News from Audatex North America, Inc. Vol 07 · 2010-03-22 · News from Audatex North America,...

AudatexDirectionsNews from Audatex North America, Inc. Vol 07

ALSO IN THIS ISSUE> Trends Data: Understanding Parts to Drive Better Business Results

> Shop View: Making the Journey to a Lean Shop (Part 4): The Business Case

> Audatex News and Events: Audatex Strategic Advisory Council Meets in San Diego

> Much More

Audatex Directions is a newsletter thatprovides in-depth trends and industryanalysis on the auto physical damagemarket. It is published by Audatex NorthAmerica, Inc., a Solera Company.

Contributing WritersMichael T. AndersonSr. Director of Data Analytics, Audatex

Diane KlundRegulatory Compliance Manager, Audatex

Krishna MasurLean Six Sigma Black Belt

Rick TuuriVP Industry Relations, Audatex

DesignJoe SullivanGraphic Designer, Audatex

Request CopiesTo request a printed copy of this publication,please email: [email protected] download the pdf, please visit ourWeb site: http://audatex.us/thinktank.aspx

Local focus. Global knowledge.

Audatex is the leading global claimssolutions provider. As part of the Soleragroup of companies, we draw on our broadglobal claims market experience to identifyand implement the best-practice processesthat drive continuous improvement for ourlocal customers and their trading partners.Solera companies serve the automotiveindustry in more than 50 countries acrosssix continents.

15030 Avenue of Science, Suite 100, San Diego, CA 92128Tel: (800) 237-4968 Fax: (858) 946-1073 www.audatex.us www.solerainc.com

© 2010 Audatex North America, Inc. All rights reserved.Audatex, AudaInsight, Autosource, Audatex Estimating,Audatex Win-EMR, PenPro and Shoplink are trademarks orregistered trademarks of Audatex. All other companyand/or product names may be trademarks or registeredtrademarks of their respective owners in the United Statesand other countries.

ContentsManaging Director’s Message

Feature Article–From Sushi to Solar Power, Auto BodySpeed Shop Redefines the Collision Repair Experience

Trends Data

–The P&C Year in Review

–Understanding Parts to Drive

Better Results

Shop View–Making the Journey to a Lean Shop: The Business Case for Adopting LeanPrinciples

Regulatory Update–New Year...New Total Loss Requirements

Audatex News and Events–Audatex Strategic Advisory Council Meets in San Diego

–DBRM Emerges as Focal Point of Audatex Technical Advisory Council Meeting

–Upcoming Events

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Audatex Directions

6

Customers first

Innovation. It’s what drives solutions that reduce costs, simplify processes and grow newrevenue streams.

Innovation is the foundation that enables technology companies to deliver on the promise ofseamless integration, a common-user experience and a platform to serve a diverse yetconnected client base across the value chain. Innovation is at the core of Audatex. We’rehere to help bring greater value to customers, so they may deliver more value to theircustomers.

The most recent result of industry innovation is 3D Intelligent Graphics. Introduced at NACEin November, this new optional feature for Audatex Estimating™ customers is already in useby hundreds of North American collision repairers. Gone is the era when collision repairers,insurers, and independent appraisers relied only on 2D fixed graphics in black and white.With 3D Intelligent Graphics, users today can zoom and rotate parts and assemblies a full360 degrees to ensure greater accuracy and enhanced communication with parts suppliersand business partners. Color-coding of the parts during their selection in the estimatingprocess ensures easy at-a-glance reviews and speedy work.

Early market response to 3D Intelligent Graphics from collision repairers also indicates that itis a powerful sales and marketing tool to help win more jobs—and to share those jobs withcustomers at the front lobby counter.

“Audatex 3D technology gives us sharper, cleaner images that are more ‘true-to-fact’ than2D,” says Robert Lloyd, owner and president of Lloyd’s Collision & Paint Center. “We have awidescreen monitor on the service counter. The 3D technology definitely ‘shows and tells’well. It gives the customers a better idea of the repairs required. They are always impressedwith the technology.”

Josh James, of Greenfield Body Works, says: “Customers think they’re just going to get ahand-written estimate, and they see the screen, and they’re very impressed. I’m very happywith 3D graphics. I really like the way a part you’ve just looked at, or a process you’ve justcompleted becomes highlighted or changes color, which lets you know what you’ve finishedand what’s left to do. It gives you a path to completion, and makes for more efficientestimating.”

At Audatex, we’re innovating to help advance the industry and how it manages and settlesautomotive physical damage and total-loss claims. We’re laser-focused on the nextgeneration of industry solutions that will leapfrog existing models and approaches. The workis significant—and uniquely Audatex, thanks to our ability to be locally focused whileleveraging global knowledge and the best of proven practices from our sister companies inmore than 50 countries under the Solera umbrella.

During these times of ever-present business pressures and change, one constant focusremains: Customer satisfaction. Without strong customer satisfaction, we’ve failed ourmission. I want to personally thank the thousands of Audatex customers for their business.We’re innovating to create solutions for you, based on your feedback and what you’ve toldus you need. We aren’t here to deliver modules or individual products, but an entirely next-generation platform that provides business solutions to business problems. As we havedone with 3D Intelligent Graphics, we’re ready to deliver even more industry firsts, withquality and service that is second to none.

Sincerely,

Mike SalfityManaging DirectorAudatex North America, Inc.

3www.audatex.us

‘‘’’

Managing Director’s Message

Innovation. It’s

what drives

solutions that

reduce costs,

simplify processes

and grow new

revenue streams.

4 Audatex Directions Vol 7

Feature Article

Continued next page

Naidoo, a South African native and automotiveengineer, spent years as a former executive forGM until he had a negative experience with acollision claim. That experience sent him on amission to change what he thought was anindustry riddled with inefficiencies. A firm believerin Lean principles, Naidoo sought to create well-defined repeatable processes that identify andeliminate waste in every aspect of the collisionrepair business. In doing so, he becameconvinced that he could improve the customerexperience as well as profitability.

