Chicago’s Groups Intentions Leave More Questions
By Leslie Shaver
For many months the auto glass industry was wondering what, exactly, the mysterious “Chicago Group” was and who they were. Everyone knew a couple of things: they were meeting in Chicago and they were addressing the wacky pricing system, ripe with “R” parts, which had become prevalent throughout the industry.
Outside of this most of the facts were cloudy. Were they going to try to overthrow National Auto Glass Specifications (NAGS) as the pricing source for auto glass? Would they publish their own pricing? And, how exactly would this work? Along with leaving a lot of questions, this lack of information led to hope and possibly unrealistic expectations.
See, for years, auto glass shops had watched NAGS issue price lists and Revaluations and each time, they argued, this cut further and further into their profits. Then, a number of years ago, “R” parts appeared. These were parts with extremely high manufacturers’ prices. So, if a shop sold this piece of glass under the standard discount off the NAGS price, it would lose money. This meant auto glass retailers had to pay extra attention to every part. If it was an “R,” they either took the financial hit, turned the job away or looked for another source of the part. Any of these solutions led to one thing: a headache.
So, with this as the background, glass company owners gathered at the IGA Convention in Columbus, Ohio, in late April for the Chicago Group to reveal its plans. In a hurried, hour-long presentation immediately following a discussion with NAGS representatives, the group talked about its plan, and took questions. But many attendees left just as confused about the plan as they were when they arrived.
In the days following the presentation, confusion turned to disappointment as people realized the Chicago Group would not be giving retailers the high margins they once enjoyed. In fact, the group really needed NAGS and the insurance industry (as well as auto glass retailers) for the plan to work. Despite disappointment, many industry members see aspects of the plan they like, most notably an open-pricing formula based on truckload glass costs instead of the NAGS formula that is driven by the retailer’s buying cost.
But they have questions as well. Will insurers buy off on the plan? Will NAGS agree to use the new pricing system or will it agree to sell its proprietary part numbers to whomever ends up publishing it? And will purchasers of truckloads of glass be willing to share their buying prices with third-party auditors? These are questions that will be answered as the Chicago Group takes its pricing solution to the auto glass industry and then insurers.
An Open Formula
“The reason for the Chicago Auto Glass Group formation was to try to come up with a replacement for the NAGS benchmark system,” said Wes Topping, Chicago Group co-chair and owner of Elite Auto Glass in Denver.
Members of the group were tired of what they saw as a secretive NAGS pricing system that wasn’t based on true retailers’ acquisition costs and led to “R” parts (NAGS disputes this, saying its database is based on the true acquisition costs of wholesalers and retailers). They wanted to provide an open system that eliminated these parts altogether. In their white paper describing the plan, the group lays out formulas that start with the truckload buying costs; add in breakage, overhead, warehousing and shrinkage; put in the wholesaler’s mark-up; and then plug in the retailer’s costs. Retailers would get their price of the glass, add in kit charges, which wouldn’t be universal, and labor rates, which would be tabulated hourly. Since the formula would be based on truckload costs, “R” parts would no longer exist.
The formula isn’t the problem for Daryl Anderson, owner of Dakotaland Autoglass, Inc., a supplier and retailer in Sioux Falls, S.D. His concern was how the Chicago Group was getting the numbers to plug into its formula.
“They are telling us how they are going about picking a price, but what does that mean? What’s the price going to be?” he said.
Scott Owens, owner of Excel Auto Glass in Lake Katrine, N.Y., wants more specifics, too.
“What’s the truckload number and what is the reasonable wholesale mark up?” he asked. “We need all the numbers laid out so everyone can see what’s going on …[otherwise] we’re not in any position to know any more than we did with NAGS.”
These numbers will be coming soon, though, according to Topping.
“The formulas are currently prepared for e-mail and laptop presentations,” Topping said. “Participants will soon be able to plug their own numbers into the formula. We have invited two of the major accounting firms to submit a proposal to us, so the numbers from the accountants are not developed yet.”
