Strange title huh? Not a complete sentence. Not even a complete thought. Yet if we add the words "THE PRICE WILL ALWAYS BE CHEAP" it makes perfect sense. That my friends is what we will be talking about this morning, pricing and who should control it.

I know that all of you feel helpless when you decide you need an hourly rate increase. We all realize shop owners can't get together with their competition and agree to anything that deals with pricing. We also know that simply telling the insurers you do business with that you are now charging X number of dollars more for an hourly rate doesn't work either.

It is very frustrating when a business owner isn't free to control what they charge for their work. In fact, other than insurance, I can't think of any other industry where the buyer tells the seller what they are going to pay for the sellers services. I know all the rationalization used by the insurance industry, but nothing really flies because lets face it there really isn't any system in place that accurately reflects the true prevailing hourly labor rate.

Insurers should all be forced to do labor rate surveys, and in one state they are, but even that method has its problems and can't be called successful. Everyone in the collision industry would love to see a fair system established so there was some control over how prices were established. But insurers seem happy with the confusion that exists today so there isn't any rush to change the methods in place at this time.

Look around the country at the variances in what collision shops in different cities charge for their work. Everyone that owns a collision shop has been told by the insurance companies that regardless of the rate being charged across the country the average severity is just about the same. This is a tough pill to swallow when a job consists of mostly hourly book time. If there are 20 hours of labor on a job without any judgment times, a shop in California that charges $20.00 per hour more than a shop in the Midwest will receive more money. Yet you are asked to believe that all things are equal.  Actually several years ago this was probably even believable, but as time has gone on the estimates written today contain more R&R time than it does judgment time so I don't see how the severity in different areas could even be close.

State Farm continues to be the only company that does a survey, albeit not the same as in the past. Today a shop owner must log on to State Farm's B to B site and post their rates. The good thing is you could do it everyday if you wanted to. The bad thing is that the job of logging on to the site takes more time and energy than a lot of shopowners are willing to expend. Thus even if a State Farm claims person explained how to log on and post new rates a significant number of shop owners would simply not do it.

I believe many other "bottom feeder" insurers use a survey system of finding out who charges the least amount per hour and than simply setting that number as their prevailing rate.

How can there be a real prevailing rate when the difference in what an insurer is willing to pay per hour in a given area might differ by five or six dollars an hour depending on what insurer is paying the bill.

What is also interesting is that some of the better insurers pay higher hourly rates than some of the known "cheapskates", yet their premium rates are still competitive. Makes you wonder doesn't it?

There needs to be a solution to establishing hourly labor rates that is fair and legal. Obviously having a collision association do a survey is not the answer because nobody would believe it was legitimate.  Insurers could be required by law in the various states to do their own survey, but again no one would believe their results either. There is a solution that would work very easily. That would be having the state do the survey. If the state had shop licensing that required an annual application and fee the state could simply add a rate questionnaire to the annual paperwork. States that didn't have shop licensing could charge a fee for the survey, which would also create a little extra money for the general fund. This may be over simplified, but it actually could work.

Having the state do the survey would also take away the intimidation factor for many collision repairers. I'm sure you know how that used to work when State Farm did their survey face to face with repairers. For fear of losing work the shop owner would be afraid to give their actual rates to the State Farm employee. I know you might not believe this happened, but it did, even when there really wasn't any intimidation.

Although solving the labor rate problem seems so simple, when you think about we all know that it is probably the industries toughest task, but don't you think its worth it?

HOME WORK

This week as you go about your business I would challenge you to try and get away with the following:

•  Tell your gas station dealer that regardless of what he is charging you will only pay $1.00 per gallon

•  Tell your butcher that you found some stores that were selling steaks (although not the best steaks) at $1.00 a pound so that is all you will pay him for his meat.

•  Write a letter to your insurer explaining that you have found several companies willing to sell you auto insurance for much less money so that is all you are willing to pay your insurer.

Please report your results to me ASAP