Supported by OEMs and insurers, ABSS opened11 locations in the South African market and hassince expanded via licensing agreements to theU.K., Australia, New Zealand and now the U.S.Take a trip to the first U.S. location in Jacksonville,FL and you will immediately realize that this is noordinary repair shop. Its location within the site ofa former Blockbuster video store isn’t a fluke:ABSS has an aggressive growth strategy thatincludes a requirement for all of its centers tooccupy former retail stores to create a retail feeland a personal customer experience.

Second to the retail facade, your attention in theJacksonville shop will likely next turn towards thethree wind spires located on the far side of theparking lot, spinning at 30 miles per hour. Thesespires, in conjunction with a series of solar panelsaffixed to the roof, can generate a maximumcapacity of 40 to 70 percent of the repairer’s utilitycosts. If production exceeds demand, Naidoosimply sells the excess back to the local utilitycompany. And the story isn’t simply that his

From Sushi to Solar Power,Auto Body Speed ShopRedefines the CollisionRepair ExperienceBy Michael T. Anderson

What do sushi bars and collisionrepair shops have in common?Nothing, unless you’re the owner ora customer of Auto Body SpeedShop (ABSS), which places sushibars, cafés and bistros in many ofits 18 worldwide locations. DerekNaidoo, CEO of ABSS, isdetermined to redefine the collisionexperience as well as what itmeans to “go green” in the U.S.

molecules. This allows for a larger volume ofpaint per molecule, less overspray and a 30percent reduction in the amount of paint used.According to Neal Frederick, a refinish technicianin the shop, “The investment in the nitrogentechnology, along with the complex heating andventilation system, yields up to a 30 percentreduction in cure time for the base coat, as thecure process starts as soon as it leaves the gun.All the air is done right: You’re never fighting theequipment or the environments.”

For Naidoo, who sees labor costs and qualityas the greatest challenge in the U.S. market,employing technology to drive consistency, andempowering employees through equity are theonly ways to attain success. “I believe thatemployment equity will help drive consistencyas ABSS grows in the U.S. market,” he says.“The establishment of an employment equitytrust ensures everyone has a vested interest inthe performance and the future of the shop,enabling staff to make the right decision everytime.”

ABSS’ innovative processes allow its shops tooperate at a net profit margin between 8 to 10percent above the industry average, saysNaidoo. He and his team are so confident intheir Lean practices and resulting costreductions that they currently provide free carrental to customers while vehicles are beingrepaired.

With sound financial backing, the expansion planfor the ABSS franchise is aggressive for 2010.Standing behind this success is AudatexEstimating™, along with the Audatex Stellixbody shop management system. “A fair andaccurate estimating and body shopmanagement system is critical to the success ofour operation. Audatex 3D Intelligent Graphicsenable us to provide customers with a multi-dimensional view of the vehicle and work to becompleted. This not only helps our customersunderstand the damages, but also improvestheir confidence in us,” says Naidoo. n

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electric bill has been cut in half: “Theimplementation of alternative energy productionand other ‘green’ initiatives taken by ABSS hasprovided us with a tremendous marketingadvantage through local news interviews,newspaper articles and industry attention,” saysNaidoo.

In further efforts to eliminate waste whileemploying green practices through technology,ABSS crafted a vehicle steam-cleaning platformthat heats water up to 300 degrees. The platformserves several purposes. First, without the use ofcleaning solvents, it cleanses vehicles betterthan traditional methods. This translates into alower defect rate in the paint booth; a reductionin solvent costs; a decrease of at least 30minutes of labor time; and lower (approximately60 percent) monthly water costs.

“This simple, yet effective technology more thanoffsets the initial $7,000 investment,” saysNaidoo.

The refinish processes at ABSS have also beenredesigned to eliminate waste. The companydoes not use any solvent-based paint, only theenvironmentally friendly and more expensivewater-based varieties. While Naidoo’s paintcosts average 22 percent more than solvent-based products, less time is spent on mixing,matching and blending. To further reduce costsand improve quality, ABSS developed a complexprocess to ensure the driest possible conditionsin the paint booth, while minimizing the amountof paint used in the refinish process. It startswith a large compressor pumping air intorefrigerant dryers connected to a wet tank. Fromthere, air is passed through desiccant dryersfollowed by particle cleansers, with a nitrogengenerator connected to nitrogen storage tanks.Prior to entering a USI paint booth equippedwith a Pro Cure airflow acceleration system (tokeep contaminants away from the vehicle), thenitrogen is pre-heated to 158 degrees, producingthe driest and cleanest environment in which topaint a vehicle.

During the filtration process, other smallermolecules (hydrogen, oxygen, carbon) arefiltered out, leaving only the larger-sized nitrogen

Feature ArticleCont inued f rom prev ious page

ABSS developed a complex

process to ensure the driest

possible conditions in the

paint booth, while minimizing

the amount of paint used in

the refinish process.

For further information, visit

http://www.904speed.com.


Trends Data

The P&C Year in ReviewUncertainty in 2009 Leads to Return to Profitability in 2010By Michael T. Anderson

The U.S. Property & Casualty (P&C) insurance industry faced tremendous uncertainty as it entered2009. While remaining profitable overall in 2008, the industry suffered from a combination of stressedfinancial markets, economic recession and weather-related catastrophes, all of which led to the worstfinancial results since 2001. According to ISO, a leading source of information aboutproperty/casualty insurance risk, in 2008 the P&C industry incurred statutory realized capital losses of$19.8B and unrealized capital losses of $52.9B relative to $455.6B in statutory surplus. Despite thesefigures, it remained profitable due in large part to conservative investments and surplus.

