III. A DEALER GUIDE TO BODY SHOP PROFITABILITY

A. THE BODY SHOP MARKET AND YOUR PRESENT SHARE OF CAKE

In 1999, the automobile collision repair market represented a sales potential of over Rs. 600 Crores. Yet in 1999, despite an ever-increasing number of cars on the road, only (55%) of franchised new car dealers in India operated their own body shops. While their body shop business grew sizeably still a greater market obviously existed. The ideas, recommendations and procedures presented in this guide have been written to help dealers who already operate body shops (as well as those who are considering entering the body shop market) significantly increase their penetration in this continually expanding market.

Increasing dealer penetration in the collision repair market is one reason for having a body shop in your dealership, but there are other considerations:

▪	A quality body shop can build traffic for the dealership's new vehicle department.
▪	A properly controlled body shop can improve used vehicle gross at retail. Unlike "back yard" repaired vehicles, autos repaired at a dealership and later traded in at a dealership should mean higher trade-in price for the customer and higher retail markup since the quality of the work is a known commodity.
▪	Increased efficiency in the body shop coupled with quality work improves customer satisfaction. Dealership retention rates climb accordingly as customers perceive your facility as "full service".
▪	A body shop can increase parts department sales and gross profit.
▪	Body shop repairs generate more rupees in fewer transactions than service department repairs because body shop repair orders (ROs) tend to be larger and require less diagnostic work.

 
Note : Some of the passages of the previous chapter may have been repeated in this chapter. As this chapter is formulated as a reference guide those passages have been retained.

Today, managements must deal with increased capital investments to produce quality repairs. Equipment and the price of producing repairs cannot be measured in the same way as in the past. To determine whether a body shop operation makes sense for your dealership, you should analyze your dealership's operations, considering the following factors :

		Your own assessment
▪	Insurance companies' impact in your market
▪	Local body shop market
▪	Local competition (amount and quality)
▪	Equipment needs
▪	Credit availability
▪	Trained body shop technicians availability
▪	Body parts supply availability
▪	Body parts storage space availability
▪	Damaged vehicle storage space availability
▪	Ability to control paint and body shop materials

 
B. INSURANCE BUSINESS

Ninety percent of business in the body shop is controlled by insurance cost, so it's important to know how you/your body shop manager can best work with insurance estimators/adjusters and companies. It is also important to understand the correlation of time allowed on an estimate to actual repair time. While an apprentice may turn one hour for every hour billed, a master technician could complete in an hour, scheduled for three hours. If an insurance company pays Rs. 100/- an hour labour rate; and a job requires three hours as per schedule, the insurance company would pay Rupees 300/- for the repairs. Hence, the body shop's labour cost will be based on the skill level of technician doing the job and time negotiated.

(a) Preferred Listings :

Though insurance companies at the national level refrain from making recommendations, most local offices are free to offer customers a "preferred list" of body shops in their area. Sometimes (particularly with unibodies) recommendations are based upon the type of equipment the body shop has. For this reason, it is important to keep your local insurance contacts informed about changes in service, training, costs, and equipment purchases/upgrades. Consider having an open house. Invite insurance companies to your body shop for a demonstration of your equipment and a chance to examine the quality of your repairs. Proof of quality work, efficient procedures and the right equipment for the job can go a long way towards justifying repair costs.

In many areas, the only way to ensure adequate volume is to become an "approved shop" for the insurance companies. This relationship can definitely help you attract more business, but be aware that it usually goes hand-in-hand with such concessions as lower labor rates, greater parts discounts and purchase of dedicated computerised equipments.

Both insurance companies and vehicle owners want complete and accurate estimates followed by quality work done in a timely manner and with no surprise. Try to have a positive attitude toward the insurance adjuster, who is your repeat customer. In your efforts to obtain insurance business, the following suggestions may prove advantageous :

▪	Provide reasonable parking facilities.
▪	Present a professional office and shop appearance.
▪	Do a thorough estimate of the necessary repairs before the adjuster arrives.
▪	Furnish the adjuster with office space that is clean and quiet. Include a desk, a telephone, a calculator or adding machine with tape, and crash guides.
▪	Provide a place to evaluate the vehicle (sheltered, if possible). It should include diagnostic equipment, jacks, lifts, and someone to help "open up".

