September/October 2003
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Future of NAGS
Publisher Plans
To Change Price Structure Once Again
by Leslie Shaver
It is said that the only two things that can’t be avoided in life are death and taxes. Well, if you are an auto glass retailer, you can add a third item to that list—rising discounts off the price of windshields. Over the past three decades, retailers have seen discounts from glass prices reach as high as 70 to 80 percent on at least three different occasions.
The first time was in the 1980s, when National Auto Glass Specifications (NAGS), the publisher of auto glass list prices, decided to change its methodology for its glass prices from the glass manufacturers’ less-than-truckload lists to their truckload lists. Despite these moves, prices rose once again in the 1990s. In 1999, with prices (and subsequently, discounts) once again going through the roof, NAGS initiated its second Revaluation. This time the publisher reduced glass prices by approximately two-thirds and pulled out prices for adhesives and labor from the glass price.
Unfortunately, this did not solve the problem. Manufacturers raised prices and increased discounts soon followed, setting off a chain of events from which NAGS is still trying to recover. As this has happened, glass shops have become even more frustrated with pricing. This has set the stage for where we are today, with two sets of prices for auto glass, flat labor fees and diminishing profit in the glass itself.
Many shop owners will say the Revaluation of 1999 led to these problems, sending auto glass prices into a downward spiral that they still have not been able to reverse by lowering prices and trying to take the labor out of the glass.
| Behind Closed Doors Group Makes Plans to Free Industry from NAGS Several industry members have been meeting about how to replace the industry’s dependence on NAGS pricing altogether, numerous sources have told AGRR. The group has held at least two meetings in Chicago this year in hopes of working out a plan. However, those involved with the group were not yet ready to disclose their involvement—nor their immediate plans. |
“I think NAGS caused this problem [of dwindling margins on glass installations] with their last Revaluation,” said Walter Krause, owner of Michigan Mobile Glass and Trim in Southgate, Mich. “We were supposed to take less money off of the cost and get paid for labor, but that never happened. The discounts are as bad now as before the list price changed.”
The Problem
Usually the process of rising discounts starts very simply—NAGS publishes price increases and insurance companies follow this by publishing new pricing structures, asking for bigger discounts from the retail glass shops when list prices go up (see sidebarbelow). Often, these ask for greater discounts off the glass to compensate, but many times the increased discount more than negates the price increase. Other times insurance companies will ask for higher discounts on glass parts that did not go up or even decreased in price.
The Discount Dilemma As has been the case so many times during the past couple of years, glass shops got another shock immediately after State Farm released its new prices in May (see July/August 2003 AGRR, page 20). Once again, these prices had glass shop owners worried about their bottom line. |
Nags Auto Glass Catalog Free
“The insurance companies set the pricing and we can’t make money,” said Denise Hudson, owner of Diamond Glass in Midvale, Utah. “Every time there is an increase on NAGS prices, we get a letter from the insurance companies asking for higher discounts. I don’t see how we can continue making money.”
Many glass shops blame NAGS for starting this vicious cycle by publishing higher prices and bringing insurance companies into the loop.
“Our biggest customers, the insurance companies, know how we put our prices together,” said an executive for one East Coast glass company. “This is contrary to the way things should work.”
Another shop owner, who also thought NAGS brought the insurance industry too far into pricing, simply said, “The insurance industry must be removed.”
For this to happen, she said NAGS must also be removed.
For her part, Catherine Howard, vice president /general manager of NAGS, said that the insurance industry is not included when NAGS decides what prices to publish.
“The insurance industry is not brought into the process directly,” she said. “Of course, [its members] do voice their opinions, like everyone else does.”
Others said glass shops themselves are the cause of the high discounts. Discounting, they said, is mainly a problem because of simple supply and demand. With a limited pool of customers, competition is fierce for every job out there. That means there is usually a glass company out there that will do a job for a 70- or 80-percent discount with flat labor fees, leading many retailers to wonder if their worst enemy is actually within.
“It’s a mess and I don’t know who is responsible,” Hudson said. “Our competitors have helped drive the market. It’s a very competitive market and we are fighting for every job.”
Others agreed.
“We are our own worst enemy in this business,” said Tom Lee, president of Lee & Cates Glass in Jacksonville, Fla. “If somebody will install glass for $1, somebody down the street will do it for 99 cents. You can’t blame NAGS for that.”
As if discounting was not enough of an issue, many glass shops are also faced with flat labor costs. In the old days, they could take these costs out of the mark-up on auto glass. However, many shop owners say the Revaluation of 1999 took these costs out of the glass and shops have not been able to recover them. Since the revaluation, most insurance companies typically offer a flat rate of $20 to $40 for labor. This, glass shop owners said, is not enough to compensate for labor, much less the other expenses they have.