As 2009 began, many of the factors that drove these 2008 results continued to influence the industry.In May of 2009, Standard & Poor’s announced that while confidence in the fundamental strengths ofinsurers remained intact, trends in the personal lines sector remained negative. Of the personal linesinsurers rated by Standard & Poor’s, 45 percent had negative outlooks in May of 2009 as opposed toonly 9 percent in May of 2008. As recently as December, Fitch Ratings issued a negative outlook,citing excess capacity, pricing and demand concerns as well as loss and expense pressures, whichare expected to contribute toward a projected 2009 industry-combined ratio of 101, and a 2010 ratioof 104.

However, P&C insurance is a resilient business by design. The threat of financial downturns, largelosses and catastrophes are anticipated in the industry’s risk management strategy. Even with earlylosses, insurers are seeing a return to profitability, evidenced by the data for the first nine months of2009. Return on average surplus, while still below historical levels, now stands at 4.5 percent year-to-date—a sharp contrast to the first quarter of 2009’s negative return. Driven by a return of confidencein the investment markets and an unexceptional catastrophe season, insurers saw surplus reboundfor the second consecutive quarter.

Although signs of economic recovery are present, the industry’s challenges are not over. Withsignificant reductions in the overall demand for insurance, increased pressures on underwritingprofitability due to marginal investment returns and other economic and consumer factors, theindustry will continue to be tested in 2010.

When it comes to automotive insurance, there are several noteworthy trends to watch. Some areknown and have been discussed throughout the year, while others have just recently begun toemerge.

Continued next page

New vehicle

sales traditionally

represent a reliable

source of premium

growth for insurers

and generally

provide a stream

of repairable

vehicles to shops.

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Continued next page

Trends DataCont inued f rom prev ious page

The Aging FleetMost are aware by now that the vehicle fleet isgetting older. As savings increased and accessto home equity diminished prior to and duringthe recession, new vehicle sales fell 30 percentin 2008 (13.2 million), compared to the 10-yearhistorical average and year-end forecasts of 10.3million in 2009. J.D. Power forecasts a slightrebound in new vehicle sales in 2010 (11.5million units).

New vehicle sales traditionally represent areliable source of premium growth for insurersand generally provide a stream of repairablevehicles to shops. One only has to look at the2008 and 2009 sales figures, and 2010forecasts, to realize that the trend of agingvehicles on the road will continue. Owners willcontinue to take a closer look at their autocoverage and adjust their personal level of riskrelative to the cost of optional coverage.

Total Loss Frequency Prior to the recession, the percentage of vehiclesflagged as a potential total loss trended between15 to 16 percent. In September 2008, suddenincreases in year-over-year total losses occurredas vehicle values declined sharply through mid-2009. During the third quarter of 2009, ActualCash Values (ACV) began to stabilize andincrease slightly through the remainder of the

year. Most notably,economy class vehiclevalues climbeddramatically in 2008 asdemand increased, with$4 fuel prices in play. In2009, those vehiclevalues fell equally asfast.

So what will be thelikely trend for totallosses in 2010? Globalauto sales areforecasted to risesignificantly in 2010,adding 3 percent

growth to the global economy and taking someof the older vehicles off the road. Auto loansacross all major markets bottomed out in thefirst quarter of 2009 and credit is slowly flowingto low risk consumers.Regardless, the influenceof new sales will take timeto offset the aging fleet.

If credit continues to flowand fuel prices remainstable, the percentages oftotal loss estimates willlikely remain consistentwith 2009 averages of 17.4percent. However, if thecredit markets do notcontinue to open, or if itopens further in late 2010, total loss percentagesmay increase slightly as the vehicles on the roadwill continue to age and depreciate.

Vehicle Miles Traveled From 1977 to 2001, the number of miles drivenevery year by Americans rose by 151 percent—about five times faster than the growth inpopulation peaking in November 2007 (whichcoincidentally is when the latest recessionbegan). Several hypotheses exist as to whatexactly caused the change. Was the decline invehicle miles traveled (VMT) caused by 2008 gasprices, by increased unemployment andconsumer confidence, or by changes in

5.0

5.2

5.4

5.6

5.8

6.0

6.2

6.4

6.6

6.8

$75,000

$77,000

$79,000

$81,000

$83,000

$85,000

$87,000

Aug Sept Oct Nov NovDec Jan Feb Mar Aug Sept Oct Dec NovOct DecJan Feb MarApr MayJune July Aug SeptApr MayJune July

Average MilesAverage Age

Average Age & Miles - Estimates Written

2007 2008 2009

2008 Total Loss Percent 2009 Total Loss Percent

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

Percent of Estimates Flaggedas Potential Total Loss

Average Vehicle age - Estimates Written (Source: Audatex Insight™)

Percent of EstimatesFlagged as Potential TotalLoss (Source: AudatexInsight)

Audatex Directions Vol 78

Vehicle Miles Traveled12-moving VMT (Source: U.S. Departmentof Transportation)

fundamentaldriving behaviors,leading to areduction indiscretionarytravel? History(as well asstatistics) showsthat consumersrespond slowly tofuel prices. Duringthe energy crisisin the early1980’s, gas prices

peaked in March 1981, yet VMT didn’t bottomout until 1982, possibly explaining why VMTbottomed out in 2009 versus 2008.

In June 2009, VMT began to trend upwards andhas increased each month since. Despite theincrease, VMT remains well below historicallevels. With unemployment numbers recedingand confidence improving, look for VMT tocontinue to climb through most of 2010. Historysuggests that as economies emerge fromrecessions, highway travel growth is much lowerduring periods of slow economic growth and/orhigher fuel prices.