(b) Estimates :

As mentioned above, you should make your own estimate of the damage upon the arrival of a vehicle, determining the profit potential available on the job. Doing your own estimate gives you greater control over the situation. It lets the estimator know you are familiar with the job and that you have carefully considered the body shop's parts and labour requirements. In addition to helping both of you avoid future supplements and subsequent delays, it enables you to check parts and scheduling availability beforehand and provide a "ballpark" finish time for the work. After the insurance estimate has been written, compare the results with your own. Eventually, many insurance adjusters come to rely heavily on the body shop manager's estimate when writing their insurance estimates.

You may want to charge for estimates, crediting the amount to the customer's total bill if the repairs are done in your shop. The estimate should be a blueprint for repairs so the body shop does not have to absorb any unnecessary expenses. Consider setting a schedule of charges for the services. Establish a procedure for contacting customers who have had an estimate written recently, but have not returned to your dealership for repairs. During the follow-up you should inform customers as to what credit cards are accepted for deductibles and give hours of operation.

(c) Supplements :

Pictures may speed approval of supplements (additional work). Consider working out an arrangement with the adjuster to accept Polaroid pictures of the additional work required and the parts removed. The job is not held up, the customer gets the vehicle more quickly, customers' claims to equipment they originally had on the vehicle can be verified/disproved and the adjuster need not make a special trip for authorization.

(d) Payments :

The method of payment should be decided at the time of the write-up. One choice is to bill the insurance company directly through a "proof of loss". If payment is not received in a specified time, bill the vehicle owner. Upon receipt of the bill, the owner usually contacts the insurance company and gets fast action.

Another way to ensure timely payments from insurance companies is to use the personal touch. If appropriate for your situation, have the body shop manager visit insurance claims centers to obtain business. While there, he/she can check up on past-due invoices.

You might also explain that the customer can avoid paying with a personal cheque by arranging to have the insurance company release signed and returned to you. Be sure he/she understands that if a lienholder is named for the insurance payment, endorsement must be supplied.

Consider explaining that to ensure proper settlement, one of the following conditions must be met :

▪	Payment in full when the job is completed.
▪	Collision Loss - customer must provide both the deductible amount of the policy paid in full when job is completed and an insurance chque properly endorsed, or Proof of Loss properly signed.
▪	Liability Claim - customer must provide (a) an insurance chque properly endorsed, or (b) release papers signed properly with direction to pay (dealership) directly.

 
(e) Marketing :

Because insurance companies actually pay for about 90 per cent of the repairs you perform, they should be treated as your biggest and best customers. As with all markets, a reputation for superior customer service increases your competitive edge.

1. Negotiate with adjusters and agents.

Negotiation is a vital part of the relationship with insurance agents. It's important to keep in mind that if it weren't for the insurance companies, many body shops wouldn't be in business. So it is in the dealership's best interest to make a concerted effort to establish a good working relationship with the agents and to negotiate each difference of opinion in a professional manner - sometimes you'll win; sometimes you won't.

2. Keep in touch with them.

When people get into an accident, they call their insurance agents, not their adjustors. Maintaining a good relationship with the agent is just as important as working well with the adjustor., it's the agent who sends business your way. Keep in touch with several agents. Make personal visits to offices and claim centers. Send them letters and testimonials.

3. Offer them a comfortable working environment.

Provide your insurance adjusters with a clean comfortable place to work in the dealership, with a calculate and other supplies available.

4. Keep them informed.

Send letters to your insurance contacts reminding them of the quality of your equipment, the years of experience your technicians have, and your other competitive advantages. If your business has increased, tell them about it.

C. PENETRATING THE LOCAL MARKET

Know Your Customers :

Perhaps your best potential body shop customers are your current and past service customers and new and used vehicle sale customers. Take a representative sample of 100 to 500 repair orders and do an in-house basic demographics study. What percent are male? What percent are female? What age groups are represented? How old are their vehicles? Where do they live? Are the vehicles owned by individuals or businesses? Are the customers in dual-income households?

What marketing strategies will they respond to?

The best way to find out is to try a variety of marketing ideas and track who responded to what. For example, you could send a letter of introduction to your service customers on Monarch-size (5"x8") stationery. Offer them a free estimate or a percent off, but tell them they have to bring the letter in with them and that the offer is good only through a certain date. When they arrive, note who they are. When the cutoff date passes, analyze who responded, again according to gender, age, location vehicle ages etc.

