BODY REPAIR INDUSTRY'S NO. 1 ISSUE

Body shop owners and managers seemed skeptical, but not surprised in September when Allstate Insurance announced a goal of 72-hour turn-around on most of its customers' collision-damaged vehicles it repairs.

This new focus on cycle time - an insurance industry term that defines how many days pass between when a claim is filed and when the vehicle is repaired - is bound to affect dealership body shops since insurers and their policy holders will continue to hold higher expectations for speedy repairs.

"That's the number-one issue in the body repair business right now," says Zane Monroe, body shop foreman at Ed Murdock Chrysler in Lavonia, GA. "It's being pushed because insurance companies are concerned with the cost of rental cars."

Mr. Monroe is correct, although rental-car costs are just the beginning. Insurers foresee claims staff reductions from faster cycle times.

In addition, the likelihood of litigation increases the longer a claims file is open. And consumer satisfaction and retention are big factors, too.

"We have done customer-satisfaction studies on cycle time, and there's a direct correlation between every day the collision repairer delivers a car after the promise date, and the percentage of customers who would refer that shop or insurer to their neighbors or friends," says Rod Enlow of the USAA insurance company.

Reducing cycle time requires determining what factors influence it. Shops and insurers seem to agree that parts acquisition plays a big role.

"Most of our delays are parts related," Mr. Monroe says. "If the parts are in stock and you can get them overnight or in two days, you're fine. But in almost 80% of repairs, you need one or two parts that have to be shipped from across the country or from the factory."

Shops traditionally have ordered parts based only on a preliminary estimate - their own or an insurer's - and then faced delays when "hidden" dam-aged parts are found when the vehicle is taken apart.

But some insurers -most notably USAA -now are encouraging adjusters and direct repair shops to list on initial estimates parts that may be hidden and likely are damaged.

Cycle time even has added a new twist to the long battle over non-OEM parts. While many shops say the quality of non-OEM parts has improved, the consistency has not; they don't know if the non-OEM part they are ordering will work.

"If less expensive (non-OEM) parts cause the cycle time to expand rather than contract, those parts will not be supported by the insurance community or the collision repair community," says Bill Lawrence, a former Allstate

Insurance executive now with Caliber Collision Centers, a California-based shop consolidator.

Brent Cech, manager of the Kuni Cadillac body shop in Beaverton, OR, says insurers have helped reduce cycle time by streamlining the claims process for shops. Most larger insurers, he says, approve additional repairs more quickly without repeatedly sending out adjusters as they have in the past.

But a committee of the Collision Industry Conference (CIC) is researching other ways to cut cycle time. It is recommending, for example, that insurers do a better job communicating their pricing and payment guidelines to shops to reduce confusion and "friction."

And, then shops are working to improve their productivity. Brian Perion of the Village Ford body shop in Bollingbrook, IL, says he is trying to schedule vehicles for repair so they arrive on the day he has the parts and personnel to start working on them right away.

"The car doesn't come in until I can get it into the shop and in-process within a day," says Mr. Perion.

Some of the consolidators gobbling up independent repair shops are even experimenting with a more factory-like production model. Rather than one technician doing virtually all of the repair work on a vehicle, a series of teams focus on particular stages of the process as the vehicle moves through the shop.

Each job is designated as a "light," "medium" or "heavy" hit, and is assigned to a "production line" based on this designation.

Does the size of the shop affect cycle time? It can, but layout may be just as critical. A production-type workflow may be just as achievable in a 4,000-sq.-ft. facility as an 80,000 sq.-ft. facility, according to Charlie Baker, an industry consultant and publisher of Collision Repair Industry Insight newsletter.

"I'm kind of coming to the conclusion that a 9,000- to 12,000-sq.-ft. model with about nine or 10 technicians tends to work very well," Mr. Baker says.

"Our cycle time on driveable cars is about six days, which is 144 hours," says Mike Condon of Allstate Insurance.

