Category Archives: Body Shop

Knowing your True Cost of Labor

Anyone selling anything generally knows how much their cost is on a given item before they price it to sale. Body shops however seldom know their true cost of labor. The way labor is generally dealt with in the body shop world is strange to say the least. In the service department labor rates are set based on a variety of factors such as market conditions, direct costs etc. In the body shop we typically set our rate based on whatever the insurance industry dictates. I actually have no problem with labor rates and how they are set. I do have a problem with our industry’s complete lack of understanding of how much the labor really costs us to buy. Many managers shoot for an industry standard of 60 percent gross profit on labor as a minimum acceptable margin. What dealer managers fail to calculate is the true cost of labor. (The incidental direct expenses associated with labor that radically decreases the real gross margin on labor.) For some reason the dealer world considers these direct expenses as part of an overhead calculation. My problem with that is that we have varying costs levels from employee to employee. Some employees have “true cost” as low as 25 percent over the wage amount. Some employees may have a “true cost” as high as 75 percent over the wage amount. Factors contributing to this wide swing in true cost are:

1. Longevity: People who are with you longer typically get more hidden benefits as a reward for seniority. Vacation pay, sick time and other perks.

2. Age: Older workers typically have higher insurance cost, assuming you participate in their group health coverage. Additionally older workers may have more dependents thus increasing family medical costs that you may participate in.

What can you do about it?
I am not telling you to go out and cut anyone’s pay if you suddenly realize your margins are lower than you think. I am saying that educating yourself and your management team regarding the real cost of labor may help you evaluate “future” hiring practices.

• Next time you obtain an insurance labor rate increase you may want to retain a larger share than normal and not always pass it along to the technicians.

• You might look into changing from straight flat rate or commission to a graduated incentive. Graduated incentive is a way to pay flat rate or commission maintaining higher percentages of gross at the lower end of the productivity scale while sharing more of the labor percentage as the employee becomes more efficient or productive. Two good things happen here. The margin retained increases while the hours produced per employee tend to increase simultaneously.

• Change to straight hourly pay. I actually prefer this as I have notice better quality and morale in hourly paid environments. This has to be done delicately and you will create some turnover. The good news of paying hourly you find it easier to stop the tail wagging the dog.

• Change the pay to hourly plus incentive. This works pretty well in that the employees have more stability on a weekly basis but a chance to win big when they are productive.

Please note: I am not recommending a rubber stamp approach to your pay plan. Every scenario has to be thought out carefully. But I think it is high time we discover what our labor really costs us. Awareness creates some creating problem solving.

On the previous page is a chart you can follow. Notice the benefit and additional costs total $7.91 per hour. As a percentage of the wage that is over 45 percent of additional cost. You may have a higher true cost than you think. You can buy electronic calculators for pay plans at http://www.autobodyuniversity.com. We have no financial stake in that company but highly support their efforts. Check it out as a possible resource.
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Dave Dunn owns and operates Masters School of Autobody Management in Galesburg, IL. Masters consults with dealerships worldwide. Dunn is also a body shop owner and the author of Liquid Amalgam, a guide to managing service companies.

Labor versus Parts

The body shop manager has great latitude in deciding whether to replace or repair damaged parts. One of the most curious statistics I have mined is that dealer shops do not do as good a job selling parts, as do their independent competitors. At Masters we conduct polling at all of our classes using a blind data mining technique, which gathers information regarding attitudinal predisposition, as well as actual practice and performance. The system we use is called Classroom Performance System (CPS). It is a remote control answering device that when conducting scientific testing allows blind answering without fear of reprisal.

The quiz
After explaining what gross profit is, we ask the body shop estimator and manager the following question:

When given a choice, you would increase gross profit per hour by:

[list:1z4ovmnx]A. Selling more labor at 60 percent gross profit

B. Sell more parts at 25 percent gross profit

C. Sell more customer pay repairs

D. Straighten more panels and replace less[/list:u:1z4ovmnx]
The dealership employee overwhelmingly is predisposed to say either “A” or “D.” (A and D represent the same predisposition.) About 80 percent of dealership employees answer this way.

After a few hours of mathematical exercises, we usually convert the entire room to the idea that “B” is the correct answer. Independent shops answer the question right about 50 percent of the time.