Then try a new marketing tool (postcards, radio ads, direct mail coupons etc.) and do the same demographics analysis. After you've tried several tools over a 6 to 12 month period; compare your results, and you'll see what worked best for you.

Local market Penetration :

If you're already in the body shop business, this is a good time to see how well you're penetrating your market.

Use the following formula to calculate your market share:

Total number of vehicles registered in your market area			Nos. (1)
Annual average cost amount of collision repair per Vehicel registered (As per 3M Company estimates)	Rs.		Nos. (2)
Collision repair sales potential in your Market area (1) x (2)	Rs.		Nos. (3)
Your body work shop's annual sales	Rs.		Nos. (4)
Your actual market share (4) / (3) x 100		%	Nos. (5)

 
If your market share isn't where you'd like to be, consider implementing some of the ideas suggested in this guide. The market is out there. It's up to you to claim your share.

D. PROFIT CENTERING

A successful body shop provides timely, fairly priced, quality work. The body shop should be perceived as a separate business. It has its own profit objectives and the body shop manager is the responsible operating executive. To make an actual department profit, the departmental gross should cover the body shop's semi-fixed and fixed expenses.

Remember that the labour rate itself will be affected by the number of body shops in operation in a particular area. For example, a rural area with few shops can generally command a higher rate because the competition is much lower. As with any marketing situation, supply and demand is a factor.

Each body shop operation has seven profit-producing areas

▪	Mechanical Labour (Serv. Dept.)
▪	Metal Labour
▪	Frame Labour
▪	Paint Labour
▪	Parts
▪	Sublet
▪	Material

 
Profit centering maximizes expense control. To turn the body shop into a profit center, you must do several things.

1. Determine the following :

▪	annual labour sales and gross profit
▪	annual body shop sublet sales and gross profit
▪	annual paint and materials sales and gross profit
▪	annual number of repair orders
▪	annual direct expenses related to body shop

 
2. Establish reasonable allocation bases for body shop semi-fixed and fixed expenses.

3. Set up a schedule of sub-accounts to segregate body shop expenses on a continuing basis. Calculate gross profit percentages and percent of sales figures and calculate operating profit/loss.

Scrap disposal :

Don't forget income from other materials, especially cores. Bumpers, alternator cores, starter cores, catalytic converters, torque converters, transmissions and engines all have a rupee value and should be handled accordingly.

For scrap disposal, a system may be made where every month the scrap is sold. Every day, the scrap must be collected from the working area to designated scrap yard. At times, it is found that the workshop management is very slag in earmarking the particular item to be scrapped. It is suggested a "red tag" system may be used which indicates that it is to be scrapped.

E. FACILITY PLANNING AND EQUIPMENT

No one can run a profitable body shop without a carefully planned shop layout and the right equipment. The guidelines discussed in this section can help you determine the space necessary for your facility.

1. Personnel and Space requirements.

The following ratios are suggested for optimum productivity in the body shop :

▪	Body repairers to painters: Three to one
▪	Stalls per body repairer: Two
▪	Stalls per painter: Three

 
Note: These figures do not include frame stalls or paint booth stalls.

Using these ratios, 75 percent of your body technicians will be body repairers; 25 percent will be painters or painter helpers, depending on your management techniques and the use of combination of repair people.

Allowing two stalls per body repairer and three per painter plus the frame stall and paint booth should give you enough stalls to meet 100 percent of your market potential.

2. Shop Layout :

To a great extent, body shop layout is determined by the climate and land configuration of your region. For example, a building with a center aisle is a must in colder regions or areas of unusually high rainfall. A protected drive-in area is dictated in areas where hot or cold weather is not a factor but rain or dust may be. Open bays with no doors can be used in areas where the weather is mild and dust or blowing rain is not a problem.

Your body shop should be planned (or redesigned) for optimum work flow. There are two major considerations:

▪	Separation of metal and paint sections.
▪	Work flow through each section.

 
In the metal area, heavy work should be separated from light and medium, and frames and lifts should be placed to expedite their use.

In the paint area, you should keep separately the prep area from actual paint area and provide space to do small or blend jobs.

