After giving a presentation at a repair industry event in Melbourne some time ago on the benefits of using more alternative parts in the repair process, a prominent repairer approached me to challenge me on my theory.
“How are we supposed to make money if insurers force us to use alternative parts and take our margin away?” he asked. “We make our money on the discounts we get on new parts and we don’t want insurers to get any of that!” he stated angrily. I calmly responded, John (let’s just call him John), “what if I could show you and the insurers you do work for, that you can both get what you really want – you make more money on parts, while delivering a better repair cost for the insurer?”
Let’s just say that John is now a strong advocate of both recycled and quality aftermarket collision parts and runs a very successful collision repair business across multiple sites.
A well-structured and developed alternative parts model and pricing strategy makes incredible sense. No funny money funny time, no smoke and mirrors and no magic tricks. It is founded on common sense, open and transparent communication and a willingness to do things differently, that’s right, change. Like anything though, we all need to build the solution and change together, for the greater good of ALL participants in this industry.
But why change anything at all?
Repairers and insurers have made good profits over the years, so why is there a need to do anything differently?
What would Henry Ford or Steve Jobs think about this type of thinking? They did not accept the status quo as the way of the future and changed the world because of their foresight, ingenuity and willingness to find a way to do it better.
If Henry Ford wanted to improve the mode of transport by tweaking the existing model a little, he would have tried to find and train faster horses. No, he changed the game and we all have him to thank for making the change he did. Most importantly, he understood that he needed to drive it, rather than seek approval, “If I had asked people what they wanted, they would have said faster horses.” Henry Ford. There are times when we ask, and there are times when we do. Now is the time to lead and drive the evolutionary change.
And Steve Jobs? He didn’t want to make a better phone, he invented the ‘iPhone’, 3 existing technologies in one – the mobile phone, mobile internet/email and the iPod all in one. He didn’t make a small change to a product, he changed industries.
Every now and then, industries are ready for change if they are to enter their next phase of growth and development. Not small tweaks or adjustments, but real game changing innovation. The collision, insurance and parts industries are at this critical point, and we are in this TOGETHER. They are not mutually exclusive, in fact the performance of one directly affects the others, so trying to change one part without the support of the others is not going to achieve the desired outcome.
Of course, it is easier to do nothing and hide behind the need to act or invest, or to believe that the demand for our products and services and historical profits will grow at the same pace as we have experienced in the past. Then you have the market leaders who want things to stay exactly the way they are and prescribe to the philosophy that if it is not broken, there is nothing to fix, so why change? Sure, this is an option for those that wish to take this path.
Let me remind you of industry leaders that took this view – Xerox, Kodak, Blackberry, Motorola, Ericsson, Nokia, Sony Walkman. All household names and leaders in their segment only 10-15 years ago. I asked my children (17 and 15 years old) what they knew about these companies a couple of weeks ago, and I got ‘what is a Xerox machine?’, ‘Are you serious, you used to load a CD into a portable player and listen to it on the go? What about if you wanted to listen to different artists and share the playlist with your friends?’.
We will look back at the changes over the next 10 years as a time where our industries changed. We will see new industries and sub-industries develop, while others will disappear. There will be new household names, while others will be slowly forgotten or become irrelevant. Insurance will not look the same in 10 years’ time as it looks today with the advent of collision avoidance and driverless car technologies. Consequently, the collision repair and parts supply industries will also change – there will be winners and there will be losers.
So back to John’s experience. John has worked closely with his work providers and with his parts supply chain to develop a model whereby all three parties achieve the outcome they all want. As a result, John has differentiated his service offering from most other collision repairers and created a great value proposition, all the while increasing his volumes and margin at the same time as reducing his average repair cost.
STOP right there.
I know that you are thinking that this is not possible. That exact thinking process will restrict your opportunity, so stay open minded and at least give it a chance. NO this is not a typo and YES this is possible, so let’s start to think and act differently!
The secret sauce.
It turns out that the thing that we are so protective of, the secret sauce, is not such a secret after all. You see, on average, 45% of a repair cost is in parts. This is a large proportion of the value of every repair and herein lies the opportunity.
In my next article I will expand on how you too could take a lead and, like John, reap the benefits, not only today, but into the future. I will break it down by stakeholder and outline some of the actions each may wish to consider taking to play their part.
If you enjoyed this article please leave a comment below - I would be interested in your thoughts and ideas. Don't forget also to share it with your friends and associates and like me on Facebook/Linkedin.