View From The Trenches

April showers not only bring flowers but since the 15th is the deadline for income levies, the month can be a very taxing one as well both financially and emotionally.

Tax season is when the auto glass business gets personal. Your accountant or computer program plays a Santa of sorts as he/she or it is in the position of telling most owners how naughty or nice they have been for the financial year.

In my case, it has not been a kind one. Volume is down, expenses are up and profit is a term I read about like the “Mile High Club.” I know what it is, but can’t say I’ve experienced it lately.

It’s very frustrating. I’m a darn good tech. I’ve been doing this trade for 30 years and survived. I’d like to think I know business and I try very hard not to climb onto turnip trucks. Still it is my personal feeling that much of this three- to five-year decline has more to do with conditions out of my control than within.

Let’s take where I live. I live in a state that was once known as “Golden” and no matter what our hard-working “Guvernator” says or tries to do, California is crumbling into dust.

We are a state of at least two economies; one above and another below ground. According to many agricultural sources, California is the largest and most productive state for food production—yet our most lucrative crop is illegal. The bad thing is California has not found a way to make marijuana taxable; the good thing is that the government is not paying some corporation taxpayer subsidies to grow that brand of hemp.

Auto glass is no different. Remember our state has the largest population, which means our vehicle census is equally large. Much of my competition appears to have a very hazy and subterranean existence. Like ants, they are literally everywhere. They fill any market that is looking for the lowest price.

Like many other states, California is incapable of enforcing many regulations that exist. There are far too few inspectors or auditors to uncover the type of “cheating” that goes on in business. It’s a “catch me if you can” mentality and it is so one-sided that it’s laughable. Whether it is a sales tax issue or just simply possessing a valid Bureau of Automotive Repair license, there is a reasonable chance that one will escape government scrutiny under the current conditions.

I am a one-man mobile that downsized from a brick and mortar store and more than 15 employees almost 20 years ago. I maintain liability insurance, remit my sales taxes on time and have done my level best to run a legitimate business. I admit for most of my dealers and the few call-in customers I get, I bid using a cost-plus model. Still, I am simply getting creamed. Many times I wonder just how some of my competitors exist since they are installing auto glass at practically my own acquisition cost. The worst part is that I know that I am not alone. Throughout this entire country, there are too many retailers under siege from every direction from the very same type of competition. The mantra of “I can do it cheaper” rings out in every corner of this country in many languages.

It’s very easy to point fingers toward certain social or cultural groups to assess blame. I do believe if one keeps a low social profile, working that way becomes natural. Yet, that in itself is not the problem. If one group follows the law and regulations that raises their cost of doing business and the other does not feel compelled to do so, the inequity lies there. In a time when money is tight, the public is looking for ways to keep expenses down; pricing your product cheaply is the easiest way to attract customers. Since there are far too few comparison points in our industry, potential clients are fooled into thinking that all other conditions are equal.

Auto glass will never be a level playing field, yet it certainly is not exactly mimicking nature. Big fish are supposed to eat smaller fish, but, in many cases, the plankton in our industry is choking many in our industrial pond. It’s one thing to compete against a corporation that has a huge economy of size, but it is another whole different set of circumstances when one has to vie against an individual or a concern that has less of a legal presence than a wisp of smoke.

Some callous observers may say that Belron benefits directly from having so many lower tier glass providers. First of all, its wholesale arm, Service Auto Glass, like any other distributor, sells to anyone it legally can. Many of those wholesale customers compete directly in markets typically ignored by Belron’s retail installation division. However, local independent shops that do compete are hurt by either the complete loss of jobs or by cutting prices to close gaps just to be competitive. That has the overall effect of weakening Belron’s more legitimate rivals. Lastly, as Belron’s branding efforts increase and become more pervasive in the public’s mind, the company’s persona and the high professional image it wants to project becomes more clearly defined when compared to the rag-tag army of mini pick-up glass ants the company has helped support. It simply is a win/win situation for Belron and one that could worthy of being termed Machiavellian. Still Belron can in no way be blamed for creating the gray retail market. It has an existence all of its own. It merely nourishes it and gains benefit.

