View From The Trenches

One maxim I have heard since I can remember is, “you get what you pay for.” We in AGR have been telling our price-shopping customers that for years. As wholesale buyers, we have been paying less but getting less as well. With that said, nothing brings that concept into focus more internally within the industry than the events of the past week or so pertaining to the tempering problems of the DOT 430 recall originating from China.

Over the past five years, Thomas Friedman’s “flat world” economy has been a large factor in the manufacturing sector of auto glass. Where once we have seen Finnish (Arva) and South African glass (Safeview) be imported and sold alongside long-time American brands such as LOF, Carlite, Safeguard, PPG and Guardian (and I won’t forget Shat-R-Proof). We now see a myriad number of the alphabet brands that come from the People’s Republic. Along with that, some American manufacturers sublet production to Chinese factories to gain economies.

Why has the PRC gained such dominance? Simply, they offer cheaper pricing.

Why are they so competitive?

There are four main reasons I can see that the Chinese have such low prices on their finished goods; very cheap labor, lower production costs unrestricted by pollution controls, the artificial value of their currency and by accepting a narrower profit margin as norm.

I am of the age when I can remember a Japanese electronic brand name was considered shoddy and just short of junk. American brands like Zenith, Motorola and Philco dominated the radio and TV market. Back in the late 1950s, it seemed Sony could not make a transistor radio that would last 90 days. Today Sony is considered a symbol of quality because they earned the distinction and those past dominant names have disappeared or left the market.

Will the same thing occur in auto glass? Can the same arc of increasing experience mean improved product quality in the production of laminated and tempered AGR parts? Perhaps even a more appropriate question is: Can we afford to wait for improvement?

I simply don’t know. American product liability laws are not overly generous and ignorance is not a defense.

Also whom can we trust? glassBYTEs has reported that the American company who purchased the allegedly defective parts bought them from an exporter and not direct from a production source, which weakens the distribution chain. ATI is not the only American company who brands Chinese glass under its own label.

Here is my concern and it is industry-wide. The glass products we are asked to install are getting poorer and poorer over time quality-wise. Issues that involve fit, clarity and distortion are factors with which we contend almost on a daily basis. Country of manufacturing origin may point in one direction, but more often than not it is endemic to all. Anyone who claims otherwise is not working in the field or has his head buried deep in stockholder reports. W

hat becomes even more disturbing is the increasing specter of doubt about tempering quality that will now exist as well.We as owners and installers are the last link in the chain as replacement glass enters into a consumer’s vehicle. The DOT 430 mess is proof of how vulnerable we all are to cost cutting and slip shod manufacturing of the end product we use. It’s time that we act in concert to demand that our industry manufacturing sector return and be held to a higher standard of product that we are receiving and accepting currently.

Last week’s news on glassBYTEs.com™ of the renaming of Belron’s purchased chains to Safelite goes to the heart of the issue of branding These boys from Belron are serious about establishing a national brand for themselves. Get used to it.

This is the first time in my recollection that a company has gotten this far and along with size has tried to go “public” and make its name known to national consumer audience. It is using niche cable advertising and getting its name out as far as public awareness.

I can quickly think of two reasons for the increased advertising. The obvious one is to acquire more cash customers; the second one is just to have name recognition as there will be more pressure from legal and industry groups to reveal the financial relationships that exist between insurers and Belron through its claims management arm. As proof, please note how Erie Insurance changed its phone script for disclosure purposes. By advertising, Safelite wants potential customers to be reassured that they are indeed national in scope and the best choice for consumers. I believe that there are more than a few of us in the retail side of AGR that feel differently and will argue forcefully that point.

First of all, Belron/Safelite is a competitor to be respected as well as feared by some. It has a national presence. It has a unified purpose as well—a common voice through lobbyists. public relations and legal teams. In short, as a corporation it is organized, fairly self contained and has a goal to be the biggest and America’s first choice when it comes to auto glass.

Throughout America many, many Davids exist to this corporate Goliath. I’ll also bet that every owner feels that he possesses some trait to compete within the marketplace. You do it by being smart, flexible and knowing your strong points.

