Waiting for the Other Shoe to Drop: Will Others Follow asTech/GEICO’s Path?

Published in New Jersey Automotive – Thomas Greco Publishing

Two’s company, three’s a crowd, but four on the sidewalk is not allowed!

The simple childhood proverb offers a lot of wisdom in terms of business contracts, especially in the collision repair industry where it’s not uncommon for confusion to exist when it comes to which entities a repair facility owes its loyalty: the customer who brings the vehicle into the shop or the insurance company that typically compensates for the repair. But when another type of business – a vendor – recently decided to insert itself into the equation, collision leaders and business owners around the country immediately made their objections known.

In July, GEICO Insurance announced that it had reached an agreement with asTech, a diagnostics and calibrations service provider, to standardize pricing for GEICO Auto Repair Xpress (ARX) direct repair facilities utilizing their services as a ways of mitigating the variety of price points that have emerged for these operations. Claiming that the partnership was intended to “reduce friction,” the insurer indicated that the new initiative will speed up reimbursement “for an OEM or OEM-compatible scan if [shops] correctly follow the Rules Engine process in selecting the appropriate scan for the vehicle.”

Days later, industry leaders and advocates aired their apprehensions at the Collision Industry Conference (CIC) as shop owners objected to any vendor entering into an agreement with an insurance company on their behalf. Although representatives from asTech were on hand and tried to quiet concerns by insisting the agreement would streamline processes and work in the customer’s best interests, the overarching response seemed to suggest the beliefs that the agreement would undermine shops’ independence, jeopardize repair quality and compromise free market pricing. 

By the end of the month, GEICO released an updated standardized pricing sheet which reflected increases for the listed operations; however, nothing within the new communication did anything to alleviate shops’ fears as collision repairers ponder whether the vendor’s action will result in a domino effect that will deteriorate facilities’ ability to prioritize quality and safety over cost. 

Will the industry’s reaction quiet other vendors’ attempts to follow suit, or are we just waiting for the other shoe to drop?

One of the largest concerns expressed by shops since the agreement was announced comes down to the possibility that a vendor entering into a standardized pricing agreement with a third-party entity on behalf of their customers sets a dangerous precedent that similar businesses may follow. Aaron Schulenburg, executive director for the Society of Collision Repair Specialists (SCRS), reports receiving many inquiries from the industry about “this new relationship and agreement. It is unclear to me why a vendor would enter into an agreement, and create standardized pricing for their customer, with another business who is not a party to that service agreement. I absolutely think it is rightfully concerning that vendors are seeking standardized pricing directly with insurance companies, whose only relationship in the scenario is to indemnify a consumer for a loss.”

AASP/NJ President Ken Miller (821 Collision; North Haledon) agrees that this situation could potentially be very problematic. “It is early in the process to understand the potential impacts on setting precedent, but it’s hard to imagine a scenario where this will be good for repairers.” 

“This is a conflict of interest that includes a lack of transparency,” AASP/NJ Collision Chairman Jerry McNee (Ultimate Collision Repair; Edison) offers. “It will set a dangerous precedent for a vendor to enter into a standardized pricing agreement on behalf of their customers with a third-party entity as we lose that lack of control within our business; there is no such thing as ‘one size fits all.’

“Establishing standardized pricing agreements for scanning processes can send misleading messages to insurers and impact shops’ ability to collect for non-included operations,” he continues, suggesting that the “misleading perception can lead to unrealistic expectations and pressures on shops to conform to these standardized prices, regardless of their specific circumstances and costs, and will likely cause an undervaluation of services because standardized pricing will not accurately reflect the complexity and variability of scanning tasks. This will result in shops being undercompensated for more labor-intensive or sophisticated operations that fall outside the standardized scope.”

Miller also expresses concern that such standardized pricing agreements could send a misleading message to insurers about the ability to streamline scanning processes, suggesting it could make it appear that these processes are simple due to the “small price tag being attached to these operations. Those of us who have a more comprehensive understanding of scanning and analyzing vehicle data know there can be much more to it than ‘plug it in and clear the codes.’”

He furthermore expects that this situation could make it more difficult for shops to collect for non-included operations. “I’m concerned about the broader range of services being discussed in this deal, such as ADAS calibrations, initializations, zero point resets, etc. Besides the obvious issues with setting prices for many of these operations, I see too many failure paths for this to be a practical solution and too much potential liability for shops.”

“Repair facilities are so used to bill-payers using what they establish to be prevailing prices as a limiting factor in indemnification,” Schulenburg contributes. “And it’s not about whether the price today is acceptable or not; it’s about the act of negotiating for another business. For context, businesses that actually perform diagnostic and calibration work enter into purchase and service agreements with vendors, such as asTech. Those agreements typically have commitments between both parties and often stipulate obligations around terms and conditions and pricing.

“So, could the new terms, new pricing and new included or non-included agreements affect what those businesses were otherwise effectively capturing or the terms that they had agreed to with their service provider?” he asks. “I believe they could.”

McNee points out the challenges related to “negotiating with a bill payer who has no knowledge of the task at hand,” comparing it to “dealing with a kindergartner writing in crayon that just says no or ignores line items requested.” He suggests standardized pricing will make it more difficult for shops to justify additional charges since “insurers will argue the standardized pricing covers all necessary tasks, making it harder for shops to receive appropriate compensation. With this pressure to adhere to standardized prices, shops will feel compelled to cut corners or reduce the quality of their services, compromising safety and service.”