Government has proven incapable of solving much less controlling these guerrilla types of businesses. It has neither the political will nor the manpower to enforce any standards until some tragedy or extensive crime unfolds. Then and only then will some temporary effort be made to justify some agency’s budget or raise a politician’s reputation.

The real tragedy of this industry is that many small professional shops are under direct attack and are in danger of failing. Failing not because of some financial or marketing mistakes of their making, but in danger of closing due to the price pressures brought on by providers who choose not to follow proper business or technical procedures. There are too many of us that are filling the role of canaries in a coal mine that are being suffocated by competition whose only rule is that there are no rules. What that means for an industry struggling to project professionalism may be a very sad omen for the future.

One of the most time-honored business maxims is that when a company needs to boost profits, it should look to cut expenses. If we look at some current examples, the effect corporate frugality is having on quality is becoming a significant long-term issue.

In Business Week’s March 11 issue, an article called “The Humbling of Toyota” reports on the decade-long zealous frenzy that Toyota took to reduce costs. It put constant pressure on vendors to reduce weight and unit prices that according to the article. While saving the company more than $10 billion in that time span, the effect on overall quality suffered. Items such as headliners, insulation and plastic components (just to name three items), while diminished in weight, also suffered a loss in overall grade of materials. Time and some investigation may uncover whether those demands for austerity affected electronic components. If so, this could be the source of its most publicized acceleration issues.

Wal-Mart is famous for wringing out concessions from its vendors. In fact, one of the secrets of its success has been its ability to demand and get all sorts of accommodations from many of its suppliers. This philosophy has not gone unnoticed throughout the corporate universe. In short, if you are Mr. Big, you can demand almost anything from your suppliers and, in recessionary times or not, get what you ask for. Some business analysts cite these efforts as efficiency promoting as the supply chain is forced to respond to price cuts by trimming costs within their own spheres of influence. Cynics have dubbed this the Manure-Slope response as in what is famous for rolling downhill.

The auto glass industry is suffering through perhaps its most ignoble time and much of this debasement has to do with cutting costs. I fear that we are cutting our throats as well at the same time.

May I pose a question? How have we improved our product this past decade? The wholesale price of glass has dropped precipitously. However, the immediate tradeoff has been the proportional decline in fit and finish of the product we are both selling and trying to install.

So the price of a sidelite may have been halved in the past five years, but the chance of having a fit or hardware problem has least quadrupled. Where does that leave us?

While we have seen improvements in solar reflection and sound reduction in our products, the manufacturing of aftermarket auto glass has become a frenzy toward production rather than of creating a good product. What price is one really paying if the glass does not fit the hole or operate properly? The amount of time spent adjusting or rectifying, perhaps even pacifying, an unsatisfied customer is usually far more costly than the amount of perceived savings.

We do the same with replacement mouldings and, in some cases, adhesives. While it may be stated that manufacturers such as Chrysler use a very similar quality of rain gutter moulding that can be found on generic rolls, that is not the case with most other car manufacturers’ window treatments. This industry has embraced the use of generic mouldings, but at what cost to the consumer? Will these aftermarket substitutes hold up over time to the extreme temperatures and speed that they may face? The attitude of far too many is: “Who cares? How many vehicles built with high-modulus urethanes have been replaced with a lower grade of adhesive?” A liability attorney may very well care if a shop cut corners by not doing so.

The loss of craftsmanship is as regrettable. This industry, at least within my 30 years of practice, has never enjoyed a high amount of confidence by the American consumer. What has transpired over the past 10 years has done nothing to raise that level by any measure. The “easy entry” encouraged by the lack of state or national licensing standards and the quest for new customers by wholesale suppliers has allowed far too many incompetent or simply unskilled people masquerading as technicians to sell and install auto glass to the public or commercial accounts. On the other side of the spectrum, there are economic pressures to maintain high revenue per unit. Pay plans are commonplace that reward high production numbers.