With forecasts of slower growth in the first halfof 2010 as the inventory cycle turns, and ascredit remains relatively tight and consumerspending loses the support of governmentstimulus programs, it will take time to once againfind ourselves in an expansionary period. Oncewe do, VMT will return to—or even exceed—prior levels.

Partial Loss TrendsPartial loss trends, measured by Gross AppraisalValues (GAV), were favorable in 2009 comparedto prior quarters. Several factors influencedthese results, most notably, the increasedpercentage of total loss estimates. With lowerACV’s driven by older vehicles and additional“cars” versus trucks in the vehicle mix, a largerpercentage of high dollar estimates moved fromthe repairable category to total loss. The result isoften lower repairable appraisal values.

However, the trend was driven by more than justa shift in the dollars. Data suggests an increase

in repair and decrease in replaced part countsby minus .8 parts per estimate, which isconsistent with some of the harder hits beingexcluded in 2009. Some insurers indicate theresults were driven in part by a higherpercentage of “cash outs” by the vehicleowners, especially in the non-standard markets,while others cite appraisers writing estimates onlower valued estimates to sustain productivity asfrequency fell in early 2009.

Alternative part utilization helped manage losscosts and was driven by several factors. Asvehicles continued to age, a greater percentagebecame eligible for alternative parts use. Also,the increase seen in both insurer and repairerdata may be associated with a common interestin saving vehicles from being declared a totalloss.


Sept-0

7

Oct-0

7

Nov-07

Dec-0

7

Jan-0

8

Feb-0

8

Mar

-08

Apr-08

May

-08

June-

08

July-

08

Aug-08

Sept-0

8

Oct-0

8

Nov-08

Dec-0

8

Jan-0

9

Feb-0

9

Mar

-09

Apr-09

May

-09

June-

09

July-

09

Aug-09

Sept-0

92,9002,9102,9202,9302,9402,9502,9602,9702,9802,9903,0003,0103,0203,0303,0403,0503,060

Vehi

cle

Dis

tanc

e Tr

avel

ed (B

illio

n M

iles)

12-Month Moving VMT Total - All Roads

$2,300

$2,350

$2,400

$2,450

$2,250

$2,200

$2,150

$2,100

Q4-07/08 Q1-08/09 Q2-08/09 Q3-08/09

Average Repairable Appraisal Values

Continued next page

Average Repairable Appraisal Values (Source: Audatex Insight)

OEM Part Dollars as a Percentage of Total PartDollars. (Source: Audatex Insight)

Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09

67

68

69

70

71

66656463

OEM % of Parts $’s

9www.audatex.us

Total part dollars per estimate declined by$32 per repairable estimate in 2009 asOEM’s became more competitive on pricingin conjunction with lower part counts, theincreased alternative parts and total losspercentages.

Offsetting part of the reduction in parts costswere marked increases in average aftermarketpart prices in the second and third quarter of2009.

In terms of total cost, (2008 vs. 2009 costdifference multiplied by the number of replacedparts) Audatex Insight Parts Analytics suggeststhe largest increases in total costs were seen inbumpers and grilles, with Chevrolet, Toyota,Ford and Dodge comprising the largest dollars.Chevrolet, Nissan, Honda and Ford led theincreases in doors and closure panels.


ConclusionIn the last 24 months,the industry has seenchanges that willinfluence our businessfor years to come. Whilewe are emerging fromthe recession, its effectswill linger well into 2010and 2011. Economicrecovery, credit markets,vehicle sales, vehicle

values, miles traveled and other factors eachcontribute towards auto physical damageresults. Total loss trends will likely continueabove historical levels. To what extent will largelydepend upon fuel prices and new and usedvehicle sales, which are both forecasted toincrease in 2010.

Opening of the credit markets, consumerconfidence and consumer spending will play akey role in vehicle values and the age of vehicleson the road. Miles traveled will continue to climbin 2010 as we emerge from the recession,increasing the probability of losses (both insurer

and owner paid). Repairableappraisal values will likelyrise in 2010 as total losspercentages improveslightly, and parts and laborprices continue to rise asexcess capacity diminishes.

An increased focus onunderwriting profitabilitywill likely cause claimorganizations to re-evaluatetheir current results andoperating strategies for

2010 and 2011. Understanding the cause andeffect that drives performance metrics, and theability to identify and quantify specific areas toimprove, will enable organizations to focus onthe critical few, versus the trivial many. n

Q1-08 Q1-08 Q1-08 Q1-08 Q1-08 Q1-08 Q1-08

$140

$160

$180

$200

$220

$240

$260

$120

Recycled

OEM

Reconditioned

Aftermarket

Average Part Price by Channel

Average Part Price Trend by Channel (Source: Audatex Insight)

OEMPart AftermarketRecycled Reconditioned

Front Bumper CoverRear Bumper CoverHalogen Headlamp Assy.Hood PanelFront BumperFront Fender - LeftGrille Assy.

3.6%4.4%6.3%7.9%1.9%4.9%5.1%

-0.5%0.7%2.8%1.9%-6.8%0.7%3.5%

2.6%3.3%2.6%4.9%2.0%0.4%0.8%

8.1%7.5%4.1%3.6%4.5%2.5%-2.4%

Average Part Dollar Percentof Change 2008 versus 2009

Represents the percent of change inaverage part price by part channel(Source: Audatex Insight)

Economic

recovery, credit

markets, vehicle

sales, vehicle

values, miles

traveled and other

factors each

contribute

towards auto

physical damage

results.

10

Distribution of all replaced parts(Source: Audatex Insight)

Understanding Parts to DriveBetter Business ResultsBy Michael T. Anderson

At the most

basic level, the

quality of a

vehicle appraisal

is defined by

effective

management of

both parts and

labor information.