3. Equipment:

The most efficient body shop team in the world is useless without the proper equipment. Regular inspection of your body shop tools and equipment can improve productivity. To help you assess the condition of your current equipment and any additional equipment needs, a body shop equipment survey has been provided in the Appendix.

In addition to the standard shop equipment listed in the Appendix, some dealers may have sufficient business to justify the purchase of major pulling and measuring equipment.

F. MANAGEMENT

The department manager is responsible for operating the department in a profitable, efficient manner consistent with the interdepartmental policies of the dealership. Profit doesn't just happen; the dealer and manager must make it happen, and certain factors contribute to that effort :

▪	Work flow and daily production techniques
▪	Staffing for profit
▪	Pay plans

 
Return on investment (requires ability to generate gross profit, control expense, and utilize assets effectively).

(a) Body shop Manager :

The greatest key to being successful in the body shop is to have a quality manager. It is generally accepted that the body shop manager has the most autonomy in operating his/her body shop as a separate entity. For this reason, the manager must have personal integrity. Insurance companies and customers constantly stress a desire for this quality. Many feel it is not necessary for a body shop manager to have prior body shop experience. They believe it is easier to take someone with management ability and experience and teach the necessary body shop skills. A body shop manager must work successfully with technicians, insurance adjusters, and vehicle owners.

An effective body shop manager appreciates repeat business and realizes that potential sales for the new and used vehicle departments come from satisfied customers. Mutual understanding between the body shop manager and the other body shop employees helps to develop the working relationships necessary for effective departmental control. Maximum productivity is contingent upon the manager's success in working with the body repair personnel.

The body shop manager has several responsibilities that cannot be overlooked. For this reason, it is wise to development some sort of schedule for the performance of his/her duties. The sample which follows will give you an idea of how the manager's duties can be accomplished on a regular basis.

(b) Manager's Routine :

Daily

1. Check the premises for security. Check heat, lights, paint booth. Check for arrival of painters and body men.

2. Review carryovers and appointments for expected deliveries. Update weekly dispatch sheet to confirm the status of each repair. Be available to do estimates for customers. Write up repair orders for technicians from estimates and initiate supplements.

3. Generate the day's priority sheet and review with individuals affected on a walk through. Check painted and completed vehicles against RO for quality and thoroughness.

4. Check work in process for any parts shortages or obstacles to productivity. Plan the technician's next job. Follow up with parts manager on outstanding orders. Where possible, set up parts holding area to complete delivery of parts for work pending. Follow up outstanding estimates and supplements by telephone, look for trends.

5. Whenever possible, personally visit insurance companies to collect outstanding receivables, turn in proofs-of-loss and cultivate ongoing relationship to increase business.

6. Do a periodic walk-through of the shop. Keep an eye out for unsafe conditions and any maintenance conditions needing attention such as daily housecleaning, changing oil in compressor, hazardous waste etc. Review work schedule sheet to maintain work flow through the shop.

7. Review repair orders and invoices for proper accounting. Release cars to customers after you have done a walk-around and collected necessary funds, signed proofs of losses etc.

8. Recontact customers who have already picked up completed vehicles and survey them for satisfaction and referrals.
Other-responsibilities to be attended to as time permits :

9. Establish office work area for insurance adjustors for additional business and maintain good working relations.

10. Seek concessions from towing, tire companies, and other suppliers or jobbers for upfront discounts or "quick pay discounts"

11. Assess storage charges and tear down time on total losses.

Weekly - Payroll Day

1. Review and sign off on payroll for all employees and contractors (This is generally done early in the day).

Monthly

1. Take inventory of paint and materials
2. Review financial statement with dealer

(c) Work flow I Daily production :

Scheduling and Processing

There is no single best scheduling approach, but formalized techniques are needed because managers tend to underestimate the workload. To maintain a proper backlog, the body shop manager should contact insurance companies and indicate interest in all body- work. He/she should also solicit in-house used-car repair at the regular retail rate. A six or seven work-day backlog is the maximum for the average body shop.

A good scheduling system follows a job from work authorisation through completion, quality check and delivery and should include a dispatch log and a daily backlog and production system.

A repair order is written when the shop gets a job. Entries are then put on the dispatch log. The dispatch log provides a running record of each customer as the car proceeds through the repair cycle.

