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July/August  2004

Q&A With Wes Topping
The Leader of the Chicago Group Explains His View
by Leslie Shaver

If the Lyndon Johnson administration, it’s safe to say you’ve seen a lot. So, when Wes Topping, who started in the auto glass industry in 1964, talks about the industry’s more profitable days, people tend to listen. Unlike many shop owners, the president of Elite Auto Glass in Denver, doesn’t talk about the days before networks—the 1970s and 1980s—when many shop owners would supposedly install a couple of windshields and then hit the golf course with their insurance agents.

No, the profitable days, says Topping, were just a few years ago, before National Auto Glass Specifications (NAGS) of San Diego, the publisher of industry prices, changed its methodology. Ask almost any auto glass retailer and he will criticize the system, mainly because it spawned a number of “net” priced and “R” parts—glass where there’s a major price discrepancy between NAGS and the cost the retailers pay for glass or glass not available to retailers at all. If retailers don’t watch these prices they may lose money on the part. Right now, Topping estimates that Pilkington has 1,000 “Net” and “R” parts out there, while PPG Industries had another 800 to 1,000.

Topping, who worked at Pilkington for 20 years and is one of the founders of Windshields America, as well as Elite Auto Glass, wasn’t going to sit back and watch this happen any longer. He made the decision to recruit some leaders from the industry and to develop a new pricing system—one that he said would be representative of the price paid of an actual piece of glass. The group first met in Chicago last summer and then met seven more times in Phoenix and Chicago. Finally, at the Independent Glass Association meeting in Columbus in late April, the group emerged from the shadows and released its new Benchmark Claims Fulfillment Plan for the auto glass industry.

Topping sat down with AGRR contributing editor Leslie Shaver to talk about his new Benchmark System. The following is an excerpt from that interview, which can be read in full online @ www.agrrmag.com

Q: What was it about NAGS that prompted you to start the Chicago Group?

A: Up until the past few years, NAGS would take the published truckload and use a very consistent formula to come up with the list price that the industry used. About two or three years ago, NAGS started moving those numbers around and went to an acquisition price and some strange formulas. None of us understand them. During the past few years, we’ve gotten a huge amount of what we call “R” parts followed by an even larger group of “Net” priced ones. 

We’re trying to operate in a retail business where we really don’t know our glass costs. Most of us have talked to NAGS from time to time to ask them to be more consistent in its pricing. I decided that those who would want to try to come up with an alternate to the NAGS benchmark system should meet in Chicago back in June 2003. I invited 25 or 30 of the independently-owned retailers from different parts of the country. The purpose of our first meeting was to see if there was an alternative to NAGS list prices and if we could agree on an alternative to NAGS list prices. The reason for the Chicago Auto Glass Group formation was to try to come up with a replacement for the NAGS benchmark system. 

Q: There seemed to be a variety of company sizes there, from Guardian down to the smaller players. Is that the case?

A: Guardian came in toward the very end. Mygrant also joined us a little later. After three meetings together, we decided we needed some wholesalers. During our planning process, we had ten or 15 people who asked to join our group, but if the group got any bigger we couldn’t have a meeting. We were not trying to exclude anyone, but with a group larger than 25 it is hard to manage ideas.

The first two meetings were rough. But by the third meeting, we started getting down to concrete ideas.  We have a lot of guys with great ideas and we finally came up with what, we think, is a solution.

Q: What were the requirements you set for yourself?

A: We wanted it to be totally open and transparent to anyone, including our insurance customers, and it would be consistent pricing, like the industry had always had. We wanted a way to eliminate the “R” parts and “Net” pricing.

Q: How did you go about achieving these goals?

A: We developed the formulas for our Benchmark Plan and published them. We started with the net factory price. In the past, the industry had the published truckload prices. Over the past few years, that’s been replaced by net truckload prices from all of the manufacturers. Those prices are confidential and no one wants to give them out. That’s why we want to hire a third-party accounting firm to assimilate all of the information.
After talking with major wholesalers, we think they are more than willing to give confidential pricing information to an accounting firm that would keep it [that way]. They would probably not give this to NAGS. We are looking at what a typical truckload buyer purchases from PPG, for instance. If they have a different price for the same priced part from PPG and Pilkington, they can put them together and get an average pretty easily and it won’t be too far off. 

The accounting firm will need to get a lot of data together to establish a starting point. I think this can only be done by an accounting firm that answers to no one.

Q: Once you have this net acquisition price, what do you do with it?

A: We have a formula that goes into the wholesale acquisition cost. The accounting firm will then obtain that data. The formula will apply the wholesaler’s overhead to the cost. Then that would be the Benchmark Retail Cost.