Why do dealers get it wrong?
When we interview dealer managers it becomes very clear that the predisposition to sell labor instead of parts is related to lack of understanding and pay plan. Independent managers have a direct stake in gross profit and a better accounting recognition for parts profit. The dealer statement often fails to recognize parts profit in the body shop section of the dealer wide financials. The body shop manager concludes that she/he is not being judged based on parts, but rather labor sales only. What a tragic accounting blunder!

10 reasons to sell parts

[list:1z4ovmnx]1. Parts gross profit is like icing on the cake. While the percentage of gross profits retained is lower than labor, the sale amount increases dramatically. The parts require labor to install them; hence there is no reduction in labor sales dollars, only a redistribution of labor as a relationship to total sales.

2. Sheet metal parts require painting and the book time for painting a new part is higher than for the same repaired part. The paint times can actually be doubled in many cases, yet the actual labor required to do the job is essentially the same (Hence labor efficiency improves dramatically).

3. As paid refinish hours increase, so does paint and body material allowances. The current way most shops get paid for paint and body materials is directly tied to the refinish paid hours.

4. New sheet metal parts affect paint and body material actual usage. Studies have shown that repairing a panel requires more sandpaper, primer and incidental material supplies in quantities of two to one over a new OEM panel refinish project. Cost is actually twice as high over a repaired panel. So sales double but costs are about half! Most dealer shops lose money in the materials department when it should be a major profit center.

5. A less skilled technician is required to install new parts. It often requires high skilled expensive technicians to do large bondo jobs.

6. Risk is lowered with new parts. The risk of substrate conditions such as shrink and sand scratch swelling are eliminated.

7. Cars cycle through the metal shop faster. Some parts can even be painted while “off the car” to create the cycle time advantage of simultaneous processing.

8. Less dirt in the air due to sanding fillers. The shop, technician and car all stay cleaner when the emphasis is on new parts.

9. Parts returns drop because managers are more inclined to insist that the part be installed, rather than allowing the metal technician to talk him into straightening the old part. Hence the bodyshop manager and parts manager get along better.

10. Customer satisfaction is higher. I have heard thousands of customers ask for new parts. I have never heard one say they would prefer a bondo job.[/list:u:1z4ovmnx]
You can check your own predisposition to parts sales verses labor sales by examining your statement. In the average dealer shop selling mostly American made brands, we want your labor sales and parts sales to represent about a 1 to 1 ratio. Paint and materials sales should be at least 10 percent of your total sales. If you see labor as a higher percent of sales than parts, you have room for improvement. Have your body shop manager consider the list of 10 considerations and see what happens. I recommend that you change your accounting rules and give the body shop a fair share of parts’ profit and you will see your sales soar.
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Dave Dunn owns and operates Masters School of Autobody Management in Galesburg, IL. Masters consults with dealerships worldwide. Dunn is also a body shop owner and the author of Liquid Amalgam, a guide to managing service companies.

Prescriptions for your Body Shop

Last month we began talking about collision center performance. We reviewed some key benchmarks and discussed the importance of your estimator closing each estimate he writes with a sale. By following the information provided within the article, I know you have positively impacted your closing ratio. Bottom line, you have improved the number of jobs sold from the estimates written.

The primary function of an estimator is selling. In the collision center we need to sell the vehicle owner and the insurance company handling the claim. While it seems like common sense, I thought this month we should review the process of working with the insurance company in satisfying the vehicle owner. We will look at the basics, and review the Collision Industry Conference publication from their Write it Right Committee on estimating practices. This information was written by a volunteer group of insurers and repairers who have produced this set of working guidelines. I think you will agree that the document they created brings unprecedented value to industry.

This is “a consensus on how to work together for the benefit of the vehicle owner in the spirit of good faith business practice and mutual respect.”

