by Debra Levy
In September, National Auto Glass Specifications (NAGS®) will introduce sweeping changes in the way it prices aftermarket auto glass. When the changes take effect on January 1, 1999, NAGS List Prices™ will be gone, a victim of changing technology and the company’s ability to gather information more quickly than it had in the past.
In its place, NAGS will introduce NAGS Benchmark Prices™, a pricing system designed to accurately reflect the price of aftermarket auto glass, with little or no discounts "off" the new prices. The general consensus of those who have previewed the new pricing system is that the days of providing 60- or 70-percent discounts will be gone. "Companies that continue to provide high discounts will probably be selling below their cost," said one familiar with the new system.
In addition to changes in pricing auto glass parts, the Benchmark Prices do not include any other "built-in" items. Auto glass companies will need to charge separately for labor and other items such as mouldings and/or hardware.
"This is more akin to the way body shops do it," said one insurer who has also viewed the new system. "You see separate invoice items for materials, labor, etc. The invoice is much more detailed."
NAGS’s last attempt at changing its pricing structure nearly ten years ago was generally regarded as a failure. It led to much confusion and distrust in the marketplace, and many feel it led to a rapid devaluation of auto glass in general. NAGS pledges this changeover—called Revaluation ’99—will be vastly different than the last one.
"First off, we didn’t own the company in 1989 when the last price methodology change was put in place," says NAGS vice president Catherine Howard, "but we’ve talked with enough people to have learned from the mistakes made then. Secondly this is not a devaluation—it’s a Revaluation—and the new Benchmark Prices are value-neutral. The new pricing will not result in across-the-board increases or decreases in amounts auto glass installation companies charge their customers. But they will result in a great reduction in the discounts necessary to achieve that pricing."
"The AGR industry has suffered from a negative image before consumers this year," said Howard, "because the average consumer does not understand how anything with a 70-percent discount isn’t overpriced. It was too complicated the way it was. Benchmark pricing is much easier to explain and understand and is defensible."
"The other thing we are doing differently is that we are getting the word out early. Everyone from the major insurers to the networks to the smaller retailers, should have plenty of time to study the new system and be ready for its implementation. "Some trading partners are already in the process of renegotiating their agreements to be ready for the change when it takes effect."
When asked why Benchmark Prices do not include labor, clean-up and other material costs as NAGS List Prices did, Howard grew a bit more pragmatic. "The more information that is available, the more likely a company will be to get reimbursed for those items. It helps provide an extremely accurate look at the cost of doing business."
Howard notes that the major insurance companies are "squarely onboard in terms of understanding the change and supporting it. We’ve done quite a bit of education about what’s coming."
"I’m glad to see NAGS move in this direction," said State Farm’s assistant vice president for property claims Bill Hardt at an open forum at Interlite Distributors in late May. "If NAGS was just lopping a zero off the prices, we’d have a problem with that, but from what I’m hearing they are doing things sensibly." In response to questions about whether insurance companies such as State Farm will really pay labor rates of $35 or more, Hardt said that his company has never had a problem paying a fair rate for labor.
In an effort to show how such changes will affect their business, USGlass has reviewed a number of hypothetical invoices as shown here. We have shown a current invoice and how the invoice might look under the new Benchmark Pricing system.
Though the changeover to Benchmark Pricing takes place on January 1, Howard said she realizes that people need time to study it and develop appropriate charges for their labor, etc. She said that beginning September 1, the new pricing will be available for studying from the NAGS’ website at http://www.nags.com. Readers can also request an informational packet ($15 charge for shipping and handling) that includes a sample of the pricing on a disk, a printed price list and other information. (Also see the related questions and answers following below.)