Once that part is marked up, the accounting firm will interview retailers from all across the country and of all different sizes to come up with figures to put into that formula for the retail side. After that, there will be a Benchmark Replacement Parts Payment, which would be the price you would negotiate with your trading partners

Q: All these formulas come to together for one benchmark price?

A: There will be different benchmark insurance payments for labor, kits and mouldings. This will be a true benchmark price from which the insurance companies would pay. It would be up to each shop to negotiate with the insurance companies.

All the way through the system, everything is consistent because it’s based on the manufacturer’s truckload price. The formula will take the real high prices and smooth them out. The gross margin on the less expensive parts will come up a little bit, so there will be a consistent number and we won’t lose money when we sell them.

Q: Does it work because the basis is the manufacturer’s selling price?

A: You start with what we have to pay for glass and then build in what it costs a wholesaler to deliver it. That becomes the basis for the benchmark retail cost. You then add the retailer’s overhead and profit. That becomes the benchmark insurance replacement payment. 

Q: It seems like the key to this whole thing is getting the wholesalers to hand their buying information off to the third-party auditors?

A: We didn’t get to talk to all of the wholesalers, but we talked to several of them and asked them what they thought. It’s the same way with the retailers who buy direct from the factory. For example, we have a distribution center and we distribute to our stores. We would give that price to a third-party auditor, just like a wholesaler.

Q: There seemed to be a variety of company sizes there. Is that the case?

A: Guardian came in toward the very end. Mygrant also joined us a little later. After three meetings together, we decided we needed some wholesalers. During our planning process, we had ten or 15 people who asked to join our group, but if the group got any bigger we couldn’t have a meeting. We were not trying to exclude anyone, but with a group larger than 25 it is hard to manage ideas.

The first two meetings were rough. But by the third meeting, we started getting down to concrete ideas. We have a lot of guys with great ideas and we finally came up with what, we think, is a solution.

Q: Does this system account for smaller shops that won’t have the buying power of bigger shops?

A: There are a lot of smaller companies in our group that don’t buy in truckloads. I tried to pick people from different sized groups all around the country, including the ones that always buy from wholesalers, to the ones that buy five truckloads a year, to the ones that buy a truckload a week or more. 

If you take the formula all the way through, we are basing it on the net truckload price, but we are adding the steps [wholesaler’s overhead, retailer’s purchasing price and retailer’s overhead] to come up with the Benchmark Insurance Replacement Payment. If it’s not fair to everyone, it won’t work.

Q: Since not all truckload buyers get the same price, how will you assure that your truckload prices are accurate?

A: There are, I would guess, prices that will be different for companies that buy a truckload once a week to those who buy five truckloads a year. The accounting firm will take a cross section of those kinds of people. Otherwise, it would be skewed to a price that’s too competitive.

Q: When will the accounting firm be announced?

A: We are probably about less than 60 days from final bids from accounting firms.

Q:Who will pay them?

A: The only way it would work would be for the publisher of the prices paying the accounting firm. Hiring the accounting firm will be expensive initially, but over time it will be cheaper than getting a staff to do this. Currently, NAGS passes on its cost through the sale of list prices, computer services, etc.

Q: Who do you want the publisher to be?

A: We would like it to be NAGS, if they would like to do it. If they won’t do it, we have other alternatives.

Q: What about the numbering system, which NAGS owns?

A:
Those publishers would probably have to pay NAGS to use the numbering systems.

Q: What if NAGS still refuses to give the numbering system up?

A:
If NAGS won’t license this to another publisher, there’s the Euro system that is used in every country outside of the United States and Canada. We have access to all of that information. We would like to use the NAGS numbering system, but if NAGS won’t license it, there’s an alternative. We certainly hope that won’t be the case.

Q:How are you approaching non glass parts and labor?

A:
We think there should be an hourly labor rate based on local hourly labor conditions. Maybe we would we use Mitchell’s system. We may have the accounting firm test those numbers to make sure they are correct.

The same is true with kits. Mitchell’s currently publishes the number of kits. Those will be checked by our third-party auditor.

Q: If you used the accounting firm to compile the labor rates, would they put it together by surveying different shops?

A:
A lot of people have time schedules right now, such as the average time to install a windshield in shop and mobile. Most of the people know that information, but Mitchell has done a pretty good job of compiling that hourly rate for the body shop industry. That would certainly be one way to tackle this.

Q: Will you try anything to get insurance companies to pay labor rates? This has always been an issue under NAGS.

A:
The insurance industry can’t take one part of it and say they’ll have the price and use flat labor rates. It can’t work that way.

Q:Whom are you going to for acceptance of this plan: the auto glass industry or the insurance industry?

A:
We hope the auto glass industry will accept it and adopt it. Then, once the entire industry accepts it, we will go to our insurance trading partners and get their opinion. I honestly think our insurance trading partners will welcome this because they do not understand the NAGS system. This will show the insurance industry what the prices are based on. It is a totally transparent and an open system so the insurance industry can understand it.