To ensure a fair market, shops are prohibited from setting rates, so McNee queries, “Is this not an antitrust violation? How does this not fall under regulatory and legal scrutiny? Should standardized pricing agreements attract attention from regulatory bodies due to potential anti-competitive practices or consumer protection issues?”

Although Schulenburg stresses that he does not have the legal expertise to answer these questions, he expanded upon the list of reasonable concerns. “This agreement seems to give asTech the ability to determine whether aftermarket or OEM scan tools are needed on a job. That raises a lot of concerns. First and foremost, in the asTech mechanical product – which is different from the collision product – they continue to rely only on OEM tools and not the rules engine. So, it begs the question: is the departure from OEM tools only happening in the collision repair space because of the interaction with an insurance company that is indemnifying the cost of the loss? It raises concerns over why vendor recommendations carry so much influence, when manufacturer recommendations are so often dismissed by insurance companies, and it also raises concerns about self-certification of results. 

“asTech is documenting that their ‘asTech OEM Compatible scans are certified to be equivalent to scans performed by an OEM scan tool,’ but it simply appears that they are certifying it for themselves,” he points out. “I don’t know what that term ‘OEM compatible’ means, but I think it raises concern over how this is being pitched to the industry, to the insurer and to the consumer in contrast to how it has to be recognized in the estimating system. My understanding is that as an integrated partner with CCC, they must classify the scans as either aftermarket or OE for the CCC validation coding, and I understand the only options are OEM or aftermarket. So it raises the concern, how does a so-called ‘OEM-C’ scan get represented in the diagnostic workflow? I would presume as aftermarkets so why call it something other than that? If not all scans or tools are created equal, then does any company simply get to ‘certify’ that their product is the ‘same,’ ‘comparable’ or ‘equivalent’ as OEM? How does the market deal with that?”

The arrangement between GEICO and asTech has certainly elicited numerous scrutinies, but across the industry, the prevailing question seems to be whether this situation is the beginning of a new trend among vendors, or if the industry’s reaction will prevent other vendors from following this example?

Schulenburg “hope[s] this is a one-off misguided effort that simply lost sight of who the actual customer was, not the start of a trend.”

“The development of standardized pricing agreements by vendors sets a new trend that other insurers will adopt because standardized pricing agreements will be profitable for insurers and their vendors,” McNee fears. “If shops accept them without significant backlash, other insurers will adopt this model. If shops follow the money and lower their standard, who benefits? Insurance companies and their vendors. Can you afford to do scans and calibrations at these prices? None of us can, and shops are not doing themselves or this industry any favors by continuing to bury their heads in the sand.”

Miller expects “that others will try to copycat this, but only time will tell if it will be successful; however, I believe it will difficult to stop this because this was initiated in the DRP network, and unless the shops are willing to terminate their DRP agreement, they have little to do but follow the mandates. In the ‘cancel culture’ world we live in these days, it would certainly send a strong message if it went the other way because of the industry’s response.”

Although asTech neglected to respond to inquiries from New Jersey Automotive on this topic, two of the company’s competitors weighed in to share their viewpoints on vendors negotiating pricing contracts with insurers, the message this scenario sends to insurers and whether they believe other diagnostic and calibrations providers will follow this example.

“It is in the best interest of a vendor to behave as a partner with their customers – in our case, the repairers,” insists Josh McFarlin (AirPro Diagnostics). “When a customer comes to you and decides to use your products and services, I think that, at a minimum, they should be part of any discussion about pricing/revenue that is going to impact them.”

“The insurer is not the customer, and the vendor has no business other than pricing the product they sell,” Tommy Ames (1Source ADAS and AutoEsolutions) shares, as he notes, “This didn’t feel like information that asTech wanted to make public, and it came across as very collusive. Engaging in a contract and forcing shops to use a set pricing schedule should never happen. The next obvious step is to engage in aggressive steering to drive business to shops utilizing the endorsed option.”

When it comes to standardized pricing, Ames emphasizes that excluding repairers from the conversation definitely creates the potential for misleading information to be conveyed. “This isn’t the way pricing should be standardized; to standardize pricing, you need all parties involved and multiple parties from all areas, not just the biggest vendors or the biggest shops. There is way more to the scanning process than just a piece of paper. 

“In the end, shops aren’t going to lose money,” he predicts. “They will just bill for every little detail. You can cut my scan prices down, but then I will start charging for battery support, documentation, inspection, test drives and on-site tech fees. The same services will ultimately cost more in the end.”

So, will other vendors follow asTech’s example?

“It depends on the industry’s reaction, ultimately,” Ames believes. “Right now, there are a lot of gripes and threats. But until it affects either company’s bottom line, then yes, others will follow suit. I’m sure other insurers are watching to see how this works.”

“Obviously, it is hard for me to say what other vendors are going to do, and I think it is too early to really speculate,” McFarlin says. “The only data point we have so far is that it seems like a lot of repairers feel the need to be very vocal about their dissatisfaction with the announcement, and many of them are demonstrating that dissatisfaction by looking for a new vendor…someone who will treat them as a partner. I will say that this has served to strengthen our resolve to remain focused on working closely with our customers to make sure they receive the best possible service, a pricing model that fairly represents the work performed, and that they have all of the documentation they need for the work that is performed.

“We work in a complicated industry made up of complex relationships between the carriers, the vehicle owners, the repairers and the vendors,” he observes. “While it does not surprise me that this happened (many would be quick to say that this was ‘always just a matter of time’) – and I think it is easy to believe that this is just the beginning – I do feel that the reaction from the repairer community may cause others to pause on following the same path. Time will tell.”