An open letter from AASP/NJ Executive Director Charles Bryant
There has been plenty written already on State Farm’s PartsTrader program. The fox (State Farm), via George Avery, is actually surprised that the chickens (collision repair industry members) are nervous and upset at their uninvited entrance into our coop to “fix” something that we contend isn’t broken, and at their offer that we can’t refuse…literally.
They keep telling us that this is a “win-win” proposition. In reality, “win-win” is an overused phrase to describe an arrangement that is almost always “win-lose.” There are, however, some true “win-win” scenarios in our industry, and so it would not be fair to refute Avery’s claim without a closer look. Before we do that, though, let’s first agree on a couple of assumptions. First, I’m going to assume that, within the vast empire of State Farm, there are some fairly intelligent people who are capable of analyzing the business of auto insurance, the business of collision repair and the claims management process. They do this not because they have nothing better to do, but because they have been tasked with the pursuit of higher profits. Despite what our current President has been telling everyone, our capitalist system was built on the selfish pursuit of profit and wealth. State Farm shouldn’t apologize in its quest to maximize profits, but neither should the collision repair industry. Profit is both good and necessary.
Second and just as importantly, I’m going to assume that the collision repair industry also contains many highly intelligent people – people who have built and currently operate successful businesses. People who are constantly innovating and looking for new ways to improve their processes. People who know how to crunch numbers. People who know what it takes to generate a profit which allows them to invest in their businesses and to fairly compensate themselves and their employees. So, as the title of this article states, while you [State Farm/Avery/PartsTrader] continue to tell us that this program is a good thing for the collision industry, I ask that you at least refrain from insulting our intelligence.
The parts component within collision repair is a complicated one, with a multitude of variables. So why does State Farm want to get into the parts business, especially when it involves significant resources within State Farm to manage it, and a fat check being cut to a third party (PartsTrader)? The simple answer is that they want to lower their average severity, which is an Orwellian way of saying they want to PAY OUT LESS. Yes, they believe that this program will mean smaller settlement checks than would otherwise be written, and if I am smarter than a 5th grader, that means more dead presidents in the pocket of State Farm. There, I said it, in simple language without using ambiguous and insulting phrases like “seeking greater efficiency.” State Farm simply wants more profit! There is no such thing as too much profit, and as Avery reminded us at CIC in July, State Farm is a mutual company which is obligated to maximize its profits.
But repairers have the exact same desire to maximize their profits, and they are similarly OBLIGATED to maximize their profits on behalf of their families and employees. So if they are buying parts at a discount of 25%, their goal is to somehow find a way to get this number up to 27% or 30%.
That said, all that’s left to determine is whose pocket(s) that additional profit will come from. From a common sense “napkin” analysis, State Farm’s additional profit will either come from the parts vendors or the repairers, or both. If you carefully read all the statements that have been issued by PartsTrader and State Farm, nowhere will you hear from either party that this program is guaranteed to not negatively impact the profitability or the profit margins of the repairer. They haven’t made these statements because they know they can’t.
The dollars State Farm desperately needs/wants will have to come from somewhere. The reports that came back from the PartsTrader program in New Zealand were alarming – the program almost eliminated gross part profit margins there. PartsTrader responded by stating that the US program is different than the NZ program and thus shouldn’t be compared. Is this an admission that the PartsTrader program in NZ did indeed harm the collision repair industry? If this is true, what steps has PartsTrader taken in NZ to remedy the harm their program has done? Are you, the fox, telling us that while yes, you did kill and eat the chickens in NZ, you won’t do the same here in the US?
If the above assumptions are correct, then we can dispense with all the carefully worded statements that do nothing but insult our intelligence. Rob Cooper of PartsTrader assures us that it is a good tool for repairers and that their “interests are in the right place,” while pushing a product in the US that has no voluntary collision repair customers; only those that have been coerced into using it. State Farm “knows it is getting into our business”; it simply wants higher profit, and doesn’t seem to care if it is at the repairer’s expense. The battlefield is set.