An Independent Business Executive Takes
a Long, Hard Look at the Auto Glass Industry
by Frank Baitman
Editor’s Note: AGRR magazine recently sent an independent business expert
into the depths of the auto glass industry. Read on for an excerpt of
As I stepped into the auto glass industry as an independent observer,
I quickly realized that the auto glass replacement (AGR) industry is undergoing
structural changes that are fundamentally changing its competitive dynamics.
Like many other industries, some of these changes are due to globalization
and technological innovations. Although these changes might appear to
be the distant machinations of Big Business, they are reshaping the way
that consumers buy auto glass; who they choose to install it; and whether
those installers will make a profit from their services and expertise.
How did I reach my conclusions? I listened. I occasionally poked, provoked
and prodded. I explored and learned about the history of the industry.
I developed some commonsense observations, I focused on the big picture,
but, mostly, I listened.
It quickly became apparent that the AGRR industry is made up of three
distinct groups. Everyone with whom I spoke fit into one of three categories:
• The Old Timers—these focus on past greatness who are zealous about repairing
• The MBAs—their focus is on reinventing the business locally; and
• The Cynics—these live with the mindset of, “Everything’s been tried,
and it won’t work this time.”
Independent retailers also fall in these three categories. They seem to
have three specific resonating problems/complaints about the industry
• Many believe one large problem is Chinese and Brazilian glass and that
domestic glass is better than foreign glass;
• Many independent shops believe they do a better job of installing than
the large chains; and
• Many independents believe the large chains’ practices have hurt them.
Simple and Profitable
In addition to these issues, the auto glass industry hasn’t gone unaffected
by changes in the global economy.
In the past, skilled labor, auto industry logistics and plentiful supplies
of natural gas have guaranteed the position of Toledo, Ohio, as Glass
City, and have created a profitable business model for the auto glass
industry. When Albert George Ballert wrote his university dissertation
in 1947, he predicted that Toledo’s leadership would remain unchallenged:
“Continued prominence in the glass industry appears to be assured for
Toledo, both from the standpoint of production and administration.” But
globalization and technology have upended the glass industry and every
part of the supply chain from manufacturing to installation is being re-shaped.
There have been other changes, too. Low-cost sourcing of laminated and
tempered auto glass from such regions as China and Brazil has changed
some of the world’s largest glass manufacturers. Some have adjusted, while
others have merged or gone out of business. The new economics of auto
glass manufacturing is driven as much by technological improvements enabling
high-quality, short runs of custom pieces, as it is by lower labor costs
in developing nations. This new economy has implications that extend well
beyond the cost of glass to installers.
Dealing with “Big Boxes”
Over the past 20 years, those industries that serve consumers have undergone
a major upheaval that has favored large businesses able to exploit economics
of scale. In general, product-centered businesses have found their path
to success by rapidly developing large numbers of big-box chain stores.
Office supply and home improvement retailers, for example, have used their
enormous buying power to negotiate dramatically reduced prices from their
vendors; as they pass these savings along to consumers, they cut into
the business of local independent retailers. As independent retailers
are forced out of business, big-box retailers emerge as the only game
in town, thereby enabling them to raise their prices while pressuring
their vendors to reduce theirs. It is a vicious cycle that is supported
by the globalization of the supply chain and technology to manage complex
logistics and just-in-time inventory.
Of course, auto glass replacement is not completely at the mercy and globalization
of technology. Like the healthcare industry, the auto glass replacement
industry has become dependent upon third-party insurance payments—and,
like healthcare, it seems that costs have been poorly managed and pricing
has been erratic. As a result, the insurance industry has taken actions
to reduce its outlay and improve its profits. In healthcare, these actions
have treated diseases as commodities, negatively impacting the provider
and the patient. In the AGR business, insurance companies have treated
auto glass as a commodity, disregarding installers’ skills, steering work
toward retail discounters, and ignoring the unique challenges that a particular
replacement might require.
Many retailers are addicted to insurance dollars, and this perverts the
market. Falling demand is seen by many installers as the result of unfair
competition. That’s certainly a problem, but it hasn’t driven installers
to look for lower priced goods, to reduce their prices, or to do anything
to make their shops more desirable or convenient to cash customers.
However, a small number of dealers are basing their businesses on auto
glass replacement sales to consumers; these dealers estimated that only
20 to 40 percent of their revenues are made up of comprehensive insurance
Interestingly, there were significant differences in the “average cost
of a windshield job” when dealers were separated by the prevalence of
insurance payments. Retailers who focused on the consumer business estimated
their average windshield replacement at $200 to $225, while retailers
who were dependent upon insurance estimated their average replacement
between $325 and $350.
The dealers that focused on direct sales to consumers shared a different
outlook on trends in the auto glass replacement business; these shop owners
were more likely to talk about retail amenities, business location and
The majority of dealers who remain dependent upon insurance claims were
more likely to discuss industry practices that reduce revenues or undercut
margins, including steering, unmarked glass imports and what they see
as “irrational estimates by NAGS.”
While dealing with all of these issues—big-boxes, insurers and a changing
economy—managing the purchase of glass and other supplies also comes into
play. Indeed, there is a prevalent view among retailers that distributors
and manufacturers have already been squeezed on pricing, and there isn’t
much margin left for auto glass wholesalers.
Interestingly, most dealers shared their average windshield prices with
me, and those averages varied by 300 percent, even when delivery costs
were accounted for separately. “[Independent retailers] have been indoctrinated
to believe that they’re already getting the best possible prices,” said
one distributor with whom I spoke. “It’s not true.”
While low-volume and rural shops must pay more for their raw materials,
the variance from this unscientific survey suggests that some auto glass
distributors are charging inflated prices.
Although limited in number, a few retailers strongly disagreed with the
view that distributors are pricing their auto glass aggressively. Those
retailers who held this view believed that they were paying substantially
lower prices than their peers because they had independently developed
a supply network that circumvented their regional distributors. One retailer
told me, “If I have a choice, I won’t purchase from distributors.”
On top of pricing issues, the issue of imported materials—especially glass—came
up frequently. Fully one-half the independent dealers interviewed expressed
reservations about the quality of glass from China.
Many of the independent dealers who expressed reservations also acknowledged
that they are buying imported glass; indeed, estimates show that 40 to
60 percent of the auto glass sold in the United States is manufactured
in China, and nearly 20 percent comes from Central or South America. No
dealers were aware of a specific instance where imported glass failed
due to poor manufacturing.
Independent retailers that are already directly sourcing their glass from
overseas manufacturers provided unit prices that were 20 to 50 percent
lower than those dealers who purchase through distribution. Challenges
associated with importing glass include: up-front payment for containers;
ordering a representative mix appropriate to each shop’s business; and
warehousing and inventorying glass shipments.
In conclusion, interestingly, globalization and technology have reshaped
the auto glass industry, but these two factors also might prove to be
the independent dealers’ salvation. It’s obvious the industry is not static,
and this evolution will continue. n
Frank Baitman of Baitman & Associates has more than
20 years’ experience researching and developing strategies in numerous
industries and spent many years with IBM in the company’s corporate strategy
department. Mr. Baitman’s opinions are his own and not necessarily those
of this magazine.
“The auto glass replacement
industry has become dependent upon third-party insurance payments—and,like
healthcare, it seems that costs have been
poorly managed and pricing has been erratic.”
© Copyright 2009 Key Communications Inc. All rights reserved.
No reproduction of any type without expressed written permission.