“We have liability insurance, gas, taxes, overhead, insurance for our employees and their salaries,” said a South Carolina shop owner who preferred not to be identified. “This can’t be paid for with what we are making. This is not a labor business.”
This has led many to question why NAGS would even attempt to publish prices that were not inflated to include the price for parts, labor, overhead and any other charges a business must handle.
“I don’t agree with the methodology of taking the profit out of glass, because I don’t see insurance companies paying for labor,” Lee said.
Howard admits that this is a problem, but said the industry can’t continue to put the cost of labor and parts into the glass simply because it is the way things have always been done.
“The good old days are never coming back,” she said. “There is no way an information provider can support a situation in which discounts are 70 to 80 percent off of list. We look ridiculous and the whole industry looks ridiculous.”
| What Could NAGS Have Done? A Look at Some Other Options By moving toward a new pricing structure next spring, National Auto Glass Specifications (NAGS) has made a move to stop the spread of “R” parts while trying to keep discounting under control. AGRR asked a number of industry experts to pontificate on the steps NAGS could take. These are the possible ramifications of each are below: | ||||
| Step | What Could Happen | How It Would Affect Glass Shops | How it Would Affect Insurers | Endgame |
| Maintaining the Status Quo | “R” parts continue to expand as discounts increase. | With even more “R” parts, glass shops would have to devote even more time to deciding whether to take a job and at what price they can do a job profitably. Additionally, they could see even fewer profitable jobs come through their doors. | Insurers could expand efforts to have lesser of NAGS pricing and dealer pricing used. | The industry will become even less profitable. |
| Manufacturers Issue Price Lists | Manufacturers issue suggested retail prices on each piece of their glass, effectively pulling NAGS out of the “pricing game,” but expands their efforts in the data collection game. | This is a direction in which NAGS said it would like to pull the industry, but there has only been lukewarm manufacturer acceptance. This step could rectify some of the pricing problems in the industry, but the industry would have to develop the capability to handle pricing from numerous sources. | Insurers could begin to “shop” among various manufacturers for the lowest price on the same windshield, and, ultimately, require it be used. Other manufacturers could begin to match prices. | Eventually, all windshields end up at one price point. (Exception: Those windshields that only one manufacturer makes. Those prices go sky-high.) |
| A NAGS MSRP list | NAGS uses its research to put together a retail price that reflects materials only. | Glass shops would continue to see a third party compute prices for the industry and, without being in the manufacturer/wholesaler/retailer loop, NAGS would be estimating numbers instead of participating in the actual buying chain. This might or might not lead to accurate prices. | This approach is similar to the way collision and mechanical repair work is done in this country—one price for the part, another for labor. Insurers, while giving lip service to supporting this method, continue to try and keep labor at a constant fee and resist efforts to vary the amount of labor on each job. | If insurers are successful in keeping labor rates flat, this leaves part pricing as the only place capable of absorbing increases and changes in market conditions, thus ultimately keeping the NAGS system the way it is now. If insurers are not successful in limiting glass shops to “flat labor rates,” this system works this part + labor system and has a shot at working for everyone. |
| Dropping Out of Pricing | NAGS stops publishing prices. | The auto glass market would probably demand some form of benchmark, according to Howard, and then a network, insurer or manufacturer probably would jump in to fill the void. | There would be a ton of pricing lists floating around for awhile. Insurers would then develop ways to choose the lowest price part from the cheapest supplier. | Eventually, all pricing lists would gravitate toward one set of prices, until a third party compiled all the pricing into one suggested pricing—in effect reinventing the NAGS system now in place. |
| Adding Discounts Back into Glass | NAGS inflates the prices to add labor and parts back into the price. | Discounts off NAGS pricing would be high. Negotiations would continue. | Same old, same old. The amount of discounting would increase to even more ridiculous levels. There would be pressure from insurers and networks alike to rid the industry of absurd discount levels. | A rise in per-incident pricing, as networks and insurers forsake the conventional system. It’s already starting to happen. |
The Rise of The “R” Part
As glass manufacturers kept raising their prices following the 1999 Revaluation, NAGS decided there needed to be another way of addressing the rising discounts in the industry. In essence, manufacturers were raising their prices, yet offering their wholesalers larger and larger discounts off these pieces of glass. In many cases, this kept the value of the glass at about the same level as it was before the prices increased.
To combat these rising costs, NAGS developed a new approach in establishing its benchmark based on the actual market acquisition costs instead of the manufacturers’ published truckload, starting with the May 2002 release. Additionally, because the market acquisition costs on certain parts were relatively high, they started applying an alternative pricing formula to those high-priced parts and indicated them with the “R” part designation (“cost considerations apply”). The part designation applies when the high cost base results in a list price that is ridiculously high, particularly in comparison to the published dealer list.