Prior to visiting the shop the adjuster should call to…

[list:1m2a095u]1) Verify that the car is there
2) Provide an accurate description of vehicle and area of damage
3) Determine if the repair facility has the owner’s signed authorization to tear down / repair
4) Review towing, authorize tear down, and agree on pre-tear down photos
At the initial inspection the repairer and insurance company representative should…
5) Exchange business cards that identify the company and representative
6) Document all administrative data
7) Identify coverage and payment issues prior to adjuster/appraiser leaving facility and repairs being started
8) Document the usage of appropriate new, used or alternative parts
9) Document unrelated damage
10) Share the responsibility to protect the vehicle during the repair process
11) Leave a copy of the repair estimate
The repairer should…
12) Document any changes to the repair process as they occur or daily
13) Inspect and test drive the vehicle where damage or repairs could possibly affect the vehicle safety or integrity
Repairers and insurers together…
14) Should be able to communicate electronically
15) Should eliminate unnecessary requirements, which add cost to the claim and delay the repair and payment process
16) Must not participate in the illegal, unethical, and fraudulent practice of cost shifting
17) Must list as line items on the estimate all procedures and parts necessary to repair vehicle to pre-accident condition, whether or not included or recognized in the information provider’s system
18) Must produce a final estimate/final invoice which is a true and accurate report of the repairs
19) Must write true judgment time that reflects the costs of all labor and economic factors necessary to perform the repair” [/list:u:1m2a095u]

Obviously, it takes effort on the part of the insurance adjuster and the estimator to make this a seamless process. Too often I see an adversary process that puts the vehicle owner in the middle. If your customer perceives ill will between the two, it does not matter who is at fault, it will affect your customer retention and today no one can afford to lose customers. The collision center helps your entire dealership grow. It should produce profits, and build customer loyalty.
Loyal customers buy more cars, parts and accessories. They will have their mechanical repairs and maintenance done in your dealership and will return if another collision occurs.

Dealership profits can no longer be predicted on car sales alone. Fixed operations must be viable and profitable and your collision center is a significant portion of your fixed operations. Improved processes and employees with comprehensive understanding of the importance of retaining customers are key elements in long-term success, growth and improved profits.

by Mark D. Martincic

For Crying Out Loud, Sell Something

I wonder how well our economy would be doing without the 24/7 news about gas prices? The Pavlovian response by consumers is understandable. Tell the consumer that the economy is bad and they react by curtailing their buying habits. Gas directly affects us all in that miles driven are a key indicator in determining the collision business. According to Traffic Safety Facts National Center for Statistics and Analysis, miles driven have flattened a bit since 2005. We can only speculate regarding actual miles driven with $4 per gallon gas, but we know anecdotally that people are driving less.

Are you a buyer or a seller?
In every situation there is a buyer and a seller. Most salespeople all too quickly become the buyer in sales situations instead of resolutely staking their claim on the seller’s position. I have conducted numerous sales meetings and classes with salespeople who are the biggest buyers of excuses in the world. These “salespeople” have memorized all of the same negative mantras that their competitors have memorized and use them as an excuse to fail. These “salespeople” need to be reminded repeatedly how to rid their thought process of the negative self talk and replace it with a can do attitude and corresponding verbiage.

Negative mantras to be rooted out:

[list:138jj505]1. It hasn’t rained enough.

2. It is raining too much.

3. We need snow.

4. The snow is keeping customers away.

5. The competition isn’t playing fair.

6. The insurance companies are steering work elsewhere.

7. The kids are still in school.

8. The kids are out of school and everybody is on vacation.

9. The cars are all total losses.

10. People aren’t driving because gas is too high.[/list:u:138jj505]
Listen to your body shop estimators and managers and see if they have bought all this crap. In other words, are they “buying” the excuses of the masses or are they “selling” the points they have some influence and control over? Covey once said that we all too often live within the circle of “concern” (intellectual circle of things we exercise little or no influence over) as a way of excusing ourselves for poor performance. He admonishes that we live within our circle of “influence” (intellectual circle that we can do something about).

Our research has shown that the average dealership body shop is woefully short of its sales potential. Most estimators think they need more traffic to their door when actually they need to sell or close a larger percentage of the current opportunity they have. Sixty-five to 90 percent of newer car drivers are pre-disposed to having the dealer fix their wrecked car. Yet dealers fix a little over 30 percent of the wrecks. Most dealer body shops do not seriously track sales performance so have no real idea what their batting average is. We find by simply installing and using a sales scoreboard we can impact sales dramatically at most shops. Any salesperson can close 80 percent of the opportunity if they learn how to ask for that sale and remain in the position of the seller. I find that most salespeople are delusional about their actual performance. They over-estimate their closing percentage. I say put a great big public sales scoreboard up on the wall and start holding the salespeople accountable to a standard.