Current Invoice • May 1998
Labor charges are 7 percent of the total invoice
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Future Invoice • January 1999
Labor charges are 19 percent of the total invoice
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Current Invoice • May 1998
Labor charges are 9 percent of the total invoice
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Future Invoice • January 1999
Labor charges are 24 percent of the total invoice
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by Debra Levy
Howard believes NAGS Revaluation will cause difficulties for only two types of companies— "those that do not know their true cost of doing business and those that don’t take the time to prepare for the change."
AGR business leaders can get a look at the new pricing by visiting NAGS’s website at www.nags.com any time after September 1, 1998. "We have some sample pricing up now, but the final prices will not be published until then," says Howard. A brief synopsis of common questions and answers about the coming Revaluation follows:
Revaluation is the fine-tuning of NAGS prices so that the prices represent an accurate retail value for auto glass as a part with little or no discounts. These new prices are called Benchmark Prices.
Today, most companies negotiate their pricing and trading partner agreements based on a percentage off the NAGS List Price. Usually those discounts are quite high (and sound absurd) such as 70- or 80-percent off. In order to achieve the same bottom line invoices to customers, little or no discounts off the Benchmark Price would be given.
You shouldn’t because NAGS says it has contacted just about everyone who uses NAGS pricing to alert them to the change in the system. All segments of the business are switching to the new pricing at the same time. The insurance companies and other major trading partners are aware of the change and should be ready for it.
As the USGlass analysis shows, companies that attempt to continue to provide the same levels of discounts under the new pricing system, will most likely be selling auto glass below their costs.
First off, saying "no kit, no labor" can get you into trouble even today. It’s a dangerous practice not to detail all the materials you used on a job on the actual invoice. In fact, a number of insurers require it. Benchmark Prices include the cost of the auto glass only and nothing else.
Readers will want to review the new prices and labor times carefully before implementing them.
Updating and making the Labor Times consistent is another part of the Revaluation effort, so you will see some changes in those numbers as well.
With Benchmark Pricing, your invoices will look more like those from the body shop industry, yes.
No, the Benchmark Prices are still based on the truckload price of glass, along with a number of other factors.
Benchmark Prices will be effective beginning on January 1, 1999.
Review the before-and-after invoices in this article. You’ll see how some hypothetical and some actual companies might change their pricing to account for Benchmark Prices.
On September 1, NAGS will publish a list of current List Prices and their corresponding new Benchmark Pricing. It is imperative that you take time to study the new pricing and figure out your costs and how to best work within the new system before it takes effect on January 1, 1999.
When people got a first look at the Benchmark Prices, many adjusted it with the same discounts they’d been offering now. Once people realized that the Benchmark Price was for material only, they realized that by adding realistic labor rates and material charges, there would be little, if any, change to the bottom line on their invoices.
Remember that NAGS has always published its prices as retail auto glass prices, though many distributors also sell glass using a percentage off NAGS as their pricing measure. Each distributor prices its products the way it wishes, but since the revaluation is designed to be value-neutral, it is not expected that the prices distributors charge will change much—the percentage off NAGS may change, but not the final price you pay.
NAGS defines "R" parts, or problem parts, as those parts in which the NAGS price and the OE "dealer" price differ significantly after customary discounts are taken. While these parts won’t be eliminated, NAGS does expect the number of problem parts to decrease under the new scenario.
Revaluation is similar to balancing the budget or reducing the national debt—everyone agrees it’s an idea whose time has come, but few politicians are willing to implement the painful process while they are in office. Howard had done so on her watch. NAGS says it has dedicated a great deal of time and resources to making sure everyone understands the new system and is comfortable with it.
Debra Levy is the publisher of USGlass magazine.
Current Invoice • May 1998
Labor charges are 12 percent of the total invoice |
Future Invoice • January 1999
Labor charges are 24 percent of the total invoice |
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Current Invoice • May 1998
Labor charges are 11 percent of the total invoice |
Future Invoice • January 1999
Labor charges are 25 percent of the total invoice |
USG
© Copyright 1998 Key Communications, Inc. All rights reserved. No reproduction of any type without expressed written permission.