working owners and employees, to a service provider that subcontracts to the insurance industry, working on net margins that it no longer controls and that jeopardize its ability to invest in its business and to attract and train qualified employees to ensure safe and quality repairs. AASP has grave concerns for its members’ future welfare if giant insurance corporations are permitted to trample on the free market philosophies that support a culture of small business success.