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July/August  2004

NAGS Notes
   hot topics

Rebalancing 2005
by Jesse Herrera

In my brief five months as general manager of National Auto Glass Specifications (NAGS), the question I’ve been most frequently asked is “when is the benchmark price rebalancing going to happen?” Therefore I’d like to dedicate this article to discussing our plans for the impending rebalancing and what the industry can expect to see from NAGS in the coming months.

Let me begin with the answer to the question. The benchmark price rebalancing will take effect in the January 2005 NAGS release. Why January 2005? Because we had to choose a time frame that was far enough in advance to give ourselves enough time to communicate the change and give all industry constituents adequate time to prepare for it. At the same time, we wanted to be responsive to those in the industry who were calling for the change sooner rather than later. We found January 2005 to be the best compromise to meet the collective needs of the industry.

Three Step Program
So, now that the date has been set, what needs to happen next? As for our part, there are three key things that will happen. First, NAGS will spend a significant amount of energy in the coming months communicating the implications of the rebalancing through various channels. We have and will continue to speak at national and regional trade shows and events. We will also continue to provide details via print media, such as this article, and on our website (www.nags.com). We are calling on all industry participants (manufacturers, distributors, retailers, technology providers, insurance carriers, publications and trade associations) to discuss the impending rebalancing with their customers and members to ensure that this change does not catch anyone off guard.

Preview Available
Second, NAGS will make available a preview edition of the rebalanced benchmark. This will essentially be a recalculation of the previous NAGS release under the revised formula. It will give people in the industry a chance to understand the magnitude of the change and to analyze the net affect of the change on their specific business mix. Although we are still working with customers to finalize the details around the preview, we are currently working toward a late summer time frame.

Lastly, we will continue discussing the benefits of component-based pricing, which we hope will be a positive side affect of the rebalancing. By component-based pricing, I’m referring to a redefined glass repair and replacement-buying model in which retailers are fairly compensated for each component (parts, labor and materials) of a job versus the current model in which the vast majority of retailer compensation is embedded in the price of the part. I say “discussing” because we are very supportive of this model, but we recognize that the ultimate fate of component-based pricing lays in the hands of retailers and carriers as they negotiate their respective trading agreements.

What are the benefits of component-based pricing to each of these groups? For retailers the benefits are really around fair recognition of expenses associated with each element of a repair. Namely, retailers could be compensated for labor based on the NAGS labor times and for materials based on the NAGS quantities. (By the way, we go to great lengths to develop and refine these metrics and they are validated on a daily basis throughout much of Canada, which has already implemented a component-based pricing model.) Under the new model, retailers will be in a better position to isolate individual economic forces and respond accordingly. For example, if parts prices decline, they could choose to pass on some of these savings to their customers while preserving their labor margins; or, if their labor costs increase, they could have the necessary justification to negotiate for labor rate increases.

Of course, insurance carriers must also have an incentive to agree to such a change. There are benefits to carriers such as more defensible trading agreements and sales tax savings. In terms of defensibility, carriers are far less likely be called into question on their payment practices if they pay a fair hourly rate that is based on the number of hours specific to each job versus a flat labor rate regardless of varying levels of job complexity. This is the model with which they are accustomed to working on collision claims. Financially, carriers can benefit from reduced sales tax liability, as many states do not tax labor services.

Only Time Will Tell
From our perspective, both buyers and sellers can benefit from a component based pricing model, but it will require them to modify their current trading practices. Only time will tell whether or not the two sides choose the benchmark price rebalancing in January 2005 as the impetus for change. Either way, we will proceed with our revisions to the benchmark on the schedule defined above. I realized early on that the current benchmark situation is not sustainable. Therefore, we are forced to act responsibly to improve the usefulness of the NAGS information and serve the collective needs of the industry. 

Learn more about the NAGS 
Rebalancing at any of the 
following events:

Glass TEXpo 2004
September 30-October 2, 2004
NAGS Rebalancing seminar 
to be held Saturday, Oct. 2 at 10 a.m.
For more information visit 
www.glass.com/texpo.php.

Glass Expo Midwest 2004
October 14-15, 2004
NAGS Rebalancing Seminar 
scheduled for October 15 at 8 a.m.
For more information visit 
www.glass.com/gems.php.

AGRR

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