For those who are historically interested, no single corporate shop has ever gained control of the American market. I have no crystal ball and have no idea what the AG market’s landscape will look like in 10 or 20 years, but I will offer up an observation about European ownership of other American companies. Mercedes came in and plundered Chrysler and sold it off and stripped it of its assets. Siemen’s American-born executives have very little respect and power when compared to their German counterparts.

It has been said that the “seeds of one’s destruction are contained from within.” I have felt for some time that as an owner I must be pro-active and not just reactive. I also feel that there is not one of us out there that has not started out wanting to create a business the magnitude of Belron/ Safelite. I would not be generous to my competitors nor would I expect that trait from them as well. Tip your hat to them for what they have accomplished to date and work your tail off to beat them.

This past week had to be one of the most interesting for the auto glass industry. NAGS published its new prices, which actually went down much to the disbelief of many, and glass manufacturers like PPG announced pricing increases. Those two actions could very well mark the official beginning of the end of a national pricing structure, as we know it.

I’ve been in the retail business for 26 years and over that time I have seen a real decline in the use and even need of the pricing side of this “benchmark” product marketed to both the auto glass industry and to insurers. This personal observation started with the advent of encapsulated glass products, which then became “net priced” parts. NAGS pricing did not correctly reflect my true cost and in my mind never ever caught up with that disparity. I never understood the reason that such a difference would last more than six months but it would and the number of parts that were net priced would continue to increase. It literally forced me to stop using NAGS to quote retail.

How NAGS devises its pricing model defies description. If one just used 2007 as a snapshot, I would love to hear how a pricing decrease would be justified under normal circumstances. I do understand that increased importation of overseas (i.e., Chinese) glass has caused a reduction of likely wholesale costs to distributors. Our falling dollar is quickly making that differential less significant. What about increased energy costs? Fuel? (Are fuel surcharges fictional?) I’ve had increases in labor, health care and even liability insurance. Food products that contain corn have risen significantly. In short, inflation is on the rise and, in its wisdom, NAGS is oblivious to outside matters.

I have no beef with the wholesale rise of glass prices, especially due to the reasons I’ve already stated. Those who bash PPG and others for increases are clueless and short-sighted. Like us, they have absorbed some fairly significant cost increases. They deserve to make money like we are supposed to do. In the “good old days” when there was unity between wholesale and retail markets when NAGS raised its prices, all benefited because the increase became universal throughout the industry. Not anymore.

Who benefits most from a price decrease? Three parties: insurers, Mitchell International, the owners of NAGS since they sell proprietary software, and our largest installation company. The first two need no explanation. The third has an indirect benefit due to its manufacturing and purchasing power along with their third-party administrator arm. They have their own internal and national retail pricing models that reflect their own true costs, which means they have no real need for NAGS in any sense. As independents, we are as usual, at a disadvantage.

The wholesale pricing disparity has been a dirty little secret since the infamous “rebalancing.” After that was instituted, the wholesale side at first started using a pre-rebalanced price list, which has morphed into a separate list unto itself. The actions of the past week with the publication of a declining NAGS list and the raising of wholesale price list seems to me an open declaration that NAGS needs to correctly reflect the wholesale market and if not should be replaced with something that does.

Many shops have stopped using NAGS pricing models when they quote retail. They either have their own structure or go by a cost-plus basis. The only common market in which NAGS pricing is being used is the insurance replacement one and that is the rub of many. It would be chaos for the insurers and not the retail market if NAGS were abandoned. Every shop would price differently, which would not benefit either the actuarial or accounting departments of insurance companies.

My call is this: Make NAGS correctly reflect wholesale costs for all parts and not just ‘fast movers.” Make the list accurately state the true cost of “net-priced parts so that we can make a profit selling them using the NAGS pricing. Unify the wholesale and retail markets. Try removing the suspicion that NAGS exists more for the insurance industry than it does for the auto glass one. If that can’t happen, find something that does.