Q: When do you think you will get industry support and how do you plan to get it?

A:
We think we will have industry support in the next 60 to 90 days. We’re now in the marketing phase of our product. We will talk to retailers around the country and present this to them. We’ll also have a website that we’re developing so the industry can ask us questions.

We were at IGA and we plan to be at the September Auto Glass Conference. We will present this to all of the state glass chapters that we can possibly present it to. We’ll be presenting it individually to 25 or 30 of the regional retailers that aren’t part of our group and also to the national players and networks. We hope that once we go to the state glass chapter shows, we can pick up everyone—all glass shops of all sizes. By the late summer or early fall we want to do presentations to the top ten insurance carriers.

Q: How will you show the insurance carriers that you have industry support?

A:
We want the retailers to go to our website and say that they agree with this benchmark plan and that they support our ideas. And, if enough people say we are off base, we’ll go back to the drawing board. This can’t work for 25 people. It has to work for the whole industry.

Q: Why is it important to get glass industry support before insurance industry support?

A: I wouldn’t go into a major insurance carrier and say there are 25 of us who want to change the price structure of the industry. The industry has to support this idea and it has to be accepted by the majority of the industry.

NAGS has been the publisher for many years, but they made changes without talking to anyone. If we did that, we would be creating the same problem.

Q: What is the key for getting insurance companies to accept this plan?

A: The price has to be equal or similar to what they are paying now. If the insurance companies are told their cost is going up $80, I don’t believe that the insurance industry would accept it. We are saying that will be priced similar to what the insurance industry is paying now.

Most insurance companies have the computer capability to analyze a schedule based on the total claims by number. They’re pretty sophisticated. It won’t take them long to see that it’s consistent with what they’re paying now.

Q: When do you try to get NAGS to go along with this by agreeing to publish it or sell their numbers to the eventual publisher?

A: We hope, if the industry wants this particular formula to work, our system is copyrighted so no else can use it. We want the accounting firm to develop all of these different prices and then give it to the publisher, which I hope would be NAGS. Then they would publish it.

We aren’t setting the price, we are setting the formula. It may take a little tweaking here and there, but from the tests we have done, it looks like we hit on the right thing. Lord knows we’ve been searching for it for a year.

Q: How will you account for geographical differences between retailers?

A: Our accounting firm will be doing those studies with different labor costs. I don’t think buying differs. A truckload buyer in Wyoming will be at the same price that someone in Georgia buys at, if they buy the same amount of truckloads.

Q:What is taken into consideration to get to the benchmark retail cost?

A: It is figured as a percentage of the product. Let’s say the product is $50 and the shrinkage is a percentage of the cost. Sales and administration would be a percentage of the cost. The warehouse and distribution charge would be a fixed dollar amount. Our accounting firm will figure how much it costs to deliver a part. It will cost the same to deliver that part whether it’s a $50 part or a $200 part.

Q:How are you pricing kits?

A: They will be based on a per kit charge. We have to get away from the flat charge for kits. It takes more urethane to do a DW1293 than it does to do a DW1105.

Q: How are you pricing kits?

A: They will be based on a per kit charge. We have to get away from the flat charge for kits. It takes more urethane to do a DW1293 than it does to do a DW1105.

Q: Will the accounting firm come up with these values?

A: We will look at that and also consider the NAGS system. If NAGS is the publisher, that’s what we want to do. But the accounting firm will test those figures. We have already looked at a lot of the parts Mitchell has and we don’t agree with them.

Q: How often will the accounting firm update the prices for glass?

A: In the past, the manufacturers made price changes once a year. If the manufacturers change the price, we need to start this process over again based on the cost of the glass.  Hopefully this will be yearly and not every three or four months the way NAGS does it now.

Q: How often will labor and kits be changed?

A: It hasn’t been defined, but I would think our accounting firm would look at this once a year or so.

Q: Could the formulas be changed down the road?

A: I would think so. We are going to have to listen to the accounting firm as we go through this.

Q: How will you assure that your truckload prices are accurate?

A: There are, I would guess, prices that will be different for companies that buy a truckload once a week to those who buy five truckloads a year. The accounting firm will take a cross section of those kinds of people. Otherwise, it would be skewed to a price that’s too competitive. 

Q: How are you approaching non-glass parts and labor?

A: We think there should be an hourly labor rate based on local hourly labor conditions. Maybe we would we use Mitchell’s system. We may have the accounting firm test those numbers to make sure they are correct. 
The same is true with kits. Mitchell currently publishes the number of kits. Those will be checked by our third-party auditor. 

Q: Will you try anything to get insurance companies to pay labor rates?

A: The insurance industry can’t take one part of it and say they’ll have the price and use flat labor rates. It can’t work that way. 

AGRR

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