March/April 2000

 

Finding the Middle Ground

Minnesota auto glass shops face pricing
regulations and give-away standards

by Ellen Giard

It’s a common marketing tactic employed by companies across the globe: buy a certain product and get something in return, be it a 20-ounce soda for a gasoline fill-up or a set of knives for an approved credit card application. And like the gas stations, credit card companies, and all others using a “hook,” several Minnesota glass shops followed suit with advertisements offering everything from a box of steaks to cash rebates and deductible waivers. The couponing and giveaways, however, were tagged with a price—that of a proverbial internecine war in the Minnesota glass industry. The war pitted glass shop against glass shop and resulted in an uneasy alliance between parts of the glass and insurance industries. And once the dust cleared, all that was left was one of the broadest state laws ever passed about the auto glass industry—one that allows a third-party “survey” to determine market values for replacement windshields and glass parts.

 

The Opening Shot

Insurers have been known to short-pay invoices without geographic bounds (see “Get Shorty,” AGRR premier issue, page 17) and Minnesota was no exception. Fed up with what he perceived as unfair deductions from his payments, George Cor-poraal of George Corporaal’s Glass Service of St. Paul sued Progressive Insurance when it began refusing to pay full invoices in 1996. Corporaal, famous in Minnesota for offering a ‘box of steaks’ as a customer incentive, won his lawsuit against Progressive in 1999, and was hailed as a hero among local shops at the time.

The Minnesota Department of Commerce then issued a bulletin stating that insurance companies that fail to assume “all reasonable costs sufficient to pay [its] insured’s chosen vendor for the repair or replacement of comparable window glass” will be in violation of State regulations.

To hear the insurers tell it, they were now required to pay “all reasonable costs,” and glass shops began to include a lot of “unreasonable costs” in their definition of “reasonable.” To hear glass shops tell it, it was the first time in years that they had been free to charge market prices and the market determined what it would bear. And it would come to bear plenty.

By including the costs of marketing efforts, such as the “extra” for a box of steaks or gift certificates for a windshield replacement, glass shops were free to provide and recoup incentive costs. “At one time in Minnesota, we had TV and radio ads offering everything from boxes of steaks to $250 savings bonds,” said the owner of one glass shop who preferred to remain anonymous. “It was very aggressive and easy to see why we had come to the attention of the state legislatures.

 

The Counter Attack

Insurance companies fought back, citing higher aggregate insurance prices as a byproduct of the give-aways. According to Minn. representatives Ken Wolf and Cal Larson, a state senator and former insurance agent, couponing is leading glass shops to over-bill customers. The insurance lobby cited an insurance study saying that Minnesota consumers pay 69 percent more than the national average for windshield replacements. Insurance companies claimed that the average invoice price had more than doubled since 1997—from $450 to $900-1,200. Larson and others in opposition believe glass shops lure in customers with giveaways, then charge insurance companies with inflated prices.

Insurers, in heated angst over the couponing and rising windshield replacement costs, sought a compromise with the glass industry and drafted a bill that would regulate the current pricing means of auto glass shops and limit rebate offers.

 

The Cease-Fire

First, the bill stated that no glass shop could offer an incentive in excess of $35, which would bring an end to the $500 cash rebate given away by some shops. Acting Commerce Department Commissioner Jim Bernstein stated such legislation would, in turn, “prevent excess claims and thus help hold down insurance premiums.”

The bill next called for windshield replacement price surveys to be conducted annually by the Commerce Department. According to Bernstein, the [commerce] department will use the survey information to provide glass shops with a range of prices they can charge, probably 15-20 percent above or below the average. Bernstein expects each survey to cost about $50,000, which will be paid for by the glass and insurance industries, not taxpayers.

Governor Jesse Ventura signed the bill on April 6 and it became law. “It (the bill) represents an agreement between the glass industry, insurance companies and the state and was a difficult decision to come to,” said Eric Ewald, executive director for the Minnesota Glass Association. Ewald worked diligently for weeks to effectuate a compromise.

However, several Minnesota glass shop owners and managers don’t feel as though they should all be penalized for the actions of a few shops. According to the National Automotive Glass Consultants (NAGC) newsletter, only eight out of 77 glass shops advertising in the Minneapolis Yellow Pages offered incentives. “There are always those in the industry who say it’s not right to negotiate with the insurance companies,” said Ewald. “But if you can’t talk with the other side and make agreements, then the state will. Sometimes that’s good and sometimes it’s bad.”

While the law resolves the price-setting debate, many are not pleased with the result. Marc Anderson, president of the state’s other glass association, the Minnesota Independent Auto Glass Association, said insurers tend to lure consumers to the large network shops managed by giants such as Safelite and Harmon. “Many small shops offer gifts and rebates to counter the steering,” Anderson said. “It’s the only way they can compete.”

According to Ewald, response on a whole has so far been optimistic. “Regardless of whether or not we (the glass industry) did this, it was going to happen anyway. We took an active role to help shape it,” said Ewald. “In the process, the legislature and the Commerce Department got to know us and our issues better.”

Likewise, Corporaal is also optimistic about the decision, “We are very pleased with the new law. It caps the rebates at something reasonable and gives glass dealers a fair price for their product,” he said. “Now, we need to address the biggest issue in the auto glass industry, steering by the insurance companies,” he added.  

Ellen Giard is assistant editor for AGRR magazine.

AGRR

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