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July/August 2002

Back to the Future
NAGS® Price Changes Have Auto Glass Dealers Singing the Same Old Song
by Leslie Shaver

In yet another effort to bring the auto glass pricing in line with reality, National Auto Glass Specifications (NAGS®) of San Diego has announced that it is revamping the way it develops the NAGS List Prices™ shown in its calculator.

The new NAGS Calculator, out in early May, contained sweeping changes in the pricing of more than 8,000 parts. It represents the largest number of price changes since the NAGS Revaluation in January 1999.

Traditionally, the San Diego-based publisher has calculated its pricing from glass manufacturers' published truckload price lists. While NAGS said this method had been a reliable way for auto glass retailers to gauge the acquisition prices, things began changing during the past 12 months. The company will now use a hybrid formula "based on the established acquisition costs for the retailer," said Catherine Howard, vice president and general manager of NAGS.

Yet, some auto glass retailers see this as more of the same old tune—NAGS raising prices for glass and the insurance companies immediately eating into those additional profits by asking for more discounts.

Shortly after the announcement from NAGS, State Farm of Bloomington, Ill., announced a price bump from 56 percent to 59 percent off NAGS' list prices in its "A" markets. Other companies, including Allstate of Northbrook, Ill., followed suit.

"What annoys me about this is the insurance companies' reactions," said Rich Rippert of Star Auto Glass in Elmont, N.Y. "After NAGS raises prices, you get a letter from Allstate and State Farm saying they are raising their discounts to 59 percent."

"The first thing State Farm did was drop two points," said Steve Pierick of Binswanger Auto Glass of Memphis, Tenn. "I don't see how that is good for glass shops."

"There is no winning," said Lin Lacy of Associated Glass Inc. of Linwood, Wash. "Every time we get something from the insurance companies we wonder if we can continue doing this [work for them]."

But David Williams, national glass manager for State Farm, said that his company was planning an increase in the discount before NAGS announced these changes.

"There was more to this move than just the NAGS increases," he said. "There are a lot of factors that go into our pricing offer."

Chris Umble, who works with the insurance industry in his job as director of sales and market development for LYNX Services of Pittsburgh, says that each insurance company will react in its own way.

"Each of our customers responds to the marketplace in whatever way they think is appropriate," he said.

Safelite Auto Glass of Columbus, Ohio, another major claims service provider, would only say that it executes the pricing structure of each of its clients.

"They make all pricing decisions individually," said Dee Uttermohlen, a spokesperson for the company.

The "R" Problem
NAGS says the reason it decided to make this change in pricing structure was "r" parts. These misfit parts appear in the NAGS calendar with an "r" next to them, which means, "cost considerations may apply." Therefore, they can not be sold at traditional discount levels.

They had become a hassle for auto glass retailers. In many cases insurance companies would force dealers to verify what they paid for an "r" part before providing compensation. After this verification, the insurance company would provide an extra amount of money (usually 15 to 25 percent) for compensation. This practice was troublesome for dealers.

For one thing, it severely reduced their profit margins. Under the old system, the shop got the cost of glass minus the NAGS discount. However, dealers commented that the price of glass (even with the discount) provided more profit margin than the cost of the actual price plus 15 or 20 percent, since the 1999 Revaluation.

"The margin for 'r' parts is nowhere near where it would have been, even with a discount off of NAGS," said one dealer from the East Coast, who preferred not to be identified for this story. He did add that if the margins for labor and materials were where they should be the whole issue of "r" parts would go away.

Others agreed.

"We sometimes have to make much less on an 'r' part installation," Rippert said. "Sometimes I will refuse a job because it just isn't worth it."

Rippert also had a problem with "r" parts simply because it gave insurance companies too much access. 

"It is a problem when I have to tell them what I pay for a piece of glass," he said. "The 'r' indicates that it is an 'r' part, but they still want you to beg for your money. It is galling."

The problems were magnified during the past year, possibly because of increased pricing pressures on manufacturers and distributors, according to Howard. NAGS tried making adjustments, but, in the end, to no avail.

"We tried adjusting those parts with different cost structures in several different ways, depending on the cost level," she said. "We usually indicated these with the 'r' footnote to let the retailer know that cost considerations may still apply, even if we had done what we could to make appropriate adjustments to accommodate this difference. Some worked okay while others would leave the retailer with little or no profit. Others were left with a list price that was very unfavorable to the dealer list, even after discounting. What we ended up with was a benchmark that really wasn't serving the purpose in a consistent manner, not terribly far from where we were prior to the revaluation."

A Bonafide Solution?
Glass retailers seem to think on some level, the NAGS changes will help with "r" parts, though there are still issues.