A Manager should utilize whatever scheduling sheet will best help him/her control the shop's performance and produce quality work for customer satisfaction as well as departmental profit. In conjunction with a scheduling program, the manager should also organize the processing of each repair. After authorisation by the insurance company and the customer, he/she should do the following:

▪	Order the parts
▪	Receive the parts
▪	Schedule (in dispatch log repair work, metal, frame, paint job etc.,)
▪	Monitor progress of the job; initiate supplement if necessary
▪	Co-ordinate sublet repair
▪	Document any necessary labor or parts supplement

 
The manager also has several responsibilities in the work flow/scheduling process :

▪	Follows flow from start to finish
▪	Ensures that work flow is organized and documented
▪	Remains visible

 
Controls the gross estimate of repairs, and quality of work. For example, the manager would make the final decision on sectioning versus full panel replacement, straightening versus replacement, or welding plastic versus replacing the part.

(d) Hiring Contractors :

Painting and denting jobs for bodies must be done through contractors. It is very easy now to define particular jobs and a rate schedule to make. Each day, the contractors diary can be maintained by the works manager/supervisor so that his monthly bill is made.

The advantages of this contract labour is that you do not have a fixed salary burden, which indicates perquisites. Make sure contractor and his team are adequately covered under ESI, which should be a must. Make a labour rate chart for contractors mutually acceptable for both painting and denting for smooth settlement of their bills.

(e) Controlling of body shop :

Careful consideration of several factors leads to better control of body shop gross.

1. Pay the technician for a reasonable amount of time to do the job.

The technician should not be involved in the negotiation process with the insurance company. The manager controls the amount of labour paid on each RO and uses his/her discretion when deciding how many of the estimated hours should be paid to the technician. Often, some labor time may be non-commissionable to cover company expenses.

2. Control frame machine/bench system

Setting up the frame machine requires time and a great deal of technical expertise. The manager should ensure that the labor rate for that procedure reflects the higher level of skill required and that it is clearly noted on the RO.

3. Parts discount and profits

Ideally, the parts manager would be involved in all parts pricing. Parts departments get price changes from manufacturers daily and the parts manager is able to give the most current, accurate price information available. Unfortunately, insurance companies tend to rely most often on crash manuals. Moreover, they have historically expected to get a discount in return for recommending your body shop to their clients. In order to make a fair and reasonable profit, these issues have to be considered when negotiating with the insurance company.

Be specific about discounts and the areas to which they apply. Watch fixed prices for glass, bumpers, tires etc. These are the items you won't typically have on hand and will have to sublet.

Use after market or used parts when appropriate. Some customers feel such parts inferior and you should only be using original equipment manufacturers' (OEM) replacements parts on their vehicles. Unfortunately, depending on the model year, insurance companies may only allow for used or aftermarket parts.

Finally, who pays for freight on a rush shipment of parts? Insist that a GR be delivered with specially ordered parts and attach a copy of it to the RO. This expense is directly related to job completion and it need not be absorbed by the dealership. It should be arranged in advance and noted on the RO that the customer/insurance company will cover such charges.

4. Paint, material and miscellaneous

All materials should be inventoried in parts department and issued on a repair order whenever possible. The body shop manager may inventory some screws, fuses, bulbs etc., but the current value should be updated by the office manager monthly.

Issue supplies to each technician through the parts department, keeping a record for each tech on a 3 x 5 card. The card should be initialed for each issue of body filler, sanding discs, sand paper, tape, strip calk, adhesives and solvents. The manager should review the cards or RO monthly, tally rupees and divide by flat rate hours produced, then compare each by percent of volume.

The amount of paint required/used should also be noted on the repair order. If the paint is not properly itemized and paid for, you might as well be throwing it away. The office manager needs to know when and where that inventory was used, and how much of the cost has been recovered to calculate profitability and beginning to compile balance sheet inventory values.

(f) Tools and supplies:

Secure all paint and materials and issue individually as needed. Keep inventory of nuts and bolts boxes to a minimum and close to the parts department or body shop manager's office. In some shops other employees may be empowered to perform these duties and provide periodic reports to the manager.

Perform a monthly inventory on paint and materials, indicating half empty cans of paint. Add all purchases to the inventory amount and subtract repair order income. The difference between this figure and the amount of the next inventory is your profit/loss for paint and materials for that month. Check past records to see if your profit margin is where it should be. Paint companies can offer suggestions regarding profit range and how to control it.

