Different Labor Types, Different Rates

“How many shops know what their true labor costs are?” asked John Shoemaker (BASF) during “Properly Identifying Labor Types and Rates,” as he pointed out, “Every other business sells products based on costs because businesses need to buy stuff at a cost that allows you to sell it at a rate that provides a little in between that you can survive on. Can we survive on $7 per labor hour? No, but we are.”

Once upon a time, vehicle repair consisted of 70 percent body labor, 20 percent mechanical and 10 percent frame, but modern vehicles have a ratio closer to 20 percent body, 60 percent structural and 20 percent mechanical. Additional repair types include refinish and electrical/diagnostic. Each type of repair requires a different skill set, and Shoemaker recommended that repairs should be identified by the skills required, technicians should be assigned to those repairs based on the required skills and the final repair plan must reflect the work performed and indicate who performed it.

In order to understand a shop’s true labor costs, one must evaluate the investment that is made into I-CAR and OEM certifications, shop equipment and Human Resources-related costs (such as health insurance, 401(k) matching, workers’ compensation, vacation pay, etc.), and from there, the shop should calculate their labor rate based on the overall cost of the employee for each skill set category. From there, establish rates that reflect the appropriate profitability to sustain the business, to promote employee retention and to support the skills that today’s vehicles require.

“What is the estimating database good for?

Documentation!” Shoemaker reminded attendees. “If you look at the first line in the p-pages, it tells you that it’s a guide. If we follow an OEM repair procedure and it defines the process as structural, it doesn’t matter what CCC or Audatex tells us because we’re using OEM documentation to document the repair. If it calls for structural repairs, can you add the ‘s’ in there? Absolutely! The estimating database is a place to consolidate all the information and create your documentation, but the real work comes before you open up your estimating database through your research.”