Although paint and materials represent on average 11 percent of a repairable estimate, it is an area of contention for collision repair shops. Paint and materials margins are thin, and traditional forms of waste — like excess production and over processing — can combine with other behaviors, such as employees “borrowing” tape and masking spray, to become all too common. If a shop does not keep an eye on all potential areas of waste, monitor inventories, and make sure they are earning a decent profit, this area can hemorrhage money.
Calculating paint and materials reimbursement is a primitive process in many areas. Multiplying a dollar rate (usually around 50 percent of the body labor rate) by the refinish hours for the estimate is a widely accepted formula. A few companies offer a calculator that takes into account ounces sprayed and appropriate materials, but the use of this system has been the exception. Because paint and material costs have not risen consistently in the past few years, there has been a sudden jump in costs, followed by little increase.
But if history is any indicator, we will be in for a spike in prices. Why? Paint is a largely petroleum-based product, and petroleum prices are linked to the price of oil. Oil is priced in U.S. dollars, and a weak dollar sends the price of a barrel of crude upwards.
Remember the sharp rise in fuel costs in 2008? Was that based on an oil shortage? An embargo like we saw in the 1970s? No, it was in large part caused by the fact that the exchange rate of the dollar versus other currencies of oil-consuming countries (namely the euro and the Chinese yuan) was weak in 2008. This sent the price of fuel soaring and the cost of automotive paint soon followed.
As we approach the second quarter of 2011, the price of oil is over $100 dollars a barrel, with fuel prices creeping upward and tempered by the fact that the euro has not been as strong against the dollar in this cycle as it was in 2008. The yuan, however, despite inflationary pressures domestically, has stayed strong against the dollar and the Chinese consumption of oil is growing daily.
Watch the price of a barrel of crude, and you'll soon learn see the connection to the price of automotive refinishing. If you see a spike in oil costs, automotive paint costs will soon follow.
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