Shops talk about succeeding without participating in direct repair programs
By John Yoswick
While it’s difficult to determine exactly what percentage of U.S. shops are “DRP-free,” a recent survey indicated that more than two-thirds of shops participate in one or more direct repair program with a Top-8 insurer. Of the 769 shops who reported their DRP status in a recent “Who Pays for What?” survey (www.crashnetwork.com/collisionadvice), 68 percent said they have a DRP agreement with one or more of the eight insurers asked about in the survey (State Farm, Allstate, Geico, Progressive, Farmers, Liberty Mutual, Nationwide and USAA).
Although one-third (32.6 percent) of the shops reported having no DRP relationships with any of the eight insurers (a statistic that matched the findings of at least two previous “Who Pays” surveys), some of them may have DRP relationships with other smaller insurers.
Given that, it seems reasonable to infer that fewer than one-in-three U.S. shops is DRP-free.
So what played into those shops’ decision about that business model, and how are they making it work? Does being DRP-free work across a wide or narrow range of shops (in terms of size, years in business, urban or rural location, level of specialization)?
Although the following interviews with non-DRP shops are anecdotal, they offer a look into the day-to-day operations of shops free from insurer contracts.
Finding a marketing focus
One key question for non-DRP shops: What marketing efforts do they use to attract work in place of insurer referrals.
Bianca Rauser, owner of Kolor Worx in Barling, Ark., said as a relatively new company (less than three years old), her shop has focused on attracting younger customers who don’t already have a shop “that they’ve always used.” She said give-aways on social media have proven an economical marketing tool, as have online reviews (something they encourage their customers to provide).
Many long-established shops boast about fixing the cars for the (adult) children and grand-children of previous customers; Rauser said her shop’s approach has likewise helped them attract the parents and grandparents of their customers.
She said she doesn’t rule out ever joining a DRP, but she has worked at shops in the past that had them and found them to be “a headache,” and she appreciates not feeling like she has to offer discounts or compromise quality.
Lobbying for customers
Charlie Corwith said he ended his DRP relationship with Allstate in about 2000.
“They came to my shop and said our average price per claim was too high and that we needed to start skimping on repairs, and give them a parts discount and free storage,” said Corwith, owner of Corwith’s Auto Body in Water Mill, N.Y. “That night I wrote them a letter resigning from the program. Within two months, we dropped all eight DRPs we had.”
Corwith claims the decision had no negative impact on his business, with no loss in sales and an increase in profits. Among the reasons he cites is his family’s 350-year history in the community.
“Everyone knows us,” he said of his 39-year-old company, which has eight employees. “Our repair quality reputation is second-to-none.”
The shop also offers some additional products and services, including tires, road force wheel balancing, lift kits and light mechanical work.
Corwith said it can’t hurt that his business is located in a town with one of the most expensive zip codes in New York, where the median home price is nearly $3.8 million (though he jokes that because he does insurance-paid work, his home’s value is just $550,000).
“I think the biggest benefit of not being a DRP shop is we can lobby for our customers by being truthful with them about how repairs will be done and what type of parts will be used,” he said.
Marketing OEM certifications
Perhaps not surprisingly, many of those eschewing DRP relationships are dealership shops (or those with close ties to dealerships). Eric McKenzie is the director of body shop operations for the Park Place Dealerships in the Dallas-Ft. Worth area. The company operates three shops (including one 110,000-square-foot facility) with 130 employees – and no DRPs.
McKenzie said before joining the company 11 years ago, he worked at a shop with DRP agreements.
“I thought bringing some into Park Place might help with the cycle time, which was atrocious at the time,” McKenzie said. “Once I got settled and established some much-needed processes and procedures, I quickly realized that we had plenty of work and would be in much better shape [remaining] without DRPs.”
He said he also recalled that as his previous employer would drop a DRP agreement, “we would have a slightly lower car count from that insurance company, but would make more overall revenue per month with the remaining vehicles than we did with the higher DRP car count.”
McKenzie said Park Place has OEM shop certifications for the 10 car lines the company sells, and it emphasizes in its marketing the importance of using a manufacturer-certified shop.
“This task has become increasingly important to combat rampant insurer steering that goes on in our market, mainly directed to the 70-plus MSOs in the Dallas-Ft. Worth area,” McKenzie said.