Measure the following…

[list:138jj505]Traffic: Dollar value of estimates written daily and month-to-date.

New sales: Dollar value of signed deals daily and month-to-date.

Batting average: New sales divided by traffic. The bottom line is that as a seller you may need to get a bigger piece of the pie since the pie is temporarily shrinking. You will never get there without knowing your current performance in clear quantifiable terms. [/list:u:138jj505]
Next time you hear your people spouting off negative mantras as an excuse to fail, stop them in their tracks and point them toward their circle of influence. This isn’t 911. The market is still large although off a bit. Teach them to ask for the sale early and often. Teach them to keep score. Sit back and watch your performance improve while your competitors remind each other how bad things are.
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Dave Dunn, CCRM, is the owner of Masters School of Autobody Management in Galesburg, Illinois. Masters consults and conducts training classes worldwide for body shops.

How Many Balls Has Your Body Shop Dropped Today?

In 1980 a survey was reported on by a leading industry publication regarding customer complaints. Fast forward to Mitchell Summit 2008. The conclusion of the data group was that we still have the same industry problem. We (the body shop industry) do not meet our own self-imposed targets and deadlines. An interesting finding that involved some of the top insurance providers was that a shop could survive a technical goof-up and maintain the relationship with the car owner. However if a service or “communication” lapse occurred it was very damaging to the trust relationship. Car owners do not expect you to be a fortune teller, but they do like to be remembered and kept abreast of what is going on rather than forgotten about.

Clearly not much has changed since the 1980s regarding our industries communication skills. Proactive communication is essential.

Get organized
Most body shop managers are not trained managers with a day planner and a CRM at their side. Most of us are technicians turned manager. Here are a few simple steps that will go a long way in improving organization.

Daily progress meeting
The daily progress meeting is held early each day. Some hold it before work, others at 9:00 am. The advantage of before work is that there are no distractions. The advantage of 9:00 am is that your day has begun and you know what technicians and cars showed up. Either way you can do what is best in your world.

Who attends?
In a big shop, one representative from each department attends the daily progress meeting. In a small shop (less than 10 employees), everyone can attend.

What is discussed?
Any good organization keeps the relevant numbers alive and visible for all employees to see. Point out things like: sales goal versus achievement; production goal versus achievement; gross profit goal versus achievement. Also look at work available.

How much backlog do you have?
• Cars in today
• Cars out today
• Cars in tomorrow
• Cars out tomorrow

Paint list
• Cars to be painted today (and what order they are to be painted)
• Cars to be painted tomorrow

Special promises
Special promises are normal with a collision job. Things like a customer request for an additional service. Touch up, oil change, wheel alignment etc. I have noticed that a great body repair job can be sabotaged if we don’t remember to perform the little special promises we make to the customer.

How long does it take?
A good daily progress meeting will usually involve some planning. You can build a form that will be easy to use, which requires your shop or production manager to pre-plan the next day or two. Too many managers think they can remember it all and thus the balls get dropped. You will spend around 10 minutes per day holding the meeting. It takes the production manager quite a bit of time to prepare for the meeting. He/she begins planning the next day right after today’s meeting is ended. The form is in a constant state of evolution.

Just like this article, short sweet and to the point. Do these things a fewer balls will get dropped.
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Dave Dunn owns and operates Masters School of Autobody Management in Galesburg, IL. Masters consults with dealerships worldwide. Dunn is also a body shop owner and the author of Liquid Amalgam, a guide to managing service companies.

Fixed Op-portunities

With the current stock market volatility and credit issues, dealers have to look at other gross profit possibilities. Body shop potential is often overlooked. With half of your car sales force sitting around memorizing all of the popular negative mantras of the day, it is important to keep the sales reluctance from infecting your body shop sales force. The tendency is to memorize excuses as to why sales performance is low. In my August 2008 article I admonished your estimators/salespeople to avoid negative mantras commonly used as an excuse to under perform. (Go to the web site and download a copy to refresh your memory.)