He adds that the average repair requires 14 actual hours of physical labor. "So you've got 14 hours of actual labor and 144 hours of cycle time. What we want to do is find out what's going on in between, and start working on chopping that time down."

John Yoswick is a Portland, OR-based freelance writer who specializes in fixed operations.

It may sound daunting but faster repair turn-around times are achievable, says Mike Condon of Allstate.

Quicker repairs and a financial incentive for shops meeting time goals are key parts of the insurer's updated PRO (Priority Repair Option) direct repair program.

"Our program is going to change," Mr. Condon says. "It's going to change from something that may have been construed - and maybe correctly - as a cost-containment program, to really what it needs to be, which is a service channel."

Mr. Condon says many of the new program requirements already are being met by well-run shops: contact of customers within 24 hours of assignment; estimates and repairs scheduled by appointment; and a delivery process that's more than, "Your car is back in the lot."

Other requirements, he admits, may be tougher, including 72-hour turn-around of driveable vehicles.

"That one scares a lot of people, but I can assure you it can be done," Mr. Condon says. "You're doing it right now with maybe one or two cars out of 10. What we're looking for is for you to have an objective: 'Okay, we did one or two this week; let's do three next week, and four the following week.'"

Each PRO shop will be required to track and report on its own performance in terms of 10 measurements, including customer satisfaction indexing (CSI).

Shops that meet certain levels of CSI and program compliance in a given three-month period will be given a higher labor rate on vehicles completed in the following quarter.

"We believe that performance somehow has to count," Mr. Condon says. "All the current market-based rate (system) does is strengthen the weak and penalize the people that make investments in plant or equipment or training." Many dealership body shop managers applaud the financial incentive for shops, but are skeptical about 72- hour turn-around on more than 10% or 20% of vehicles.

"When you have to get parts in and get them painted, three days isn't very much time," says Brian Perion of Village Ford in Bollingbrook, IL. "It's just not at all realistic."

The revised Allstate PRO program is being rolled out late this year in five states - Illinois, Colorado, Florida, Ohio and California - with more markets to follow next year.

Problems with non-OEM parts may result in potentially longer cycle times, but for State Farm Insurance they've resulted in massive damages awarded in a civil suit.

A judge and jury in Illinois handed out a $1.18 billion judgment against State Farm, contending the insurer breached its contract with them by requiring the use of non-OEM parts.

Judge John Speroni found that State Farm defrauded consumers by claiming the parts would restore vehicles to their pre-loss condition while the insurer knew they were inferior to the auto manufacturers' parts. He awarded punitive damages in addition to the damages awarded by the jury.

Attorneys for State Farm blasted the decision, reiterated their denials of wrongdoing and announced plans to appeal the ruling.

Company spokesman Dave Hurst says if the verdict stands, "it will mean a move toward a parts monopoly for automakers and higher repair costs as well as higher insurance costs."

At the same time, however, State Farm sent notification to collision repair shops that it was no longer "quoting non-OEM crash parts on repair estimates" - at least temporarily.

While dealership parts departments cheered the trial outcome, body shop managers seemed less sure of the long-term results. Joe Ebenhoe, manager of the Wayzata Nissan body shop in Wayzata, MN, says that like most dealership body shops, his shop uses virtually all OEM parts so the State Farm verdict will have little impact.

Others, like Kevin Good of the Coliseum Ford body shop in Portland, OR, say state law already restricts non-OEM parts usage by requiring vehicle-owner notification and consent.

But Zane Monroe of Ed Murdock Chrysler in Lavonia, GA, says he believes the trial had an impact even before the verdict came down against State Farm.

"In the last year, virtually everything State Farm has figured on their estimates is OEM," Mr. Monroe says. "I think they saw this coming."

With an appeals process that may take years, it will be a while before the nearly 4.8 million vehicle-owners covered under the class action lawsuit see any money. But similar lawsuits planned or filed against other insurers will keep non-OEM parts in the news for the foreseeable future.