Audatex Directions Vol 7


At the most basic level, the quality of a vehicleappraisal is defined by effective management ofboth parts and labor information. These twofundamental items, which exist at the heart ofany collision repair organization’s keyperformance metrics, equally combine forapproximately 80 percent of the total estimatedollars.

Parts and labor decisions made at the time anestimate is written are therefore critical tobusiness success. These decisions often consistof repair vs. replace, OEM vs. alternative parts,or how much repair time should be paid for aspecific part. With all of these decision points,identifying where specific improvementopportunities exist can be challenging.

Despite there being thousands of parts on amotor vehicle, only 50 of them:

• Account for 53 percent of the replaced partcount;

• Contribute 47 percent of the total replacedpart dollars; and

• Represent 63 percent of the alternative partdollars.

Understanding your organizational proficiency inmanaging these 50 parts will drive betterbusiness performance. This leads to thequestion, “How well do you really know yourparts?” Based upon the average part dollars perestimate, even a 2 percent improvement in partcosts can yield $4.5 million in annual loss costsfor every 250,000 claims processed. Knowingwhere to find that 2 percent is the challenge.

Repair vs. ReplaceOne of the first decisions made in the appraisalprocess is determining the repair or replacementof a damaged part. This data point, which isoften closely monitored, comes from comparingcurrent performance to both prior performanceand industry data. However, if improving or

validating your repair-and-replace ratio isimportant to your organizational performance,access to part-level data with analysiscapabilities becomes necessary. The ability toisolate deviations by part, geography andappraisal resource transcends the traditionalaggregate-level performance metrics intoactionable information.

For example, Audatex Parts Analytics data showthat the national average repair percentage for afront bumper cover is 34 percent with a 5percent standard deviation. Thirty-one states fall

25%

30%

35%

40%

45%

50%

55%

60%

20%Front

BumperCover

RearBumperCover

FrontLeft

Fender

HoodPanel

Company A Company B Company C

Company ECompany D

Best In Class Comparison – Repair Percentage

100,000

200,000

300,000

400,000

500,000

600,000

700,000

01 26 51 76 101 126 151 176 201 226

Replaced Part Distribution

Unique Parts

Rep

lace

d F

req

uenc

y

Repair percentages of repair versus replaced part count(Source: Audatex Insight)

Continued next page

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below the national average, and 13 states falloutside the lower limits of the standard deviation(less than 29 percent repair percentage). Withthe average repair cost at $87 and the averagereplacement cost at $392 ($306 parts and $86labor), improving the repair-to-replace ratio canyield millions of dollars in loss costs.

Audatex Insight Parts Analytics reveal howcompanies perform at the part level, providingintelligence not only on which parts needimprovement, but in what areas and with whichappraisers.

The ability to quickly assess repair percentagesand costs across the organization or by vehicle(See Figure 1) immediately identifies areas of

improvement. In a matter of minutes, youroutliers will surface and corrective actions canbe put in place. All reports can be saved andscheduled for emailing on a recurring basis tomonitor future part-specific, repair-or-replacebehaviors.

Part Dollar DistributionAlmost every organization measures part dollarsand the distribution across part types (OEM,Aftermarket, Recycled). However, measuringhigh-level parts distribution provides anexecutive-level view of parts use, but does notidentify specific areas that warrant attention.

To know if you are attaining the best possibleresults within your parts policy, you mustunderstand how you compare againstindustry or vehicle mix for the mostfrequently replaced parts. In aggregateyou may be at parity, but are you as goodas you can be? Only through part-levelanalysis can quick assessments be madeto:

• Isolate geographic areas within the state that are negatively influencing results;

• Identify the specific parts that are materially contributing to the deviations;

• Provide the level of “entitlement”; and

• Evaluate the adequacy of, and potential holes in, the supply base.

40%

45%

50%

55%

60%

35%30%25%20%

Connecticut Maine NewHampshire

Rhode Island VermontMassachusetts

Repair Percentage Report - New England Region

Front Bumper Cover Rear Bumper Cover Front Left Fender

Front Right Fender Hood Panel

Figure 1: Region comparison of select parts- repair versus replace(Source: Audatex Insight Part Analytics)

Continued next page



Company A

Company B

Company C

Company D

0% 20% 40% 60% 80% 100%

Overall Part Dollar Distribution

OEM $ as % of Part $ AM $ as % of Part $

Recycled $ as % of Part $

Figure 3: Average part price percent of change3Q’08 vs. 3Q’09(Source: Audatex Insight Parts Analytics)

2.0%

4.0%

6.0%

0.0%

-2.0%

-4.0%-8.0%

New OEM Aftermarket Recycled Reconditioned

Average Part Price - Percentage of Change:

3Q-09 vs. 3Q-08

The point here is that aggregate part-level datado not provide adequate information to developand execute a surgical approach to defining aparts strategy.

Part Price TrendsAnother aspect of managing a parts strategy isto quantify how part price trends are influencingresults, and to identify if your strategy needsrefinement. For example, Figure 3 compares theaverage part price changes by part type,analyzing values in the third quarter 2009 vs. thesame quarter in 2008.

For example, “Company A” in Figure 2 averages9 percentage points higher in OEM parts as apercentage of part dollars when replacing frontleft fenders. Some may conclude that CompanyA’s average part costs would therefore be higher.In fact, the opposite is true: “Company A” hasthe lowest. Why? Company A’s parts strategy forfenders differs from the other companies, asevidenced by their distribution of alternativeparts, which results in lower part costs.

Figure 2: OEM percentage of replaced part dollars(Source: Audatex Insight Parts Analytics)

Continued next page

40%45%50%55%

35%30%25%20%

CompanyA

CompanyB

CompanyC

CompanyD

OEM % of Part DollarsFront Left Fender

Comparison of Part Channel Dollars(Source: Audatex Insight Parts Analytics)

Parts represent

nearly 40 percent

of the dollars

contained in an

estimate.