This is not 9/11
The sales forces around the country have very fragile sales egos. It is all too easy to listen to the non-stop media telling us that the recent financial events will cause us to under perform. Keep in mind, the crash business is not “want-based” but rather “need-based”. In fact, Masters has discovered that body shops perform better during slightly depressed car sales times. Many collision repair decisions are discretionary in that borderline total losses can be either repaired or totaled depending on customer desire. We find that many consumers elect to repair cars during times like these in lieu of buying new. I recommend that you meet with your body shop managers and remind them of this fact. Fixed operations gross profit can go a long way toward absorbing overall dealer overhead if you are diligent during a down sales period. The pain of 9/11 was real and profound. The car companies panicked and created artificial markets that in my opinion hurt us all long term (zero percent financing etc.). Don’t let your fixed operations people use the recent events as their 9/11.

Capitalize on your competition’s laxness
Trust me, your competitors are shaking in their boots right now. Your perceptions beliefs and attitudes will determine the outcome of your selling situations. Now is the time to gather your troops and remind them of the opportunities available.

[list:c71qajy9]1. Less cars being totaled and more being repaired

2. Total loss thresholds increase as used car prices improve

3. Customer-pay opportunities increase as people decide to hang on to their old car rather than trade

4. Technician availability improves during tighter markets

5. Gas prices are coming down, so miles driven will rise

6. Material prices will stabilize as oil prices drop[/list:u:c71qajy9]
When you capitalize as your competitors hunker down, you win. I encourage you to remind your body shop managers to influence and control what they can rather than wallow in their circle of concern.

The effective managers stand within their circle of concern and fix their gaze on their circle of influence and control. The ineffective mangers stand within their circle of control and influence and fix their gaze on the circle of concern. People who spend all of their time thinking about the circle of concern often get so emotional over things that they can do nothing about that they become paralyzed with fear and become ineffective.

Winners look inward for solutions. Losers look outward for excuses.

These principles will help not only your body shop, but all fixed operations departments.
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Dave Dunn is a body shop consultant, speaker and teacher. Dave is the owner of Masters School of Autobody Management in Santa Barbara California. Dave also owns the highly profitable Dave’s Auto Body in Galesburg Illinois.

Body Shop Culture: Key to Change

Last week in our Masters Advanced Implementation class I had two very successful dealer shop managers. One was from Utah and the other from Ohio.

The manager from Utah, Jesse Thompson, runs a large central body shop servicing several dealers in a large dealer group. Jesse is doing about $4 million per year in body shop sales. I have gotten to know him over the last seven or eight years and a finer man you will never meet.

We have talked about the importance of culture and how it relates to running a profitable shop that would make anyone proud. Jesse told me that when he first encountered our training it was a bit overwhelming. Sometimes a person can see so much that needs to be done that it feels like there is not a good place to start. After a while he decided to start on cultural development and now has transformed his entire shop.

The Ohio manager is Jim Shreve. Jim runs a shop that services several dealers in a group too. The one word that Jim uses continually is “buy-in.” Jim attended a class and I followed up a few weeks later with an in-store visit. Because Jim sought the “buy-in” of his staff and his bosses, he made some remarkable progress. When we first met him he was doing about $1 million per year. Three years later he is doing $3 million per year. Results like that are not typical, even for the Masters’ consultants and teachers, but Jim proved what you can do when you seek buy-in from all parties.

OK – so how do you get buy-in and change the culture? Here I go again trying to answer a complex question with a simple answer.

1. Identify your “unchangeables.”
Unchangeables are absolute standards that you have determined you must use when conducting your business. These unchangeables or core beliefs are essential to consistent decision-making. Once you have identified them, share these ideas with your staff repeatedly so they will think like you. Once people understand how you think, they can “buy-in” to the ideas. After “buy-in” has taken place, you will be amazed at how others’ behavior will work in concert with one another.