I also believe mobile service has contributed to lower quality of installation practices. Once a worker is free of any sort of visual oversight, any procedure that is used or omitted by the installer usually goes undocumented. Management does not escape responsibility either. Numbers or geography can give technicians unreasonable workloads along with the size of the windshield or the technical complexity of the install based on the experience of the mobile installer.

The Biblical maxim, “Ye shall reap what ye sow,” comes to mind when deliberating this disturbing trend. The American consumer is also foolishly and ignorantly adding to it as well. The average person thinks that comparison-shopping works in auto glass just like it does in buying laundry soap at Wal-Mart. That ignorant misconception has fueled many of the abuses that take place in auto glass because as any insider knows, the auto glass industry has virtually made it impossible to accurately compare services since so many product and craft practice variations exist between retailers and their technicians.

Toyota, a once very trusted name brand, currently is learning the very hard lesson that cost control affects quality. It may take at least a decade for Toyota to recover its reputation, if it ever does. The quality decline in auto glass is destined to become a public concern at some point and it would be best to deal with it well before a media frenzy occurs. Anyone who buys or has to install glass needs to be involved. This is not an American problem but a world wide one.

From a one-man service to the largest international auto glass corporation, it would aid this industry a great deal if the overall concern shifted from unit price to unit quality or at least become more balanced. Millions can be spent branding or hard years of building a local reputation can be lost if the product installed continues to decline in fit and finish and becomes publicly perceived as inferior. Cutting fat is one thing, cutting your throat is another matter altogether.

What a difference a few years makes. There is no truer statement that can be made when it comes to the power shift that has occurred in the auto glass industry.

Less than two years ago, I wrote a blog trying to warn independents of the obvious impact that Belron posed to the rest of us. By its ownership of Safelite Solutions, this international company could funnel much of the insurance work to its installation arm and change the financial equation of that segment for the rest of our industry. By the company’s own words, Solutions now is the authorized claims administrator for 16 of the top 20 insurers. Furthermore, Belron has become a favored vendor within the LYNX Services claims system, which handles claims for the remaining two of the nation’s top five insurers as well. Hello, guaranteed average invoice; goodbye, independent pricing.

Belron has not stood still in acquisitions. We have seen the company take over its largest competitor–Diamond Triumph. Belron has also purchased Auto Glass Specialists in the Midwest and Cindy Rowe in the Middle Atlantic States, just to name two. No doubt the company is not done in that department. Like a predator, Belron is in the position to cull our herd of weak ailing regional chains and is not afraid to put pressure on those companies that management desires.

You have to appreciate the effort Belron has made to both build a national brand and the way it has embraced technology. While many independents have benefited from Safelite’s TV and radio campaign, Safelite has profited far more than probably the company itself predicted. Also the company has introduced itself to the American public so when a glass claim occurs, there is less resistance from an insured when he/she is seamlessly directed to the nearest Safelite outlet. In many processes the company also has gone paperless, which effectively reduces administrative costs and wasted time. Such operations include scheduling, glass orders and claim payments

In many ways, Belron has achieved its goal of dominating the most profitable sector of the retail glass market. It looks like it is pointedly moving toward doing the same thing in the wholesale glass market. At this time, there are four glass distributors with a national presence: Pittsburgh Glass Works (PGW), Pilkington, Mygrant and Service Auto Glass, owned by Belron. Ask yourself one question: what company has made the greatest effort to expand its operations? The next obvious question is: why?

If you look at our wholesale market, it has been a war of attrition for at least a decade. As the flood of cheap overseas auto glass hit our shores, both quality and prices along with profits have dropped dramatically. Like retail operations, “it sure ain’t what it used to be.”

Ask PGW, formerly PPG, once the oldest and steadiest glass manufacturer and distributor in the United States. Today the company launches as much conjecture and gossip on its future direction concerning potential suitors in case of sale and or even its very existence within our industry, as much as any celebrity scandal can generate.

Mygrant is the only true independent glass distributor in the foursome due to one reason; the company does not manufacture any product itself. The other three do. Mygrant’s rate of expansion into new markets has not stopped, but there are many areas unserviced by its warehouses. (The same goes for Pilkington.)

