agrrfpo.tif (135164 bytes)

November/December 2002

NAGS Notes
HOWARD hot topics
nags@mitchell.com

A Friendly Exchange 
on Pricing
by Catherine Howard

Editor’s Note: The following is an exchange between Bob Blackmer, president of Auto Ameristar Licensing Co. Inc., and Catherine Howard, vice president/general manager of NAGS. 

An Enquiry
Dear Catherine,
Recently on August 19, I spoke to you on a conference call to request clarification on several concerns about the latest revision to the NAGS price list.

In beginning the conversation, I reminded you that I was in attendance at the NGA convention in 1997 in Tucson, Ariz., when you announced your plan for “Revaluation ’98.” You then announced to us that NAGS would rework its pricing to be reflective of “true benchmark pricing” standards. You said that we would no longer expect to see huge discounts from insurance companies. You said that one goal of this was to get “real labor costs” reflected in the NAGS system. You also proudly announced that we would no longer see the NAGS calculator become so inflated in the future that it bears little semblance to actual market pricing.

In Collusion?
It seems to me that NAGS must be in league with the insurers and manufacturers—in that your catalog has so many inconsistencies that penalize the small glass shop owner. Take for example, Footnote R: “Cost considerations may apply” parts. This is NAGS code for admitting that the NAGS list price is not relevant on these parts. The newest released revision contains more of these R parts than ever before—some 1,700+ parts. I asked you why these parts were more numerous than ever. You responded that NAGS had a fundamental problem with the prices that some list prices would be if they were priced properly (i.e., the lists would be very high).

Then in the next breath you told me that NAGS still considers its pricing to be a legitimate benchmark of pricing for the AGR industry. You said that the insurance companies have a clear agenda to drive down price by requiring large discounts. You said that you don’t agree with the large discounts, which are being demanded by insurance companies from AGR shops. You said these discounts will only be accepted “if the industry accepts them.”

A Look at Labor Hours
On another important note, you stressed to me that NAGS publishes labor hours, which it considers as legitimate for each job, despite the fact that insurance companies will only readily pay a ridiculously low amount for labor against true professional work. I couldn’t agree more with you here. However, closer examination of the NAGS calculator reveals that you have some jobs showing zero for labor. This is very inconsistent. As the only purpose NAGS has is to serve as a benchmark for the AGR industry, and it issues revisions three to four times a year—what is NAGS really doing? 

I must tell you that NAGS is becoming irrelevant as a legitimate benchmark. Most of the calculator is largely inflated. The reality of facts cited here contradicts your statement. The more your calculator is inflated, the more it becomes irrelevant. The insurance industry uses the calculator as a weapon—it requires huge discounts for O & A work, and gives little latitude for extra charges in keeping with true costs on R parts. The fact that you can identify 1,700 parts for which NAGS pricing is irrelevant, while shops are forced to fight with insurance companies due to NAGS publishing the bogus R parts’ prices, serves to make this point more strenuously than anything else can.

Auto Ameristar and all auto glass replacement companies striving to run legitimate auto glass businesses need NAGS to become consistent. Absent immediate correction, the industry should seek a new legitimate standard in place of NAGS since it is so inaccurate and inconsistent.
Bob Blackmer, President 
Auto Ameristar Licensing Co. Inc.

A Welcome Reply
Dear Bob,
You are quite right in your recollection of our announced plans for “Revaluation ’98” in Tucson. When we first embarked on our journey to resolve the pricing issues facing this industry, we were quite naďve in our belief that it would be possible to arrive at a reasonable list price that this industry could use with confidence as a benchmark against which to measure its costs and establish its selling prices while providing a means to shift the value of the job from the glass to the labor. We soon discovered the harsh realities of life in the vice grip of trading partner negotiations dominated by the leaders of this industry. We have no role in that game.

It simply doesn’t matter what NAGS says should be done to arrive at an acceptable market price. We can go through many comparative scenarios (which we have done) to try to convince both buyers and sellers that they would be better off with more value expressed as labor in a glass replacement transaction than as materials. We can talk about the more realistic representation of actual cost structures and the savings in taxes. We can advise shops to better understand their cost structures to determine what labor really costs as a component of each job. We can state our belief that every product or service-provider is entitled to make a profit on its wares. None of it matters, though, because we do not negotiate the deals.

Baseless Assumptions
The assumption (based on the number of “inconsistencies” in our Calculator) that NAGS must be in collusion with the insurers and manufacturers is baseless. We have no contact with either side when it comes to determining the NAGS Benchmark pricing. What was cited as evidence of our non-relevance (our “R” footnotes) is exactly the opposite. With the May 2003 release of our data, we moved away from using the manufacturers’ published truckload pricing as the basis for the NAGS List Price as we realized these published lists were not reflective of the actual market acquisition costs.

The Pricing System
We now base our Benchmark on actual market acquisition costs from a number of reliable sources provided to us under confidentiality agreements. These sources are representative of actual buying power in the markets they serve. We analyze and compile this information for use in our calculations to determine the NAGS list prices. We use consistent formulae to determine these lists once the cost base is established so that standard discounting can be used with relative confidence. In other words, if you apply the same discount to the list prices for all parts not indicated with the “R” footnote, you should be relatively profitable on these parts.

However, there are certain conditions with some proprietary parts that demand a different (yet consistent) formula so that the resulting list price is not ridiculous. If sellers use their same standard discounts to determine their selling prices for these parts, they may lose money on these replacement jobs. But we warn our users of this fact by shading these parts in the printed Calculator and attaching the “R” footnote to these prices.

This industry seems intent on heavy discounting and there doesn’t seem to be much anyone can do about it. Even before the rise of networks in this industry, insurance agents and claims managers were besieged by glass salespersons calling on them in droves, offering up better and better discounts with little or no labor in exchange for more volume. 

As far as the labor hours are concerned, you are correct in that we do not have hours for each and every part we publish. A quick analysis of our latest release shows that of the 16,234 base part numbers, we only had labor hours listed for 13,546. That’s more than 83 percent. What about the 2,688 missing times? Most of these are glass for very old vehicles or for vehicles that are too new to have had the necessary field studies. 

NAGS Can’t Negotiate
It seems to me what is really at the root of your frustration is that you feel that NAGS has let you down by not being able to negotiate a better deal. I wish it were in our power to do something about that, but it is not. Remember, we are not at the table negotiating the deals between the buyers and sellers. If we were, we would get the best price for the insurance companies, and we would get the fairest deal for the installers. We would get the cheapest price for the glass and the highest price for the labor. We would eliminate deductible-waivers, free steaks and cash pricing.

However, our job is to provide information to the market that can be used as a benchmark for purposes of establishing trading partner agreements. Establishing those agreements is up to market forces—you know who those are. 


Catherine Howard, 
Vice President and General Manager
NAGS 


 

Catherine Howard is vice president/ general manager of NAGS of San Diego.

 

AGRR

© Copyright Key Communications Inc. All rights reserved. No reproduction of any type without expressed written permission.