Improving these

results by even a

small percentage

can have a

material impact

on loss costs.

www.audatex.us 13

Across all parts, the average aftermarket partprice increased by 5.7 percent compared to thesame period in 2008, while the average recycledpart price declined by 5.7 percent.Acknowledging that there are many variablesthat influence average part price, havingimmediate access to this level of data canclearly be extremely valuable in developing andadministering your parts policy, based uponcurrent market conditions. For example, note thedifference in average price and trends in bumpercovers and headlamp assemblies. Viewing datain this manner for all parts helps driveinformation-based decision-making.

SummaryParts represent nearly 40 percent of the dollarscontained in an estimate. Improving these resultsby even a small percentage can have a materialimpact on loss costs. Traditional reports, whichrelied upon aggregate level parts information,provide insufficient information to develop aquantitative-based parts strategy. To improve,claim organizations not only require thenecessary tools to access and analyze currentperformance by specific part, geography andvehicle mix, but also the appraisal resources todevelop benchmarks, track progress and identifyoutliers. The bottom line is that high-level partsdata with high-level strategies won’t move theneedle.

In November, Audatex released Audatex InsightParts Analytics, delivering an unparalleled abilityto access, analyze and manage parts data.Containing information on the 700 mostfrequently-replaced parts, the Audatex InsightParts Analytics module provides Web-basedtrend reports as well as point-and-click datamining and ad-hoc analysis. In seconds, you arearmed with data on where to look, and how togauge performance, quantify opportunities andexecute your strategy. n

To see a demo of Audatex Insight PartsAnalytics, contact your Audatex SalesRepresentative.

Average Part Price - Specific Parts (Source: Audatex Insight Parts Analytics)

Average Part Price - Specific Parts (Source: Audatex Insight Parts Analytics)


Front Bumper Covers - Average Part Price

$200.00

$225.00$250.00

$275.00

$300.00

$325.00$350.00

$375.00

$400.00

2007 Q4

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

OEM Recycled Aftermarket Reconditioned

OEM Recycled Aftermarket Reconditioned

$100.00$120.00$140.00$160.00$180.00$200.00$220.00$240.00$260.00$280.00$300.00

2007 Q4

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

Halogen Headlamp Assembly - Average Part Price


Lean Success at DCR SystemsCleveland-based DCR Systems is one of thebest known and most admired body shops inthe industry. Michael Giarrizzo, Jr., an industryveteran formerly with JSI Collision Centers andSterling Autobody Centers, started DCRSystems with the idea of revolutionizing collisionrepair by establishing Lean shops. How has itturned out?

In the book, Improving Flow, Giarrizzo – DCRSystem’s CEO – says that his Lean repair centeris able to occupy less square footage and usehalf the equipment than traditional shops withthe same capacity. According to Giarrizzo, DCRSystems’ cycle time to complete a job “keys tokeys” is 7.2 days, or about half the industryaverage. “We think we can get it under six,” hesays in the book, and adds that he believes it’spossible to cut that cycle time in half againthrough multiple shifts.

What does that mean to you? If you can cutcycle time, do the job right the first time andmake the customer happy, that makes your

other customer, the insurance company, happyas well. According to J.D. Power and Associates2006 Collision Repair Satisfaction Study, 20percent of customers consider switchinginsurance companies after experiencing thecollision claim process. What drives customersatisfaction with the repair experience?Claims/estimation (62 percent), body shop (36percent) and rental car (2 percent). Speed up theprocess and you increase customer satisfaction.Since insurance companies are looking to theirpartners—to you—to help them makecontinuous improvements to meet ever-increasing customer expectations, the sooneryou can get your customers’ cars back to them,the more valuable you are to insurancecompanies.

Audatex, has been applying Lean principles forover three years, implementing processimprovement initiatives in every department.Waste reduction projects have resulted inmillions of dollars in both cost savings andprocess efficiencies that have enabled thecompany to increase productivity and quality.

Making the Journey to a Lean ShopThe Business Case for Adopting Lean PrinciplesBy Krishna Masur

This is Part 4 in a series of articles on Lean collision repair. In Part 1,we defined what Lean is and where it came from. In Parts 2 and 3,we covered the basic principles and concepts in Lean, includingValue, Value Stream Mapping, 5S, Kaizen and Cross-training. Thisarticle focuses on the business case for adopting Lean strategies.

Making the transition to Lean can produce stunning results for a collision repair business.

Shops have leveraged Lean to realize reduced cycle times; higher-quality repair capabilities;

more reliable service; and lower claims costs. At the same time, insurers are benefiting

from reduced costs associated with lower rental expenses, and vendors and suppliers are

also winning through more organized supply chains and more predictable demand. Best of

all, shops are achieving greater profits, mutually beneficial relationships with insurers and

increased customer satisfaction.

Shop View

Continued next page

15www.audatex.us

For example, the customer service groupstreamlined its provisioning and user setupprocess to more quickly and efficiently getcustomers up and running on Audatex software.

In areas in which Audatex has been arecognized leader, the company still felt it couldbenefit from incorporating Lean principles. In2008, it adopted Lean in the vehicle filedevelopment to streamline operations, whichnow enables rolling out more new vehicles eachyear and releasing them sooner into thedatabase. This has resulted in being able toincrease the lead over competitors. In short,Audatex took something already good and madeit that much better through Lean.

At Audatex, hundreds of associates are trainedin Lean fundamentals and more improvementsare expected throughout the company as moreassociates are trained to put these principles touse.

Getting There: Lean Training The only way to have a truly Lean organization isto train all the employees in your shop. And, weknow there are plenty of options for Leantraining—classroom courses, on-site courses,online live and self-paced computer courses.There are generic Lean courses that teach theprinciples in a manufacturing environment, whileothers provide Lean training for service andtransactional businesses. In fact, a couple of thelarge suppliers in the collision repair industryprovide business training to their shopcustomers.

