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March/April 2003

HOWARDNAGS Notes
  hot topics

nags@mitchell.com

You Want Pricing
by Catherine Howard

Editor’s Note: The following column references a letter that ran in the January/February issue of AGRR magazine (see page 6) regarding “NAGS Notes.”

It seems I owe an apology to some AGRR readers for subjecting them to apparently irrelevant analogies when what they really want is straight talk about pricing. So, here it is, as stated numerous times in articles in this very magazine that did not talk about dinosaurs, K-marts or my relatives.

“A Formula for Your Business”
The following appeared in my column in the January/February 2000 issue of AGRR (see page 16).

“… it is continually amazing to me just how much misinformation there is about a subject so important to the financial condition of individual companies and the economic health of this industry. Unfortunately, it seems information is easily misinterpreted or misunderstood, so it is sometimes difficult to find out what is really true.”

“… I would like to make it perfectly clear that NAGS does not participate in or attempt to influence trading partner relationships within the industry. That is precisely how it should be.”
“These prices are the result of NAGS applying its own experience and expertise in predicting prices. These prices are not intended as a substitute for our customers’ own business expertise in using these Benchmarks to establish independent pricing. Accordingly, this has nothing to do with any changes in negotiated pricing (i.e., discounts or markups, labor rates, adhesive or value-added charges, etc.) that are applied to the Benchmark list prices or added to the net price by the trading partners.”

“Beyond Benchmark”
Again, in July/August 2002, I hit the pricing matter on the head with my column (see page 18).

“Things seemed to have gotten much worse in this regard over the past year, possibly because of the increased pricing pressures experienced by the distributors and manufacturers as a result of downward pressure from the retailers (coming from increased discounts on the Offer & Acceptance bids, no doubt; it all rolls downhill).”

“… the adoption of this new method, at least initially, creates no reduction of the basic level of pricing, so there should be little to no impact on trading partner agreements at the retail level. This eventually has to change, however, because this industry has gotten itself into an upside-down position in the market. Glass shops must rely on higher prices for 
glass to supplement the losses experienced in the labor side of the equation.”

“Until this industry manages to separate the selling of a commodity such as glass from the value of the installation service, the price for the glass cannot be ‘realistic.’ This is not going to happen because NAGS says so. The market must call for this, and those forces weren’t ready to accept this concept at the time of the revaluation in 1999.”

“Every Part an ‘R’ Part”
I hit pricing again in March/April 2003 (see page 10), when I explained the changes in our Benchmark List Pricing system.

“NAGS is changing the way we derive and manage our Benchmark List Pricing that we offer to the industry as a retail list price for auto glass to be used in trading partner 
negotiations.”

“And we intend to continue on this path until, ever gradually over the course of perhaps two to three years, every part will be an ‘R’ part. That will mean one of three things to this industry; 1) labor will have to increase, 2) discounting levels will have to drop, or 3) both and, in all probability, in that order.”

To set the record straight, Mitchell acquired NAGS in 1991. The Revaluation occurred in January of 1999. That’s eight years of keeping things going as they always had been. And it was as much the input from glass retailers and distributors as it was from insurance companies that convinced us it was time to rethink our Benchmarking methods.

Furthermore, if one really looks at what is going on in auto glass pricing, it is painfully obvious the pricing mechanisms that have been in place for decades are broken. You just can’t keep farming with the same old horse and plow and expect to be competitive in a global economy.

Based on a composite index of glass parts, Benchmark pricing has increased by 13.8 percent since 2001. The increases in the composite index over the year 2002 have leveled off and have begun to decrease (2.6 percent in the NAGS last Benchmark update, January 2003). This marks the beginning of a downward trend for the NAGS Benchmark List Prices as NAGS works to narrow the range for trading partner negotiations and remove the labor component that has been factored into the material price. To allow time for the market to adjust to this transition from material to labor value, this process will extend over several years.

This means that the Benchmark price for the glass will be just that. There won’t be situations where one makes $5 on a job and $500 on another. It also means that those who don’t buy right or don’t charge more appropriately for their labor may not survive. Does anyone think they are coming anywhere close to covering the cost of acquiring, maintaining and insuring a vehicle and paying for wages, benefits and training to send a guy out 50 miles to do a mobile job for $40 flat? I don’t know how much clearer I can make it.

Here’s another excerpt designed to assist the industry in making the move toward more representative labor charges, as was stated in the AGRR September 1999 Supplement — NAGS Unveils Part Numbers for Extra Auto Glass Services:

“Of course, there are other service operations within auto glass replacement that are not included in the NAGS Labor Times. In order to address this need for the industry, NAGS has created service part numbers. The NAGS Service Part Number System™ is designed to be used for services not factored into the NAGS Labor Times. There are no values associated with these numbers; rather their value is to be negotiated between trading partners.” 

“These part numbers are printed in the front of the 1999 Summer (July 5) Calculator and will appear in subsequent publications. Also, we will include a table of these numbers in all NAGS electronic data extracts …”

Is anyone out there charging for these services, or are they being given away for free (bundled in with the price of the glass)?

Now, on to the issue of Mitchell leaning on NAGS to squeeze the glass companies for more and more money by coming out with more and more updates each year, as stated in my July/August 2002 (see page 18), “Bad, Bad NAGS.”

“Twice a year for the catalogs and four times a year for the calculators helped, but people had to pay more for the publications and nobody liked that. Bad NAGS. And, to add injury to insult, one national program chose to evaluate its pricing offer at each release of our data. Bad, bad NAGS!”

“The real answer lies in the future—the wonderful advantages internet technology brings. When the NAGS Database is fully available and accessible on our web server, we will be able to provide instant access to the latest and greatest informational resource for the glass industry.”

We are already in the midst of our transition from being a publisher to becoming an information service. We have instituted annual subscriptions for the Catalogs and Calculators so that no matter how many we must release, it won’t cost our subscribers any more, just as our license fees have always been. In addition, we will have transaction-based access so that you only pay for the services you actually want and need.

Alas, a Response
And finally, to bring this harangue to a conclusion, I would like to address the comment regarding my lack of responsiveness. It should be obvious that defending my company and myself is very time-consuming, particularly since it has all been said many times before. 

While I enjoy talking with industry participants about this intriguing business, that isn’t the only thing requiring my time. Like everyone else, I have a business to run with efforts focused on protecting and growing the value of the business. However, it is very gratifying to know that people actually read these articles in spite of the fact that they have better things to do with their time. 

Catherine Howard is vice president/general manager of NAGS International, based in San Diego.

AGRR

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