A number of people question how the accountants will be paid. Topping says whoever publishes the data will pay. Still, Jessie Herrera, NAGS’s general manager and general manager of its specialty business unit, has his doubts.
“Hiring a public accounting firm to recreate the wheel is not going to be cheap,” he said. “When I queried [the] Chicago Auto Glass Group about the increased cost of the data they suggested that this cost could be passed onto the industry in the form of additional license fees. I guess I have to question how receptive the industry is to such an increase.”
“Overall, it’s pretty close to the pricing system that I’ve wanted to see since the Revaluations began,” Owens said.
Rob Hardy, owner of Brite Glass in Reno, Nev., also likes the plan.
“I like their pricing because they are getting wholesalers and distributors involved and are applying a formula consistently to what the actual costs are,” he said. “Because of this, I think their list prices will be accurate. The formula will be easy to figure out and will give us an idea about what costs are.”
Bob Hittenberger, owner of Best Glass in Phoenix agrees.
“Since the formula is out there, everyone will know how they came up with the number,” he said. “If you are working backwards [from the glass shop’s buying price] there are too many variables. If you are working from what the parts actually cost, you will get an actual cost.”
|Members of the
Chicago Auto Glass Group:
Greg Pattakos, Advanced Auto Glass
Tee Cambre, Auto Glass of the South
Tom Miller, Auto Glass Center
Mike Harris, Auto Glass Service
Bob Birkhauser, Auto Glass Specialists
Mike Schenian, City Auto Glass
Steve Mort, Don’s Mobile Glass
John Kellman, Globe Glass of Chicago
Wes Topping, Elite Auto Glass/Glass Pro
Paul Janisse, Guardian Glass
Carl Ostdiek, Henderson Glass
KC Clark, Intermountain Jobbers
Bob Rosenfield, J.N. Phillips
John Morris, Jack Morris Auto Glass
Cindy Ketherside, JC’s Glass
Bill Kryger, Kryger Glass
Tommy Lee, Lee & Cates
Joe Mesko, Mesko Glass
Tom Higgenbottom, Mygrant Glass
Chris Tate, Old Dominion Glass
Tom Parbuoni, Royal Glass
Dick Settles, Settles Glass
Mike Fox, Windshield Pro
One of the keys to the Chicago Group’s formula will be its ability to get truckload buyers to provide a third-party accounting firm with their truckload purchasing prices and invoices. Topping says a number of major retailers have signed on and agreed to provide this. Distributors who are members of the Chicago Group, such as Mygrant Glass, are expected to be upfront with their numbers. But there are others who aren’t so sure about opening up their books, including Anderson.
“I try to stay pretty close to those numbers,” he said. “Whether I release them may depend on who is in the group that sets the standards and if they will know what I pay for glass.”
Another distributor, Keith Seamann, president of Independent Glass Wholesalers in Jacksonville, Fla., paused when asked if he would release his buying prices and then said he would refer the group to Mygrant Glass, a distributor in Hayward, Calif., with which he partners.
“I don’t know if I would give them my buying costs,” he said.
But, Tim Conklin, owner and president of Wholesale Glass Distributors in Columbia, S.C., would be more than willing to share his buying costs.
“I have not shared my costs with others in the past, but if I thought it would end the madness that is now our pricing system, you bet I would be willing to share that information with an independent third party,” he said.
While many auto glass retailers and suppliers seem to like the formula, openness and elimination of “R” parts in the Chicago Group’s plans, they aren’t getting too excited about it. Mainly because they know the plan needs more than their support to become a reality. The Chicago Group realizes this as well, and getting glass shop approval is only the first step in making their system a reality. During the next couple of months, while John Kerry and George Bush are stumping around the country, the Chicago Group will be, as well. Representatives will visit big retailers and state glass associations telling them about its system and urging them to sign on its site (which, at press time, had not been announced) to show their support.
If the group gets industry support, it will head off to the major insurers and try to get them on board. One of the keys will be whether or not they can prove to insurers that their glass claims won’t go up under the new plan. Topping says the numbers are very similar and others see this as well.