Audatex offers an online Lean Shop certificationcourse that doesn’t just cover the basics ofLean; it applies this learning specifically tocollision repair. It puts the principles we’vediscussed above in the context of your industryand your specific needs so that shop ownerscan get the most out of the Lean philosophy andbe better able to apply it and integrate it intotheir businesses. Lean consultants have collisionrepair industry expertise. And, they’ve integratedLean into the business so Audatex is well awareof the challenges and rewards that businessesencounter with Lean.

Lean is a long-term commitment, but it is acommitment that has the potential to send youand your employees on a journey that willpositively transform your business, making itmore profitable by making you a better partnerwith your customers and suppliers. Audatex hasthe tools to help you take this journey. Thetraining will teach you how to apply andintegrate the principles of Lean so that you canachieve your goals for your business. At a timewhen competition and customer satisfactiondemands are increasingly putting pressure onthe collision repair industry, having a Leanbusiness is the best way to succeed in thefuture. n

For more information on Lean and theAudatex Lean Shop certification course,visit www.audatex.us.

Shop viewCont inued f rom prev ious page

‘‘

’’

In the book, Improving Flow,

Giarrizzo – DCR System’s

CEO – says that his Lean

repair center is able to occupy

less square footage and use

half the equipment than

traditional shops with the

same capacity.


2009 saw two bills introduced that broughtchanges to total loss requirements in bothOregon and California.

Oregon House Bill 2190, introduced by theDivision of Insurance, mandated that starting onJan 1, 2010,insurers mustprovide thevehicle ownerwith writtendocumentationto support thevaluation(valuation report),and a written statement in aform approved by the Director of theDepartment of Consumer and BusinessServices. The form, which must be provided tothe owner of the totaled vehicle as a separatedocument from the valuation, is posted on theDivision’s website at:http://www.cbs.state.or.us/ins/rules/recent_admin_rules.html.

The bill also requires insurers to pay theundisputed amount up front to both first- andthird-party claimants, provided the owner agreesto execute documents to transfer ownership.Insurers are not required to pay the undisputedamount up front if the owner retains salvage.

Lastly, the bill requires that, if an insurer’s policyincludes an appraisal clause, the insurer shallreimburse the insured for reasonable appraisalcosts if the insured is awarded more than theinsurer’s last offer.

The latter two requirements are effective for allnew policies written on or after Jan 1, 2010, orupon the first renewal after Jan 1, 2010 forexisting policy holders.

Similarly, California Assembly Bill 1200, whichwas hotly debated due to the removal of some

DRP restrictions, also implemented a mandatorynotice to the vehicle owner, if the owner orallyaccepts a repair shop recommendation. At thetime the recommendation is made, the insurermust provide a specific notice in a separatefreestanding document.

What You Should Know AboutMassachusetts RegulationsDid you know that Massachusetts Regulations(211 CMR 133.05) require insurers to considermultiple sources in determining a totaledvehicle’s actual cash value?

In addition to thecost of purchase ofa vehicle of like kindand quality, insurers

must also consider theretail book value in theirdetermination of the

actual cash value.

Audatex has alwaysrecommended that theNational Automobile Dealers

Association (NADA) Used CarGuide value be printed on our Autosource®valuations in Massachusetts for the adjuster’sconsideration. We have taken that a step furtherand provided the Massachusetts Department ofInsurance with an explanation of Autosource’suse of the NADA value as an internal benchmark.The Department has agreed that ourmethodology should give the valuescontemplated by the regulation, assisting insurersto meet the requirements of these regulations.

In addition, Autosource can assist withdetermining the decrease in actual cash valueresulting from any unrelated prior damage asafforded by the regulation. Simply enter theamount of the prior damage estimate on the Pre-Damage Appraisal in the applicable section(exterior, interior, mechanical, tires) andAutosource will provide a valuation of the market-adjusted value reflecting the prior damage. n

New Year...New TotalLoss RequirementsBy Diane Klund

Regulatory Update

Did you know that

Massachusetts

Regulations

require insurers to

consider multiple

sources in

determining a

totaled vehicle’s

actual cash

value?

17www.audatex.us

Audatex News and Events

Audatex hosted the fourth gathering of the Inter-Industry Advisory Council in San Diego lateSeptember to discuss industry issues andobtain input from industry leaders on deliveringadditional value to our customers throughproducts and services. The Council kicked off byintroducing Audatex new Managing Director ofNorth America, Mike Salfity.

A former senior executive at Xerox and softwareengineer by trade, Mike shared his vision for thefuture and the importance of understand thecustomer base. “At Xerox, I met with seniorexecutives of some of the largest companies onthe planet and then took off my jacket and tie tomeet with “Mom and Pop shops,” too,” saidSalfity. “We needed to provide solutions at bothends of the spectrum and couldn’t rely on oldtechnology to do it. The same is true atAudatex.”

As Solera expands into new markets around theglobe, Audatex provides participants in theAdvisory Council with perspectives from othercountries. At this session, Mark Stamp, ChiefTechnology Officer from Audatex UK, providedinsight on the markets, technology and trendsabroad.

“Leveraging our global position has enabledAudatex to lead the industry in productdevelopment, such as our 3D IntelligentGraphics developed in France,” says Elli Rosner,Vice President of Business Delivery. AdvisoryCouncil participants provided their input onfuture enhancements and product developmentpriorities. “Combine the graphics and systemupdates to reflect the most current part prices aswell as accurate labor operations, AudatexEstimating is clearly the most intelligent systemin the market,” says Rick Tuuri, Vice President ofIndustry Relations.