“By doing it this way, we would identify those ‘exception’ parts for which the industry could negotiate a better discount and labor rate and gradually we would increase the number of those parts and magically labor would happen and the list price would be lower,” Howard said. “We have been increasing the number of ‘R’ parts to bring down the whole list. We felt that was a good way to manage the increases in the list.”
The problem, according to Howard, is that computer systems are not in place to handle those exceptions and that individual retailers do not have the market power to negotiate what Howard called exception pricing.
“We were getting feedback that this approach was putting the retailers at a serious disadvantage,” Howard said. “They had no way to recover their costs and lost profits.”
Many retailers verified this. On most “R” parts, they have to decide whether to take the job at the cost of the glass plus a percentage or the NAGS price minus the discount. If they make the wrong choice, they could lose money on the replacement.
In addition, the lack of computer systems to handle “R” parts means Cindy Minon-Ketcherside, owner and chief executive officer of JC’s Glass, in Phoenix, has to post prices for each “R” part for her customer service representatives (CSRs).
“[The CSRs] go to an Excel spreadsheet and choose a supplier,” she said. “They see if we make money on cost plus a percentage or NAGS minus a discount. It takes more training for CSRs and a lot of their time to make it work.”
Others have similar problems with “R” parts.
“You have to identify [‘R’ parts] and handle them properly,” Lee said. “There are so many out there that it is difficult to track them.”
In the end, the South Carolina glass shop owner may have said it best when he said, “R” parts are “just murdering everyone.”
The Story Behind NAGS |
| Many auto glass shop owners may not know it, but National Auto Glass Specifications (NAGS) has existed almost as long as the automobile itself. As Ford hits its 100-year anniversary this year, NAGS is only a quarter-century behind. While this long, rich history makes NAGS a stalwart in the glass industry, many professionals in the industry are beginning to wonder how viable NAGS is and whether it has strayed too far from its roots during the past five years. NAGS was founded by Madison Tracey in 1927 to make patterns for flat glass in automobiles. As it developed patterns, the company also assigned part numbers to catalog these patterns and published a chart to calculate the price of flat glass. The first NAGS glass pattern was for a 1926 Model K, Series 5, Touring and Roadster Chevrolet. The publisher’s first bent glass part number was for a backlite on the 1940 Lincoln Zephyr, and its first curved glass parts number was for the 1941-42 Chrysler. In the 1940s, curved glass appeared and patterned glass declined, and NAGS followed this trend by assigning part numbers to curved and flat glass in its catalog. In the 1950s, NAGS began the now-controversial practice of assigning list prices to parts as the manufacturers began to stop publishing list prices (as a result of a price-fixing problem). The next 30 years brought some technological advances in auto glass, but very few changes for NAGS, which was now under the ownership of Bud Hewitt, who eventually passed the reigns to his daughter Geri. In late 1989, the company had its first Revaluation in reaction to rising discounts in auto glass by switching from the manufacturers’ less-than-truckload lists to their wholesale truckload lists. Two years later, NAGS was acquired by Mitchell/Thomson International, which already provided information to the automotive repair industry. The 1990s saw discounts rise once again, leading to another Revaluation in 1999 with NAGS standardizing labor times and urethane. One year later, NAGS was sold again—this time to Hellman and Friedman, a private equity firm that acquired both NAGS and Mitchell. In 2002, the publisher said it realized manufacturers’ truckload parts were no longer relevant to market acquisition costs. This led NAGS to use its research to determine an acquisition cost base and set up a two-tier pricing system. Still, there were problems with the number of “R” parts and the inability of retail glass shops to handle the pricing differences. This is leading NAGS to take yet another shot at re-leveling the playing field in the form of next year’s planned price adjustment. The failure of the “R” parts exception strategy and NAGS’s decision to have two major price adjustments in five years has many glass shop owners asking how relevant this 76-year-old company is to the industry. And, if it is still relevant, what is its role? Is NAGS Relevant? With the rising number of “R” parts during the past year, a number of shops already think NAGS is losing control of pricing. They argue that manufacturers are setting high list prices on specific pieces of glass (“R” parts) to gain control of pricing. By setting the prices so high, glass manufacturers take certain pieces of glass out of the NAGS pricing structure, they argue. “This is the beginning of the manufacturers taking control of the product,” said Neal Golding, chief executive officer of Keystone Auto Glass in Toledo, Ohio. Others agreed. “With ‘R’ parts’ list prices increasing, manufacturers have disagreed with NAGS being in the pricing game,” said Cindy Minon-Ketcherside, owner of JC’s Glass in Phoenix. The “R” part exceptions are adding even more questions about the publisher’s relevance. “NAGS used to be a lot more important than it is now,” said Denise Hudson, owner of Diamond Glass in Midvale, Utah. “Everybody used to go off of NAGS. Now it seems the networks are the only ones who use them.” Other shop owners have noted this trend, as well. “The only people who use NAGS prices are the insurance companies,” said Walter Krause, owner of Michigan Mobile Glass and Trim in Southgate, Mich. “When you see ‘R’ parts and net-priced parts, you have to throw NAGS out the window when buying glass.” Despite questions about NAGS’s role in pricing, many industry professionals do think NAGS is relevant to the industry—and always will be—because of its other functions. “NAGS does a wonderful job of putting out a common parts identification system, and its attempt to place values on labor times has been excellent,” said one East Coast glass executive. “People seem to miss the fact that benchmark pricing is only one of the things [NAGS] does. I would be happy to continue paying for the parts numbers from it.” Minon-Ketcherside agreed, but said she thinks the key for NAGS is to re-discover its niche in the industry it has served for more than 75 years. “NAGS is embedded [in the industry], but it should not determine pricing,” she said. “The company should be a publisher and be able to own part numbers. It has to see what piece of the puzzle it’s going to be.” |
Where To Now?