It is better to buy supplies in small quantities using tight controls. You might consider investing in paint­mixing equipment. Mixing your own paint can reduce waste and help you control expenses. Your volume may warrant using quantities on consignment from the paint company. If you do that, you will not have to pay for the paint until you use it.

A tool and supply requisition system should be developed and administered by the body shop manager. A standard 3x5 file can be used as a requisition form to include name of tool/supply, date dispensed and employee's signature. Make sure the employee signs the dated requisition form. This encourages proper care and usage of tools and materials. The cards should be audited periodically. Specifically, you should look for any areas of use that seem usually high or out of sync with the amount of work performed by the technician.

(g) Parts :

Body shop parts ordering and stocking should be the responsibility of one person. All parts should be replaced as directed on the estimate. As parts are pulled for a job or ordered parts are received, they should be tagged with the repair order number and segregated for that job. Ideally, no job should begin until all vital parts have arrived. However, in some instances, you may have to proceed with the repair in order to determine the extent of hidden damage.

The parts person is responsible for notifying the manager when all parts have arrived. Be aware that the parts department may levy a handling charge on the body shop department for parts that have been ordered and then returned. Make certain the body shop gets a discount on any damaged part that arrives from the parts department. Secure any stored parts and return all unused parts.

(h) Communication :

Schedule monthly meetings for all body shop personnel. Each person might be given the chance to "chair" a meeting. Set time guidelines for the meeting and adhere to them. During the meetings discuss established methods for dealing with everyday problems i.e. wrong parts, undiagnosed damages, and the logistics required for moving vehicles from one stage of repair to another. This is a good time for one technician to teach his area of expertise to others.

(i) Further tips for improving body shop:

▪	Obtain names, addresses and phone numbers on all estimates and follow through.
▪	Pre-order parts whenever possible, holding the insurance check or proof-of-loss as a deposit. Establish an appointment after parts arrived to decrease shop time.
▪	Attach a blank estimate to all repairs requiring a supplement. This enables you to list each additional item and be better prepared to review with the insurance adjuster. Record any verbal authorizations with the person's name, address, phone number, claim number, and date of loss.
▪	Keep a current file on outstanding supplements and receivables and review daily. If feasible, hand carry any proofs-of-loss or any supplements to insurance companies.
▪	Based on shop capacity, determine the level of minimum backlog hours that should trigger a warning. Among your sources for additional repairs, you should include your service and sales departments, any repairs with outstanding pre-ordered parts which have since become available, and any customers for whom you have estimates. (If necessary, offer an incentive such as a free oil change.) Make telephone or personal contact with insurance companies. Incentives for service personnel who refer customers in need of body and paint repairs are also effective.
▪	Review all parts orders with the parts department and assign a priority to any parts, which may prevent a job from being started.
▪	Educate customers and insurance companies on the utilized body construction and its domino effect on adjoining panels.
▪	During estimating, closely examine all panels and body supports next to any part which was damaged enough to require replacement. Chances are, you will need some additional repair time for straightening or aligning that metal.

 
APPENDIX

Body Shop Equipment Survey

QUANTITY	DESCRIPTION	CONDITION
	Acetylene Welding Rig
	Battery charger
	Bench Grinder
	Bench Vise
	Butter
	D.A. sander
	Door Jigs - Install
	Drop Light
	Engine Stand
	Fire Estinguisher
	Floor Jack
	Frame Dozer
	Frame Machine
	Gas Can
	Gasoline Transfer Rig
	Heat Gun
	Headlight Cumer
	Jack Stand - Low
	Jack Stand - High
	Jumper Battery Rig
	Lift-Single / Tivin Post
	Lift - Above Ground
	Mig Welder
	Paint Booth
	Paint Work Station
	Paint Guns
	Paint Mixing Equipment
	Paint Storage Cabinet
	Paper / Tape Reg
	Porter-Power
	Portable Fans
	Pressure Cleaner
	Pull Point - Stalls
	Sand Blaster
	Secure Vehicle Storage Area
	Spot Welder (Panel)
	Thinner disposal
	Vacuum Cleaner
	Vehicle Wash Equipment
	Windshield Rack
	Work Bench

 

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