The Advisory Council also discussed theAudatex partnership with eBay Motors and theadvantages of having 1,200 recycling facilitiesavailable to the public. “These meetings areinvaluable to Audatex as the forum to hear thevoice of our customers from the two primarymarket segments that we serve: insurers andrepairers. But the meetings are only one step inthe process,” says Tuuri. “We discuss issues andpossible solutions and look to the group to“flesh them out” and establish priorities. Thiscreates a feedback loop that is critical toAudatex and, I believe, the industry.” n

Audatex Strategic Advisory CouncilMeets in San DiegoBy Rick Tuuri ‘‘

’’

These meetings

are invaluable to

Audatex as the

forum to hear the

voice of our

customers from

the two primary

market segments

that we serve;

insurers and

repairers.

Rick Tuuri,

VP Industry Relations,

Audatex


value on the estimate that may be required toreflect the proper repair.”

As automated as the Audatex platform is, Tuuripoints out that it is still a power tool designed tobe changed as necessary by the estimate writer.“Not every accident is the same and neither isevery estimate. We want to be very clear thatmanual entries and changes to the system areexpected and don’t necessarily mean that thesystem isn’t being used correctly or completely,”he says.

The Council reviewed several proposed changesto the DBRM and provided feedback that willhelp the industry better understand the Audatexsystem. Additionally, in reviewing suggestionsfrom the Collision Industry Conference (CIC)Database Committee, the group opened up yetanother avenue of communication for Audatex tohear the voice of the customer and the industry.Upon reviewing several technical issues andsuggestions from the group, the Council is nowhelping to determine the best way to proceed.

One of the suggestions presented was toimplement a standard manual entry for second-color set-up.

“This idea came about because vehicles todaymay have a different color under the hood, onthe radiator support panel or in other locations.This isn’t the same as two-tone, but may needto be addressed under certain circumstances,so we are adding the capability with a standardManual entry. Audatex will add this both to theEstimating system and the DBRM,” Tuuri says.

Raw, unprimed bumper covers, which arebecoming more prevalent, were also discussedduring the meeting. For now, the DBRM will bechanged to highlight and clarify that Audatexdoes not include time required to prep theseparts. The council will provide Audatex withinput on how this issue should be addressed inthe future.

“All in all, I believe that it was a pretty successfulmeeting,” says Darrell Amberson, president ofLehman’s Garage, and the Automotive ServiceAssociation (ASA) representative on the CICDatabase Committee. “Audatex asked us topresent at their council meeting and listened tous. We look forward to working together to findthe best solutions.” n

Audatex News and EventsCont inued f rom prev ious page

DBRM Emerges as Focal Pointof Audatex Technical AdvisoryCouncil MeetingBy Rick Tuuri

What’s in store for the Database ReferenceManual (DBRM) in 2010? Those attending the recent Audatex Inter-Industry TechnicalAdvisory Council (TAC) meeting in Las Vegas were the first to geta glimpse, as the DBRM took center stage in discussions led byRick Tuuri, vice president of industry relations for Audatex. Tuurifacilitates both the Audatex Strategic Advisory Council and TAC.

“These outstanding councils are made up of industry leadersand technical experts from the repair and insurancecommunities,” says Tuuri. “Their combined expertise makesthem ideal for recommending technical enhancements andhelping to ‘wordsmith’ the online version of the DBRM.”

An industry executive for more than 30 years, Tuuri also bringsplenty of experience to the table, including launching the firstreference manual in 1986. “The DBRM is almost as important asAudatex Estimating™ itself. I was with Audatex when the firstsystem was introduced in the U.S. Because no one had everseen an automated estimating system at that time, many in theindustry didn’t immediately understand our intentions.”

Since then, the DBRM has become an important tool usedregularly by repairers and insurers to ensureunderstanding of the automated AudatexEstimating platform. It serves as a robustmanual, featuring a detailed list of“included/not included” operations forreplacement and refinish labor, as well asother operations designed to expediteand improve the estimating process. Italso explains two-stage and three-stagerefinish formulas and much more, making

it indispensable to collision repair shops andinsurers.

One important addition to the 2010 manual will be the inclusionof a statement that further clarifies the use of an asterisk in anestimate. Notes Tuuri: “An asterisk does not mean that anoperation is incorrect or unnecessary. It simply means that theprofessional estimate preparer has entered a judgment item or

19www.audatex.us

Northeast TradeshowSecaucus, NJMar 19-21

Mar 28-30

Catch Audatex at the next industry event or trade show.

PPG MVP Spring Business Solution ConferenceSan Diego, CA

Audatex News and EventsCont inued f rom prev ious page

Audatex Online TrainingCenter: Ongoing LiveCourses

Audatex continues to offer award-winningaccredited online training classes for free. Live,virtual classes make it easier than ever to putAudatex Solutions to work for you.

For the latest Audatex training informationand to see what classes are coming up, visitwww.training.audatex.us.

Liberty Mutual Legends of GolfSavannah, GAApril 22-24

May 14-15 IT 2010 Tradeshow - Bringin’ IT HomeDanville, VA

June 16-18 Independent Automotive Damage Appraisers 2010 ConferenceNashville, TN

From unbelievable 3D artistry in the movie, Avatar, to amazing new capabilities

now available in Audatex Estimating, the 3D movement has arrived. Audatex

3D Intelligent Graphics is powered by the industry’s only smart database with

Intelligence Built In.

Audatex 3D Intelligent Graphics give you the ability to view and move parts

and complex assemblies as if you were holding them in your own hands.

Experience Unlimited Zoom, Color Coded Parts, 360-Dergree Rotation and

Parts in Perspective.

800.237.4968 | www.audatex.us

The future is here.

Intelligence. Built In.

© Audatex North America, Inc. All Rights Reserved.

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