He said that although insurance approvals for estimates and supplements can often be slow in coming, the advantage of “not having insurance companies attempt to tell us how to repair vehicles,” offsets any downside to not having DRPs.
Treating all customers the same
Joel Ozbun said his family-run business, Linear Automotive in Plano, Texas, doesn’t have any ties to dealerships though it also serves primarily the high-end vehicle lines in the Dallas market.
“I’ve always been anti-DRP, since they begin in the late 1980s,” Ozbun said. “I’ve never once been on a DRP with any insurance company. They approach us very often. I respectfully turn them down and tell them I’m not interested.”
His reasoning is much like that of other non-DRP shop owners.
“You’re going to have somebody directly dictate to you how to do the repair on the car, which is not their job,” Ozbun said. “That’s the repair shop’s job. When you become a DRP, the insurance company becomes your customer rather than the [vehicle owner]. When you rely on an insurance company to be the one that sends you work, then you’re not building your customer base or clientele on your own. You’re basically paying somebody to send you work by giving them a discount.”
Taking on a DRP now, he said, would require him to put that insurer’s work ahead of the clientele he’s organically obtained.
“I’m not going to do that,” he said. “Every customer who walks in my shop gets treated exactly the same, as does their vehicle. Trying to do high volume, the first thing that gets sacrificed is the quality of the work. It’s easy for us to compete against those types of shops in this market. We’re going to do quality repairs, and make our success on just that: quality repairs.”
Ozbun opened the shop five years ago and has grown every year, last year bringing in revenue of about $3 million. While the shop works on all makes and models (up to 10 years old), it specializes in higher-end vehicle lines like BMW and Mercedes-Benz.
The company offers complete mechanical and glass services in-house, in addition to collision repair. While the shop has some factory-trained technicians and is equipped to meet automaker certification requirements, that’s not something Ozbun has sought out as yet, given the expense.
“Though that’s where the market is going, and it’s something we’re going to have to do,” he said.
He said another key to his company’s success has been paying above-market wages.
“I give up money to obtain quality people,” he said. “I would rather give up my money there than I would be to give it up to a [DRP] discount.”
Keeping rates rising
A shop owner in Arkansas who asked not to be identified said his 40-year-old business has continued to thrive after cutting ties with six DRPs about a decade ago.
“I could see where State Farm was heading with the Select Service program, and I did not want any part of it,” the shop owner said. “I didn’t see any drop at all without the DRPs. We are just as busy as we were before.”
He acknowledges that his shop is located in a very rural area, with only a half dozen other shops.
“We have always strived to do the best work in town, always catering to the needs of our customers,” he said. “My shop has a great reputation because we stand behind all our work. Service and quality set us apart from our competition.”
He said the biggest benefit of not being on any DRPs is not being “dictated to” in terms of what he can charge.
“We have raised our rates three times in the last 10 years, and are now the highest-paid shop in the state of Arkansas,” he said. “State Farm now says their survey shows we should be charging 13 percent less than what we’ve been paid for more than five years. If I were [on their DRP], I would have to drop my rates. I don’t plan on moving backwards. We just increased our rates instead by 10 percent.”
Free from headaches
After 18 years as a dealership body shop manager, Joe Villarreal went into business for himself two years ago at Quality Collision Center in McAllen, Texas. He said he was involved in a number of different DRPs while a bodyshop manager, but isn’t at his own business.
“As an independent owner, I have been able to work without them and put out a more quality repair I ever did that when I repaired a DRP vehicle,” Villarreal said. “The way I see it, if you rush a repair, you cannot expect it to have the highest quality because [under DRPs] you are more worried about getting it out the door so you won’t get penalized with a car rental bill or [bad] cycle time numbers.”
He said at times when business had dropped off at his shop, he’s thought, “What if I had a DRP?”
“But then I remember all those headaches I had, and I just don’t think its worth it,” he said. “So I concentrate on making sure with all the extra time I instead get everything I can get paid for before the vehicle leaves, and before you know it, the shop gets busy again. Not having DRPs gives you the liberty to implement your own shop processes that allow you to put out a great product with great service. It just feels great when your customers are your marketing department.” •
John Yoswick, a freelance writer based in Portland, Ore., who has been writing about the automotive industry since 1988, is also the editor of the weekly CRASH Network bulletin (www.CrashNetwork.com). He can be contacted by email at john@CrashNetwork.com.