"There are still a lot of 'r' parts in there," Rippert said. "There is an awful lot of gray shading for parts that may or may not have special pricing."

Lacy agreed.

"NAGS somewhat addressed 'r' parts for us," she said. "But we still have to be aware of them."

Dealers pointed out some specific products that confused them in the new pricing structure. One was a Hyundai sidelite, which now lists for around $600.

"This thing should list for a couple of hundred dollars," Rippert said.

Yet, he also mentioned the Mercedes FW2254P, a sedan windshield. The insurance companies had been refusing the rather steep price (approximately $1,500) for this windshield. But now he is getting paid for it. 

While Bud Oliver, director of product operations at NAGS, agreed that the NAGS change may have helped dealers with the Mercedes part, he said others may have to fall back in line as time passes.
"We will have to make adjustments as we go through this," he said. "There is not a formula that will be perfect for every single part.

Another Midwestern shop owner, who also refused to be identified, said that the extreme price increases could cause problems for his company, which works with a lot of trucking companies.

"When I quote them the new price, they will say 'Where did you come up with that?,'" he said. 

Howard admitted that there can be fluctuations. With this, "one should expect to see significant changes on a part-by-part basis ... some going up significantly, others being significantly reduced while some will remain nearly the same." 

And a few shop owners admitted that they had no clue how the new NAGS system would work, fearing that they could initially take a financial hit on certain parts.

"I feel very unprepared," said the owner of one Southeastern chain. "I wonder if we are going to have to wait until everything goes through the system once to find out the affects of this and if we are going to manage after the fact. I don't even know what percentage of my business these parts indicate."

NAGS BOOK
In the latest NAGS calculator, released this spring, NAGS adjusted the pricing of more than 8,000 parts.

The Whole Picture
With less insurance hoops to jump through and possibly more profitability on 'r' parts, it is easy to see why some glass dealers welcome these changes. 

Uttermohlen discounted the impact of "r" parts, but still thought the change would be helpful.

"I don't think we track it closely, but I am sure we install enough 'r' parts for them to be meaningful," said the glass shop owner on the East Coast.

"The 1,400 'r' parts are not used that often, and therefore do not have a significant overall impact," Uttermohlen said. "That said, we do believe it is important for industry list prices to be credible to our 
customers." 

Others questioned the motivation for this move. Pierick wondered if by changing more than 8,000 parts, NAGS’ overhauling its whole pricing structure just to fix 'r' parts was something akin to killing a mosquito with a sledgehammer.

"I know 'r' parts are an issue," he said. "But I can't believe [they] are throwing [their] entire basis for pricing out because of 'r' parts."

Pierick and another industry professional thought this move by NAGS may represent a philosophical shift in the organization and an effort to exert even more influence over the industry. 

Both think this could lead to manufacturers and even larger retailers publishing price lists.

"I am baffled by this decision," Pierick said. "NAGS says they are not in the business of setting prices, but now they announce they are using 'our knowledge of the industry' to come up with prices. They are setting prices. This is going to be a big move for the industry."

Pierick was not alone.

"NAGS is just disregarding the glass manufacturers and doing what they want," said one Midwestern glass executive, who preferred not to be identified for this story. "I would rather go off of the industry manufacturers' lists than what NAGS comes up with."

Howard refutes these charges.

"In the long run, it is the manufacturers' pricing that is the base for our list one way or the other," she said. "In the case of the adjusted method we are now using, we have simply taken it one step further. Instead of trying to interpret what the manufacturers' truckload means to the net cost, we are just relying on that net cost to the market as the base. For us to 'set the price' we would have to disregard what the manufacturers are selling the glass for and come up with a totally new method that calculates glass pricing based on some unrelated variable like square footage of the glass plus consideration for various attributes of the parts. Then we could be accused of setting the price. But for now, I'm afraid we are still relying on the manufacturers' selling price. And in fact, we are closer to it than when we were trying to use their truckload lists."

Others don't see what the fuss is about. 

"It was never widely understood how prices were computed in the past," Umble said. "We know they are now doing it a different way. But if it makes the list price more representative of real market pricing, then I am all for it. I think it will help the glass industry's credibility. Those outside of the industry look at these list prices that are so inflated and wonder what is going on."

Even some shop owners agree.

"This is good because it will make prices more realistic; they are lowering high prices and raising lower prices," said Bob Steben, owner of Ed Steben Glass Co. in South Windsor, Conn. "It seems like they are trying to make list prices a little more uniform and get reasonable list prices."

What Do You Think?
How are NAGS' recent changes affecting you? 
E-mail agrr@glass.com



Leslie Shaver is a contributing editor for AGRR magazine.

 

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