The paint and materials compensation problem

If you're a shop owner and you aren't happy with they way you're being reimbursed for paint and materials, you're not alone. A new industry survey found that 94 percent of industry participants are just as dissatisfied with current paint and materials compensation formulas – and that includes insurers and paint suppliers, as well as repairers.

The study was commissioned by software provider ComputerLogic and conducted by Steve Lanza, managing partner at Richfield Associates, an Ohio-based marketing and research firm. Lanza interviewed collision industry professionals about paint and materials compensation issues last year to gauge how different segments viewed the issue.

Although the sample size was small (fewer than 70 respondents), the survey recipients were selected based on their amount of potential influence and their standing in the market (for example, many of ABRN's Top Shops were contacted for the survey). Respondents included "influencers" (association executives, industry publication editors and consultants), repairers (independents, MSOs, and dealerships), and suppliers (estimating software providers, paint/material manufactures, distributors, insurance companies).

Nearly the entire pool, 94 percent, agreed that the current paint and material compensation system uses poor methodology. Just how important paint/materials compensation rates as a concern varied by constituency: Insurance carrier representatives only rated the issue as a five on a scale of one to 10, while independent shops rated the issue as a 7.6.

"But everyone really agreed that this is not a good system," Lanza said. "They generally characterized it as old and outdated."

The problem is that disagreements over paint and materials reimbursement leads to lengthy, inefficient negotiations that could largely be avoided if there were more objective agreement on the amount of material needed for a given repair.

"There is such an overwhelming number of hours spent on negotiating to address these issues," Lanza said. "There are hours wasted, and it is so frustrating for the folks that I spoke with."

ComputerLogic offers a paint and material calculator solution (PMCLogic), and president Richard Palmer got involved in the paint and materials issue via his membership on the Collision Industry Conference (CIC) Parts & Materials Committee. "When we originally developed PMCLogic eight years ago, it was because the paint and materials issue was such a sore point with all of our respective industry clients: repairers, insurers, jobbers and P&M manufacturers," Palmer said.

Palmer wanted to gauge whether or not P&M issues were still a problem for shops and insurers, but there was very little activity within CIC. So he commissioned an independent, third-party study to find out whether industry stakeholders still faced any challenges relative to P&M.

"One thing that came out clearly to us when we were developing our solution, was that there was no authoritative source that people could go to in order to find out how much material it took to repair a bumper," Palmer said. "There has to be a way to take all of the fighting and bickering out of this."

Costs outpace compensation

One of the issues driving the rancor that sometimes accompanies paint/materials negotiations is that the increase in the cost of materials has far exceeded any increase in compensation. P&M costs have gone up by more than 50 percent since 2005 according to the survey, while repair facility compensation has only increased 23.3 percent.

There are other issues that contribute to insurer- repairer confrontations over paint and materials. According to the report:

"Some insurers maintain that certain procedures, which may include feather, prime and block, are a function of a body procedure and should be paid as body labor, thereby not requiring payment for paint materials. It was also mentioned that if the majority of repair facilities are not regularly including certain procedures on their estimates, then insurers, following the prevailing competitive practice in a market area, may not compensate repairers for such procedures."

And compensation rates can vary significantly by geography. "I was surprised that repairers in different parts of the country were getting higher levels of compensation," Lanza said.

Insurers and repairers also have very different views of how multipliers have impacted reimbursement. Shops think that on smaller jobs, they are not receiving adequate compensation, while insurers think they are being overcharged on larger jobs. Some insurance companies have imposed thresholds on paint and material charges and on refinish labor times that have further reduced reimbursements.

ComputerLogic offers its own paint and materials costing solution (PMCLogic), and Palmer obviously hopes more shops and insurers will start using these tools. But he hopes the survey results will spur a broader conversation within the industry.

"There's no standard, and everybody kind of does their own thing," Palmer said. "If everybody gets a system like this, then everybody is looking at the same deck of cards. There's no debate about how much paint you're going to need to repair this specific car. The bottom line is accuracy, transparency and fairness."

Shops also can't improve their paint and material performance if they don't know what their actual costs are. And more accurate estimating and tracking can help reduce waste and material theft.

"If your calculator is telling you that you should have spent $10,000 on materials in a month, and you find out you actually spent $15,000, then you may have waste or theft," Palmer said. "You buy all of this stuff, but you may not be controlling your inventory like you should."

Palmer would also like to see CIC take a second look at the issue as well. "I'm hoping this will re-energize the discussion within the CIC subcommittee," Palmer said. "Are we going to stay with the old method? Or do we really want to get more scientific and come up with something that we can at least work off of, if that's the consensus, or do we just want to again have everybody [operating] like it's the wild, wild west, doing whatever they want to do, and continue fighting?"