By Nick Palermo
State Farm representative George Avery explained and took questions on the electronic parts-ordering system that has both collision shops and parts suppliers concerned about the industry's future.
George Avery, State Farm's representative to the collision industry, walked into a tough crowd at the September meeting of the Georgia Collision Industry Association (GCIA). Sure, the members are a friendly bunch. But Parts Trader, the electronic parts-ordering system that State Farm is currently testing and plans to implement nationwide, has both collision shops and parts dealers concerned about the industry's future. George Avery's job of calming their fears and answering their questions about Parts Trader is an unenviable one.
Avery joked about it from the beginning of his presentation. He explained his position as the giant insurer's single point of contact for the collision industry. He said when executives at State Farm announced the position years ago, he lauded the decision. Then it was announced that he'd be that representative.
But Avery did his job at the GCIA meeting. He presented a list of facts, figures and details of how State Farm came to the decision to try Parts Trader. He outlined some scenarios in which collision industry players could glean some advantages from using the system. Avery showed screenshots of the software to demonstrate how shops would use it to order parts. Finally, the toughest part of Avery's job was taking questions from the audience. He lacked answers to some questions, while others were not well received by concerned collision industry professionals.
Those in attendance came from across the southeast region and some are already using the system in test markets like Birmingham, Al. Parts Trader was developed in New Zealand, where it's used now by every insurer. State Farm brought it the U.S. with plans to eventually implement it in all 10,300 shops participating in its Select Service program.
Avery outlined State Farm's motivations by running through some numbers. State Farm holds 81 million policies, 41 million of which are automotive coverage. The insurer processes 32,000 claims per day and spends $3 billion annually for repair parts. Avery explained that, company-wide, 63% of claimants use a Select Service repair shop for their collision work. In short, Avery indicated that any savings State Farm realized by implementing Parts Trader would translate into huge savings when applied across the insurer's massive business.
Avery provided an example. He said that parts typically take 0-3 days to reach the repair shop and that 14%-17% of parts are returned. Improving parts availability to shops could reduce the overall repair time for vehicles. That means lower rental costs for the insurer, since the customer could get his or her car back sooner. Reducing the repair time by one day – across all of State Farm's claims – would save the insurer $43 million annually in rentals.
Avery explained that Parts Trader could result a win-win, benefit collision shops, too. He said that better parts availability – and presumably cheaper pricing – could result in repairing some cars that are now being totaled. Avery also discussed the high costs and limited availability of specific parts, including safety items like airbags. He said that improving supply chains could allow shops to turn vehicles around more quickly and effectively, improving their bottom lines.
Avery's presentation of a static Parts Trader screenshot gave those unfamiliar with the system a look at the interface. The user enters all of the parts necessary for a repair and chooses from a number of options like part type (OEM, aftermarket, recycled), delivery time and price. Once the bids come back, the shop can create a purchase order for the supplier or suppliers it chooses. Neither State Farm nor the Parts Trader system requires that a shop select the vendor with the lowest price.
But Parts Trader would help State Farm to identify shops in its Select Service program with parts costs outside of the norm. And Avery did indicate that lower parts costs was among State Farm's goals with Parts Trader. Although shops could continue to use the same markup percentage on parts, lower costs would mean lower parts revenue for shops.
A portion of the spirited question and answer session was devoted to explaining this. Shop owners were keen to keep their markup, but concerned about the effects of applying the same percentages to cheaper parts. And Select Service participants were curious about their options should they try Parts Trader and find it unsatisfactory. Avery said Parts Trader would have to show the collision repair industry some value in order to be a success.
But that seems a stretch as Select Service shops are compelled to use Parts Trader if they want to stay in the program. One collision repair shop owner asked Avery about her options if she tried Parts Trader and didn't like it. Avery stopped short of saying that if her shop didn't use it, it would lose its Select Service status. Instead, he just said that all Select Service shops would be required to use Parts Trader once it's fully implemented. Still, the message was clear.
Throughout the presentation and the question and answer session, Avery returned to the point that Parts Trader does not represent an attempt by State Farm to tell collision repair facilities how to run their businesses. But for now, this GCIA audience seems unconvinced. Just like any other business, shops have relationships with vendors and customers to consider, along with their own welfare and success. If shops find Parts Trader to be more hindrance than help, the system will certainly weigh into shops' decisions about whether or not to participate in State Farm's Select Service program.