More than a year after State Farm's roll-out of its Select Service program, collision repairers we spoke to are split almost evenly over their enthusiasm for the program. About half of those shops that we spoke to that are on the program view it as positive for their business. And about half (including some on the program but many who are not) hold a more skeptical or negative view.
Those findings are based on interviews prior to State Farm's announcement on Aug. 31 that it is about to test a new parts purchasing program (see sidebar). But for now, Gil Grieve is among those on the new program who hasn't seen it as a particularly big change for his business. Grieve, the owner of Concours Body Shop in Reno, Nevada, hasn't seen any increase in State Farm business since the program rolled out in his area. He acknowledges, however, that weather and other factors may be contributing to an overall decline in his business this year.
He does, however, see that State Farm's staff in his area appear to be busier.
"We've seen more State Farm estimates written by their outside people than we had in 10 years," Grieve said.
He believes there are still a large percentage of vehicle owners who aren't interested in a shop recommendation from an insurer, and so with no shop in mind -- or if they choose a shop that is among those that aren't part of the new Select Service -- staff appraisers are having to prepare the initial estimate, something that happened less frequently under Service First.
Another reason that the "best pricing offered" requirement of the new State Farm program didn't impact Grieve's business is because in 2004, he discontinued most of his company's direct repair agreements with insurers. Because he wasn't giving parts or labor discounts to other insurers, he didn't have to extend such discounts to State Farm.
Grieve said that is one of the better parts of the program because it has forced some shops to reevaluate the discounts they've been offering other insurers. He's even picked up one more DRP -- again, without offering any price concessions -- with a carrier with which he previously had not had a great relationship. That insurer, he said, had been "blown out" by another shop when the carrier wouldn't pay the higher rate that shop was asking for to avoid having to extend its discount to State Farm.
"It's making the other carriers step up," Grieve said of the new Select Service.
Indeed, about one-third of the shops on the new program interviewed said they reduced discounts to other carriers rather than extending them to State Farm. Another third lowered their State Farm rates, while the remaining third, like Grieve, made no change.
Some see growth
Though Grieve has not seen an uptick in State Farm business since the program rolled out in his area early this year, others elsewhere in the country say they have.
Like Grieve, Gary Wano, Jr. said his company, GW & Son in Oklahoma City, Okla., had only one other DRP and so has not had to extend any additional discounts to State Farm. He's cautiously optimistic about Select Service.
"Since the program began, we have seen a noticeable increase in State Farm work," Wano said. "We realize the program is in its infancy so we are aware that some of the aspects of the agreement have not come into (play). I can see some potential challenges as the program matures, and each repairer will have to determine based on their business models whether the program will be worth (continuing.) That's the way we will do it."
Darrell Amberson, president of Lehman's Garage, a six-shop collision repair business in Bloomington, Minn., said his company also has seen an increase in State Farm work since the program's roll-out in his market.
"(Being on the program) has helped our business," he said. "I know I've read surveys that find many shops say they have not seen an increase and may have even seen a decrease. So I suspect my experience is not universal."
But like Grieve, Amberson agrees the "most favored nation" clause in the Select Service agreement regarding pricing has been a good wake-up call for many in the industry.
"I like that it has put us as repairers in the position to look more closely and perhaps take a little firmer approach toward those insurers that are the most aggressive (in requiring) lower rates and discounts," he said. "That's something we probably should have been doing a better job of all along. Often in the past, the higher rates we as an industry were paid by State Farm were kind of a crutch that allowed you to sort of bargain away some portion of your business at a lower rate, so I like the fact that it has pushed us to take a close look at that and not be as inclined to offer that long deal to somebody just because your know you're going to get paid more from somebody else. It puts the insurers more on a level playing field."
Betsy Fessler said she and her husband Robert have seen about twice as much State Farm work at their shop, Fenders Collision Center in Sunnyvale, Calif., since the 11-employee business became part of the new Select Service program last October. Fessler said their rates to State Farm dropped because she had been unsuccessful in getting other insurers to pay higher rates.
"But we subsequently decided if we can't get the (lowest-paying companies) to increase to the new labor rate, then it wasn't going to be worth it for us to keep on as one of their direct repair shops," Fessler said. "Every one of them came up to that very point, and one or two actually offered us much more. It makes me wonder why I didn't push for that so much sooner. We get so complacent sometimes."
State Farm continues to enjoy more of a discount than it received previously at the shop, however, because of one other major DRP the shop has, Fessler said. Still, the increases from some of the other carriers, and the increased State Farm work, has made getting on the program a good move so far, she believes.
Others see declines
Some of that increased work may have come at the expense of Steve Sturken's business, Sturken Auto Body, in San Jose, Calif., about 11 miles from the Fesslers' shop. Sturken, a past president of the California Autobody Association, said he is among the estimated 40 percent of former State Farm Service First shops nationwide that are not part of Select Service. Last fall, about two years after moving into a 21,000-square-foot facility (which doubled the shop's footprint), Sturken learned that his Select Service application was denied.
"It's hurt me a lot because I thought I was in and ended up being out, and that has cost me $40,000 a month," Sturken said.
Other than State Farm, the shop has done little DRP work, instead preferring to focus on dealership referrals. Though obviously stinging from the loss of the State Farm program, it's a reminder of something Sturken said back in 2005, long before Select Service had been announced.
"DRPs are a model that works for a lot of people," Sturken said then. "Most large shops are successful because of that model. But you have to know how much control of your business you want to have, and how much you're willing to give away. I like to control my own destiny."
Others who take a dim view of Select Service don't do so because they were turned down for the program. Curt Nixon, the third-generation president of L Monty Body Shop in South El Monte, Calif., chose not even to apply for Select Service. Although the shop participates in about a dozen other DRPs (and had participated in Service First), Nixon found certain aspects of the Select Service agreement unpalatable.
In particular, he said, pricing structure is one of the few pieces of proprietary information to which shops have not given up access. He also does not believe any insurer should expect the best of all discounts regardless of how it compares -- in terms of sales volume or other program requirements -- to other carriers a particular shop may work with.
"We didn't do a huge amount of volume with State Farm anyway, so it was relatively easy to say no thank you," Nixon said. "We went from maybe eight cars a month to maybe four cars a month. Not a huge loss. But because of the loss we would have had in order to extend the discounts to all eight of those cars -- and we weren't confident that count would increase -- I think we're in a better position. And the shops around here that stayed on (Select Service) don't seem to be exploding with volume like everyone thought they would."
The next test of the industry's view of Select Service will come in the next few months as the long-rumored reach of the insurer into the parts procurement process becomes a reality.
State Farm to test its reach into parts procurement process
They aren't buying the parts directly. They aren't specifying from whom you are to buy the parts. And they aren't, it appears, taking a cut of your parts profit. But for Select Service shops in at least two markets for now, State Farm is definitely getting involved in parts procurement.
The insurer on Aug. 31 announced a test this fall in the San Diego and Indianapolis markets of an electronic ordering system for parts. Select Service shops in those markets will be required to use a particular software system -- State Farm for now is not saying which one -- but can purchase parts through any dealer that is also set up to use the system.
George Avery, a State Farm claims consultant, said the intent of the program is to test the added efficiency, accuracy, and other benefits of electronic parts ordering, and that it will save the insurer money because of "an OEM provided discount."
"The details on how that actually works, we're not in a position to talk about," Avery said. "But it's really built with two things in mind: That the repairers can still buy from whom they want. And two, we're not going to get into their profit margin…. We understand how important that is to the repairer."
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