“I think they will come up with a number that’s pretty close to NAGS,” he said.
Still, no one’s sure if the insurance companies will go with the new system. Hardy says he has 33 competitors in the Reno area and he has only seen two of those at industry events. The others are apathetic, he said. Because of this, he doubts the Chicago Group will be able to reach enough retailers to make them a powerful force to insurance companies.
“The problem is getting big enough for the insurance companies to recognize us,” Hardy said.
The insurance companies’ plans are a mystery.
“I don’t know what insurance companies will do,” said Dennis Warlick, vice president of sales for Autover Corp., in Columbus, Ohio which supplies glass as the manufacturer’s representative for St. Gobain. “I don’t know what their thinking would be.”
Neither does anyone else. AGRR contacted GEICO, Farmer’s Insurance Group and Nationwide Insurance for this story via phone and e-mail and none replied. Liam McTeague of The Hartford issued a “no comment” on the Chicago Group, while Matthew Collister, spokesperson for The Progressive Group of Insurance Companies said the company’s claims department would not provide details on its auto glass pricing methodology.
The only company that did respond was State Farm.
“We will continue to pay a fair and reasonable price for glass repair and replacement,” said national glass manager Bob Bischoff, in a written statement to AGRR. “We will review any new pricing resources in order to evaluate its methodology and acceptance in the industry. Market forces will continue to influence the price for glass repair and replacement, regardless of the labor/glass equation.”
If the insurance companies don’t go along with the Chicago Group’s plan, there may be one other option, Hardy said. NAGS. His feeling is that if the industry and NAGS accepted the Chicago Group’s plan, insurers would follow.
“I would think we would be better off going after NAGS,” he said. “This would benefit everybody and won’t be radical.”
Topping would also like NAGS to be an integral part of the solution. He wants the publisher to use the Chicago Group’s formula, while keeping its parts numbers. He would also be open to NAGS using its labor and kit rates, once they have been verified by his third-party accountants. Hittenberger thinks this would be realistic.
“I don’t think the Chicago Group’s formula can work unless it’s offered by NAGS,” he said. “They have numbers, history and parts. It’s a very complex system. How are you going to replace that?”
But, like many in the industry, Hittenberger is not sure NAGS will do that.
“You can replace the formula for the benchmark price but why would NAGS want to take someone else’s formula to do that?” he asks.
Right now, NAGS is continuing to move forward with rebalancing its current formula in January 2005, which, it says, will eliminate “R” parts, but it does leave the door open for the Chicago Group.
“From a short-term perspective, it [the Chicago Group’s plan] will have no effect on decisions we’re making about NAGS Benchmark pricing,” Herrera said. “But, if the industry started to go in that direction and had something to work from other than a concept, we would have to evaluate if it was the best way to address the industry’s needs. But it’s way too early to make that decision. There’s a significant amount of questions around what they’re proposing that need to be sorted out.”
One of Herrera’s questions centers on acceptance. While retailers will probably line up behind the system, he doesn’t know if manufacturers and insurers, will. And, if these groups do come on board, he thinks they may have to make large investments to change their computer systems, which go off the NAGS systems. In all, point of sale, purchasing, inventory, manufacturing, production, distribution and claims software may need to be changed.
“I don’t know if everyone is on board with the investment it would take to make that switch,” Herrera said.
Topping said this won’t be an issue if the group purchases a license to use NAGS numbers. But if the group was forced to use the Euro numbering system this could be an issue.
Herrera also wonders if the Chicago Group has the editorial experience to produce the system.
“Publishing is our core business.” Herrera said. “We appreciate and recognize the complexity associated with developing industry information, standardizing that information and disseminating it. We’ve made significant investments in our people, infrastructure and systems. How will an organization go from ground zero and build that expertise and infrastructure over a short period of time?”
In the end, Herrera only promises that NAGS will continue to talk with the Chicago Group, just as many in the industry promise to continue research and insurers continue to analyze the system, as well as what everyone else does.
© Copyright Key Communications Inc. All rights reserved. No reproduction of any type without expressed written permission.