2. Keep score!
We live in a society that enjoys sports and we enjoy sports more when we know the score. In business it is vital that our employees have a clear idea of what good performance is and how it can be quantified. I always say, “If you expect people to do well, you must tell and show them what good performance looks like and quantify it for them.” As a business society we all too often measure and then feed back information to the employee retrospectively. Score keeping should be more immediate and dynamic. In fact, I always recommend visual scoreboards be installed for the whole world to see.

3. Regular and formal communication:
The people who excel after our consulting and training sessions are those who conduct quarterly company employee reviews. This is a major tenant of our approach. People need a little time every quarter with the boss. The quarterly review is as much a process to keep you from becoming complacent as it is for the employee to be directed and re-directed.

These are only three of the components that go into culture change, but they are very important. Too many times we learn of a good idea, but get frustrated when our employees won’t adapt as quickly as we would like. Culture grows; it cannot be forced. Once you get people thinking alike you have come a long way toward growing a new culture. Whatever culture you currently have did not just happen in one day. It grew. So maybe it’s time to start growing the kind of organization you can be proud of and that will make you some money.
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Dave Dunn owns and operates Masters School of Autobody Management in Galesburg, IL. Masters consults with dealerships worldwide. Dunn is also a body shop owner and the author of Liquid Amalgam, a guide to managing service companies.

Body Shop KPIs

When the idea of running a shop well and profitably clicked for me I was about 21 years old and managing a Lincoln Mercury dealer body shop. I was fortunate to have a mentor who helped me perform to a high standard. His name was Roy Lewis and he was the fixed operations director. Some 33 years later, Roy’s influence still helps me run my operation plus the operations of my thousands of clients.

I remember at the end of each month being presented with my statement. I anxiously would await the report. Did we make money or lose money was always the question I wanted answered. I remember the utter confusion when Roy would tell me I lost $10,000 or made $10,000. It never seemed to match up to my effort, which was about all I knew how to control. When I would get a bad report, I would be incredulous. When I would get a good report, I was not sure why we made money, but I sure liked it.

Fast forward 30 some years and you will find most body shop managers are just as clueless as I was. Without the coaching from Roy I may still be clueless today.

Important KPIs

[list:17f0ahap]1. Net profit: Net is best calculated this way: gross profit dollars minus overhead expense. Help your body shop manager determine which overhead expenses are controllable and focus on those. Also help him/her see which direct costs can be controlled so as to maximize gross profit dollars.

2. Cycle time: The most poplar way to measure cycle time is what we refer to as “keys to keys.” Keep a log of average cycle time. I can assure you that every car in your shop leaks profit every day it is in your facility, just like a leaky bucket. Shorten cycle time and you inevitably increase gross profit, net profit and CSI. The average dealer shop has a high cycle time of over 15 days. With appropriate cycle time and production management you can shorten cycle time to less than seven days without any extraordinary efforts.

3. Parts to total sale percentage: Calculate parts to total sale by dividing all parts sales by total sales (include materials and sublet). If your body shop is selling parts at an equal dollar amount to labor, you are probably making good money currently. If you are selling a significantly greater dollar value of labor than parts, you probably are struggling with a variety of profit issues.

4. Labor efficiency: Labor efficiency is the relationship to actual hours worked to hours billed or produced. Calculate efficiency by dividing hours produced by hours worked. In calculating “true” labor efficiency you must count all time spent by all techs fixing the car. You cannot ignore prep and detail time. Most shops imagine that their labor efficiency is better than it is. Labor efficiency is heavily impacted by the quality of estimate. Most estimators leave a lot of money on the table due to little or no training.

5. Paint and material to total sales percentage: Paint and material can be an aggravating account. To calculate your P&M percentages, simply divide total paint and materials sales by total sales (including parts and sublet). If your paint and material percentage to total sales is less than 10 percent, you probably are not making much money. If your P&M sales percentage is between 10-12 percent of total sales, you probably are doing fine.[/list:u:17f0ahap]
What Roy helped me to see was that you cannot just focus on the bottom line. You have to look at the key items that contribute to a bottom line. Your body shop can be a real star in profitability. It has been for me for over 30 years. Thanks, Roy.
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Dave Dunn owns and operates Masters School of Autobody Management in Galesburg, IL. Masters consults with dealerships worldwide. Dunn is also a body shop owner and the author of Liquid Amalgam, a guide to managing service companies.