Collision Division Gets Answers on State Farm Select Service Parts TestPosted 5/1/2008
The ASA Collision Division Operations Committee presented questions to George Avery, claims consultant, property and casualty, of State Farm concerning the State Farm Select Service Parts Test. Here is State Farm’s official response to those questions.
Q: What type of parts ordering system is being required for the test of the State Farm Select Service program?
Avery: This test involves the use of more than one electronic parts-ordering system. State Farm makes it a practice not to reveal the identity of our vendors. The overall goal of the State Farm parts test is to increase efficiency by improving the accuracy of ordering parts and parts-related items.
Q: Can you give an example of how the Select Service parts test is to work in regard to fair market value of parts as it relates to profit and how the dollar amount will be set?
Avery: The parts discounts obtained during this test will be funded by the original equipment manufacturers (OEMs). A component of the test is to evaluate the parts-ordering systems’ ability to administer the OEM discounts. The process is designed to enhance service to customers without affecting repairers’ profits on parts.
ASA Collision Division Comments: Here’s an example created by the ASA Collision Division team. Let’s say that on a $100 part that you are now buying for $70, State Farm has now negotiated a discount from the manufacturer (let’s say 3 percent). So, that means you will pay the discounted price but the list price will remain at $100 and a discounted price of $97. You will still make the original profit of $30.
To restate, the discount is coming from the OEM. The OEM refunds the balance back to the dealership. So, the dealer is not covering the discount.
Q: How have dealers responded to participating in the parts ordering program?
Avery: So far, a large majority of dealers are participating in the test markets. State Farm anticipates dealers will embrace the process because of the potential efficiency gains.
Q: What can repairers involved in the Select Service program expect to happen if their preferred dealer does not participate in the program?
Avery: Repairers are free to choose their parts suppliers. Select Service repairers who choose to order OEM parts from non-participating dealerships will be required to match the discounted pricing obtained through the parts-ordering process.
ASA Collision Division Comments: In other words, if a repairer has a good relationship with a dealer who elects not to participate, then, by the Select Service agreement, the shop would still be required to provide the parts discount and put that in their estimating system. A shop is welcome to work out part discounts with dealers of their choice.
Q: How does the discounted parts program with the OEMs affect the discount structure that the shop has arranged with dealers as of now?
Avery: We don’t anticipate any impacts. Repairers are able to maintain any relationship (including discount amounts) they have established.
Q: There are “problem child” parts out there from time to time. When the repairer gives the part number and orders it, the shop may get the wrong part. Now the shop has the wrong part and needs to deal with it. The concern is that the shop will get hung handling the difficult parts, and the easy parts will be shipped to them.
Avery: The parts handling process for Select Service repairers will not change. If repairers get the wrong part, they continue to use their current parts return process.
ASA Collision Division Comments: Parts ordering and accuracy improve with the relationships parts managers have with parts suppliers. Having a good line of communication between the two can benefit the entire process.
Q: You mentioned the scrubber – sometimes a shop will be contacted by a parts person noticing a piece that is left off of the order. Does the scrubber do that?
Avery: We anticipate that the VIN decoding will improve the accuracy of the parts order; however, there will continue to be a need for repairers and dealers to communicate about additional parts that may be required. While the parts-ordering systems may provide additional features for repairers such as sending notes and providing photos, there may be exceptions when the repairer and dealer will need to communicate more directly.
Q: For parts not on the list, does that require an additional order?
Avery: No, the parts-ordering systems have the ability to add additional parts to the order.
Q: In the agreement that was arranged between State Farm and the OEMs, is there anything that protects the dealer from sharing in the payment of the parts discount?
Avery: The agreement is between the OEMs and State Farm and we are not at liberty to disclose details of the agreement. The relationship between the OEM and their dealers is a separate issue.
Q: Dealerships are speaking about this test, and there is a concern among dealers that the OEMs will start “squeezing” the dealers and, over time, the discount will come out of them and not the manufacturers.
Avery: Our intent is that this process is beneficial to everyone in the supply chain.
Q: As far as the OEM discount, has there been discussion with the European manufacturers for a discount?
Avery: At this point, we have developed a limited number of OEM relationships. There may be an opportunity to develop additional relationships in the future with other OEMs as the process expands.
Q: Is the percentage going to be applied to just the “Big 6” or would this be applied across the board?
Avery: State Farm has agreements with six OEMs. We may develop relationships in the future with other OEMs as the process expands.
Q: When new programs come out, there is a concern that other insurers will have an ulterior motive to sneak into the parts profit center of the shop. How can State Farm communicate better by stating how important it is to protect the profit center of the shop?
Avery: Our intent is to work with parts manufacturers and suppliers in ways designed to enhance service to customers without affecting repairers’ profit on parts.
ASA Collision Division Comments: To date, there is no mention of an exclusive agreement between OEMs and State Farm. If other insurers enter into the parts ordering process and their offers are less than profitable for collision repair shops, it will be an individual shop’s decision as to whether to establish an agreement.
Q: There is a concern that when other insurance companies start a parts discount program with OEMs, they will get a larger discount on parts. As a result, could State Farm see that larger discount and then request an even larger discount on parts from participating shops?
Avery: State Farm believes it is important to work with repairers to provide a top-notch customer experience during the collision repair process while maintaining a balance of quality, efficiency and competitive pricing.
ASA Collision Division Comments: From our past discussions with State Farm, all indications are that State Farm is looking to level the playing field and although State Farm may not ask about larger parts discounts, if those exist then the expectations of State Farm would remain the same.
Q: At the International Autobody Congress and Exposition last fall, State Farm made the comment that, in the future, they would be looking at towing and rental and that has been the buzz.
Avery: State Farm continues to look at ways to enhance the customers’ experience during the repair process. Towing and rental are two examples that may be considered.
Q: Is there any methodology built into the electronic parts ordering system to make sure that the parts ordering invoice will show the list price and the discounted price to ensure that the accounting was set up correctly?
Avery: The parts-ordering systems are set up to show that the parts pricing and accounting is being accurately administered according to our agreements with the OEMs and Select Service repairers. Efficiency is the key and having an accounting system that allows all participants to see the adjustments is necessary.
Q: Is this just OEM parts or does this also include reconditioned parts, used parts?
Avery: The discounts apply to new OEM parts from the OEMs that are participating in the test.
Q: A lot of dealers do cost factoring, taking a part below an amount and then adding a certain percentage to it. Will dealers be allowed to continue to do that?
Avery: Our intent is that this process is beneficial to everyone in the supply chain. Because we do not have agreements with the parts dealers, we are not in a position to comment on what parts dealers can or cannot do with regards to pricing of their parts.
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