With its “R” parts strategy failing, manufacturers increasing the price on their glass and discounts off glass nearing 1999 levels, NAGS had a decision to make. Would it continue pushing through with “R” parts? Would it back off from publishing prices and let the manufacturers fill the void? Or, would it utilize its market research and try again to publish prices that were consistent with what retailers were paying for glass?
The publisher first decided to reverse some of the “R” parts and allow increases in discounts, particularly if the insurance companies would give fair labor rates.
However, Howard said it will eventually make a more drastic move and publish a manufacturer’s suggested retail price (MSRP)-style price for glass that would be designed to show what the one- or two-shop operation would pay for a piece of glass.
NAGS will take a barebones approach to the price, eliminating labor, parts and overhead for the glass. The company will use the retailers’ purchase price, not the truckload price, to identify the MSRP. It will be calculated based on the one- or two-shop operation’s buying costs.
“Basically, we understand that there will be large companies buying much better,” Howard said, “but it’s getting pretty competitive out there. The smaller independent is not at that much of a disadvantage to the big guys.”
Lee likes the idea of basing the price on the small shop’s costs.
“That would be a good place to start so that you can protect the little guy,” he said.
To get this number, the publisher plans to look at a number of pricing sources, and then utilize its market research to come up with a finalnumber.
“Our list price truly will reflect the movement of a piece of glass, as opposed to the manufacturers increasing their truckloads while offering higher discounts to customers,” Howard said. “We are going to take that out and do a reasonable list price on glass only. It will have some profit, along with handling and inventory, but it will not have additional profit built in to compensate for what they were not getting in labor.”
NAGS has also invited manufacturers to submit suggested retail prices for their pieces of glass, though many of them have been wary of this so far, Howard said.
“We are also going to invite manufacturers to provide us with their published lists so we can include that in the database,” Howard said. “I think that there will be a gradual transition during which the manufacturers will be able to publish suggested list prices for their products. In the meantime, we will provide those retail prices.”
While Howard thinks the new system could work for smaller shops, she admits that in the long run the networks, the bigger glass companies and their big customers will determine whether it does or not.
“In reality, the little guys won’t have a lot of say,” she said. “It will be between the major market influences [insurance companies, glass manufacturers and larger retailers].”
Though many glass shops would not comment on the new NAGS plan until it had been announced publicly and they had time to look at the details, some expressed skepticism about the publisher’s plan.
“There is a difference between publishing prices and setting them,” said one Midwestern glass professional. “In the glass industry, labor is hidden in the cost of the glass.”
Others agreed.
“Without any kind of standard for labor or kits, insurance companies may stop paying for labor and kits,” said Janet Parkhurst, owner of Oakes and Parkhurst Glass in Winslow, Maine.
No More “R” Parts
It is doubtful anyone will be upset to see “R” parts go away under the new NAGS plan, though.
Parkhurst said she is excited to see some consistency among parts, which the new plan could offer.
Others are taking a wait-and-see approach, hoping that anything is better than the current system.
“It’s a try. The way we were going was a dead-end,” Lee said.
What if the new NAGS system does not work?
“We will just complain anyway,” Lee said. “It’s like being the president. No matter what you do, there will always be someone who does not like it.”
Maybe, just maybe, Lee has just found the fourth thing that can’t be avoided in the glass industry—complaining about NAGS.
Leslie Shaver is a contributing editor for AGRR magazine.
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Mitchell International, Owner of NAGS, Purchased by KKR
Mitchell International, which owns National Auto Glass Specifications (NAGS), announced that global investment firm KKR has purchased Mitchell. “This will not have any impact to NAGS or the management team at Mitchell,” says Bud Oliver, director of product operations at Mitchell.
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