NAGS Changes Cause Industry Spin
by Les Shaver
If you’re an auto glass shop owner, February 2005 will probably be remembered as the month of the fax. In anticipation of February 28, when auto glass price publisher National Auto Glass Specifications (NAGS) in San Diego rebalanced its price list, insurance companies, auto glass manufacturers and third party networks spent most of February sending out faxes with abandon. Their purpose: To tell shops how they were responding to the impending NAGS changes.
Though the shops received their faxes, in many instances they weren’t happy with what they saw. American Family Insurance, for instance, was asking for 40 percent off the suddenly deflated NAGS price and Progressive wanted 46 percent off. The labor rates accompanying these prices did go up, but shop owners were still feeling the pinch and were confused, especially as most of the manufacturers and distributors in the industry weren’t following the new NAGS price list.
Anyone attending the IGA Convention in Orlando, held less than 100 hours before the rebalancing was to take effect, could feel the tension in the industry. While it may not have been Fear and Loathing in Orlando, the anxiety was high. Dave Leach, vice president for Kryger Glass of Kansas City, Mo., may have put this trepidation most succinctly during one seminar.
“This is one of the most tumultuous times I’ve seen in my 17 years in the industry,” he said.
A Path of Tumult
For Leach to say this was quite extraordinary. If you ask many glass shops, one of the primary sources of this turmoil was the NAGS rebalancing. The rationale for past revaluations was to cut the exorbitant list prices of auto glass. This time, Jessie Herrera, general manager for NAGS, said the publisher’s aim was to reduce the friction in trading relationships, eliminate troublesome ‘r’ parts and isolate each of the components in a glass installation, including labor and kits. To do this, however, the publisher needed to take an axe to the huge price of glass.
The problem for shops: Their profit was directly tied to the cost of glass. So unless, they could receive more compensation for other parts of the installation, like labor or kits, they were doomed to lose money. And, in an industry that had been hemorrhaging money since the last revaluation in 2002, this was no small issue.
Some shops noticed that their fast moving parts were taking bigger losses than their slower moving ones.
“Going through the price sheets, we were noticing the fast moving windshields were selling for $15 to $30 less than they were beforehand,” said Allen Lindsey, owner of Jonesboro Glass & Mirror in Jonesboro, La. “Then you have the slow moving one’s going for $15 to $30 dollars more.”
Regardless of whether they thought they would lose money or keeping treading water directly after the rebalancing, glass owners were scared of the next move. Specifically, they worry about what will happen when insurance companies tighten their offers in the coming months.
“This rebalancing will be another way to turn the screw down,” said Clyde Stephens with Visions Glass Repair & Replacement, Perham, Minn. “We will lose a little more and a little more and where is it going to end? I can live with some of the offers they have given to us, but where are we going to be in six months?”
The change has Elle Burdsall, owner of Apex Auto Glass Inc., Bonney Lake, Wash., seriously looking at the future of her business.
“We are worried,” she said. “We see the road ahead as being harder then it is now. We are already at a low profit of maybe 12 percent on our glass work as it is now. Any lower and we will have to look at other options.”
Some companies are already looking at, or at least talking about, taking drastic actions.
“The only good thing about this rebalancing is that NAGS has taken a drastic enough cut that it might actually inspire the glass companies to take action instead of just sitting around whining like in the past,” said one shop owner who asked that his name be withheld. “Had NAGS not been so aggressive, it wouldn’t have drawn so much attention.”
One company, Advanced Auto Glass in Delta, Neb., has decided to pull out of certain networks.
“We have reviewed the ‘new’ pricing structure set by NAGS and we think it is in our best interest not to accept your wished discounts,” the company said in a letter to a network.
“We have complied with your wishes in the past and agreed to the discounts, but at this point we are compromising our business at all expenses by agreeing to these new ‘discounts.’ We feel that the NAGS February 28, 2005 Calculator has put the auto glass industry in jeopardy, leaving no profit margins for glass shops to perform ‘safe and proper’ installations.”
While not as large, and definitely not as vocal, there are some shops on the other side of the argument. They believe the rebalancing was necessary to put more emphasis on the labor required in an installation.
“We are finally getting to charge an hourly labor rate and the list prices aren’t so high, so we can stop having large discounting,” said Mark Olson, co-owner, A-1 Glass Co. Inc., La Crosse, Wis.
But many shops are concerned about the hourly rates some insurance companies have published. The central crux of their argument: The increasingly popular practice of insurance companies giving a base price plus an hourly rate. For instance, American Family is offering a $40 flat fee and an extra $34 per hour. To some glass retailers, these are just more insurance games to cut into their profits.
“It advances the theory they [insurance companies] don’t want glass companies getting $40 or $45 an hour for a labor rate,” said Ira Turner, president of Glass Seekers in Syosset, NY. “They’re trying to pull the wool over someone’s eyes.”
Herrera thinks these two-tiered rates may be the most accurate way to charge for labor, though. He says this structure addresses the fixed costs (office administration and installer training) and variable elements (like hours spent on an installation) for every job.
While the insurance companies have set the pricing structure on labor rates and discounts off glass, in the final analysis, glass shops can determine whether they want to accept these prices.
“Until people stop accepting it [offer and acceptance programs] they [the insurance companies] are going to keep doing it,” Herrera said. “It’s not a function of the data we publish. It’s a function of big buyers and fragmented sellers.”
Many shops may disagree with Herrera, thinking NAGS has a greater effect on the industry than he gives the publisher credit for. But companies like Advanced Auto Glass seem to be realizing the buck stops with them. In the long run, they are the only one’s that can protect their own pricing.
Les Shaver is a contributing editor of AGRR.
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