Belron has taken an aggressive approach that begs to be quaintly termed: optimistic. In 2009, the company opened a huge distribution center in Southern California. Belron just announced that it would be building a similar-sized one in Georgia not far from its North Carolina production facility. Why would the company be increasing its capital expense and infrastructure if it did not feel capable of needing this expansion?

Of the Big Four, Belron certainly is on the steadiest ground. The company has a built-in customer base with Safelite, which already guarantees it demand, which we know is growing. Company management has made an earnest effort by all reports of trying to supplement their in-house sales by trying to woo independents to buy from them. Service’s inventory reflects its international owner’s ability to buy at the most favorable level from any manufacturer; premium or cheap aftermarket, foreign or domestic and provide a wide range of product and pricing to independents. Historically if the company wants entry in any particular market, it is not afraid to be both aggressive and selective to garner outside sales.That would go a long way toward Belron’s installation competition subsidizing its growth as a national glass distributor. Who is to say what Belron’s goal is? If the company can’t both sell and install an automotive glass product itself, why not be able to retain a piece of the action by selling glass to the competition?

You have to ask this question: why do any glass retailers purchase product from their most dangerous and powerful competitor? Maybe it’s simply due to greed or just plain ignorance. The Mayans used to pacify its intended human sacrificial victims with drugs prior to removing their beating hearts. Is Belron doing the same to us with its wholesale pricing?

Has anyone in our industry wondered why Belron has been able to achieve such dominance in our industry so quickly? Was it luck? Was it timing? Was it good business acumen?

I believe it was all three factors, along with the ownership of a Golden Funnel TPA that physically led to the company’s growth. After all, Belron is simply implementing an operation model that has given them success in other countries. However when some MBA candidate begins to chronicle the story of Belron US, he/she will also record the complete vacuum of unity that existed among American retailers.

The best way I can illustrate this point is by citing the growth of the Roman Empire. Rome would extend its territory by sending in its large professional army to subdue various tribes who inhabited those lands. Local unity was rarely ever encountered; resistance was usually never organized or significant making subjugation just a matter of time.

The same situation exists here in the American auto glass industry. Anybody with a shred of military insight could see how vulnerable and divided this marketplace is. While we are numerous, we lack any unity of purpose or connection with each other. We might as well be speaking 15,000 different languages because we simply are deficient in the ability to find common ground among ourselves. Belron has recognized this and has used that fact against us and has capitalized on it to gain dominance in a very short time.

In a very real strategic sense, the auto glass independents have their backs against the wall. Too many have their eyes firmly pointed downward unable to see what lies in front of them or too scared to see the handwriting on the wall. What now exists is simply a David versus Goliath situation and we still can’t accept the fact of such a one-sided marketplace.

The reason I make this statement is that we need to unite and act in unison before any chance to even the odds against this juggernaut becomes impossible to overcome. There have been small local victories in courts and legislatures with anti-steering actions. Time nor money is not on our side via that slow process. What really needs to be done nationally is to enact a regulation or law that would remove all glass entities of any ownership share of a third-party claims administrator. That would at least slow down the hemorrhaging and remove the financial pipeline that runs directly to Belron. One other action is to at least stop subsidizing the wholesale glass operation of the one company who has no interest in your well-being.

For independents, we have to act as a group. It is embarrassing to attend a convention and only see 100 to 200 people when we exist in the thousands. We need to be far more active in groups like the Independent Glass Association and create smaller, local feeder organizations that have a keener perspective and develop real political influence that at least can represent our interests when confronting the well-oiled lobby groups financed by insurers and preferred vendors like Belron.

One other issue is this: we, as independents, sometimes eat our young. That has to stop in order to survive. We do everything to fight among ourselves by low-balling install prices and by cutting corners with both product and techniques. If not, we may suffer the fate that theorists suggest may happen in the event of a nuclear holocaust, that the only living things on this planet may be reduced to the level of cockroaches. I have no desire to exist on crumbs dropped by others. Why should you?