Notes

Outline

IGA Independent’s Days April 30, 2004

Agenda Introduction Rebalancing Background Component Based Pricing Next Steps

Legal Statement This industry forum is being held to facilitate discussions about methods for improving the NAGS Benchmarks.  Participants should not discuss: Their wholesale or retail market prices, terms or conditions of sale, distribution, production, credit terms or marketing practices Individual company dealings with suppliers or customers Any customer or industry groups serviced or targeted by any individual company Prevention or impediments to any third party entering into the market or otherwise obtaining goods and services

Specialty Business Unit

Profile: Jesse Herrera

Industry Dynamics

Implications for Retailers

Implications for NAGS

2004 Priorities

Agenda Introduction Rebalancing Background Component Based Pricing Next Steps

NAGS Role in Pricing To provide a benchmark reference guide to facilitate trading partner negotiations for the auto glass retailer Created with NAGS’ pricing expertise, knowledge, neutrality and judgement Based on extensive analysis of all available market pricing sources Designed to align with NAGS independent assessment of the market for all glass To provide realistic labor times based on Mitchell's field studies that are defensible and available for retailers to charge hourly rates relative to the value of the work performed To provide installation information relating to additional material requirements such as adhesives and mouldings

NAGS Editorial Expertise Mitchell Editorial is a world class editorial machine Mitchell has 58 years experience and NAGS has more than 75 years.  Combined, we have over 133 years of Editorial expertise. All NAGS editor’s are former Mitchell editor’s with at least ten years experience and have been through Auto Glass Certification training. NAGS Labor Times Based on Mitchell Times Field studies of work performed by properly trained technicians with proper tools in a proper environment Includes preparation of work area, review of work order, positioning of vehicle, assembling of tools and parts, personal time, etc.

NAGS Editorial Expertise NAGS Glass Shop Specific Adjustments Formula for adhesive quantities. Formula for broken glass cleanup based on block size The finished products you see are the result of extensive analysis and input by our editorial staff.  The infrastructure to support the editorial staff and maintain our data is measured in millions of dollars. We also provide installation information relating to additional material requirements such as type of adhesives, additional hardware and mouldings. Cross Reference OEM with Glass and Hardware.

What don’t/won’t we do? Set prices Establish discounting structures Determine labor charges Negotiate trading partner agreements Manipulate list prices to favor one side over another

Revaluation History 1989 . . . The First "Revaluation" The base for establishing the NAGS Benchmark Price changed from the manufacturers' published LTL (or Less Than Truckload) lists to the published wholesale truckload lists NAGS Benchmark Prices were reduced by approximately one-third 1999 . . . The Last "Revaluation" The base for establishing the NAGS Benchmark Price continued to be based on the published manufacturers' wholesale truckload lists NAGS Benchmark Prices were reduced by approximately two-thirds NAGS Labor Times were standardized based on Mitchell Collision Estimating Guides with glass-specific adjustments Adhesive quantities were standardized based on size of glass part

How Did the Market Respond? O&A Discount Changes Exceeding NAGS Benchmark Price Movements The Necessity of “R” Part Pricing Impacting Profitability Manufacturers Moving Toward Net Pricing of All Parts Could result in even more “R” parts Labor and Materials Charges Not Realistically Presented Resulting in distorted glass price to compensate for undervalued labor and materials

Pricing Issues Trading Partner Agreements Requiring Large Adjustments to NAGS Benchmark Prices “R” Parts and an Array of Confusing Pricing Addenda Little to No Labor Undervalued Materials Incident Pricing High Margins on Few Parts; Low Margins (or Losses) on Others

Pricing Process Overview Prior to May 2002 the “cost base” was determined using Manufacturers Truck Load Pricing. Manufacturer TL became less and less relevant to the retail acquisition cost.  TL increases offset by increased discounting, increases reduced after the fact or both, artificially inflating the retail price. In May 2002, we switched to Acquisition Cost Based pricing. We collect data from across the United States. Our data comes from Distributors and Retailers. Our goal from the Distributors is to get their true cost, e.g., shipping, warehousing, breakage, etc.. And what their selling price is to retailers. Our goal from Retailers is to get what they actually buy glass for.  This also cross validates our Distributor information.   The price the retailer pays is the “true” cost of glass, since the above factors are baked into the price the retailer pays.

Pricing Process Overview Since we know that not everyone has the same buying power, for each and every part that we have a cost for, we get the minimum, maximum and average for that part. We then use that average as our retail acquisition cost base. We then apply our “standard” formula to every part to derive the NAGS list price. At this point we analyze the data and look for the anomalies, or “crazy” prices.  This is where we find parts with list prices that range from $6,000.00 ~ over $12,000.00.  These parts become “r” parts.  The majority of these are net priced parts. We also extensively analyze Interchanges, Pairs, Colors, Attachments and OEM among other things. It is not simply a spreadsheet and a multiplier.

"Weighted Averages based on 811..." Weighted Averages based on 811 top selling parts for the period

List to Net Comparisons

Why Does This Keep Going On? Selling a Commodity Instead of a Service Managed by Major Market Forces Unprofessional Business Practices Bundling Labor with the Glass Retailers Acting as Extension of Manufacturers’ Distribution Channel Doing “Business as Usual”

Realities of Commodity Buying Commodities are Difficult to Differentiate “Supply and Demand” Prevails Buyers Shop Around for the Best Price Branded Products are the Same everywhere  Wal-Mart vs Kmart Buying and Selling Commodities Do Not Account for Labor, Safety, Reliability or Liability of an Installation Performed by a Skilled Labor Force

Current Situation What are the alternatives? Manufacturers could provide list pricing but haven’t yet Dealer pricing is not consistent nor realistically representative of aftermarket costs Incident pricing only works if you do all the work Having no pricing benchmark will be chaotic What would the cost be? Switching Editorial Internal systems POS systems

Canadian Price Trend Comparison

The Direction of Pricing In 2002 we saw the need to start " Rebalancing" Manufacturers' published truckload lists have proven no longer relevant to market acquisition costs Established data sources and market research processes for determining acquisition cost base Releveled pricing into two tiers; regular discounting and special pricing ("r" parts) In 2004 we made the decision to implement the “Rebalancing” i.e., “Component Pricing” NAGS Benchmark Price based on market acquisition costs, reflecting glass only pricing List Prices drastically reduced Realistic labor pricing will need to be included in each job Adhesive quantities should also be reflected

How Does This Differ From 1999? 1999 Assumptions Published truckload pricing would still serve as a reasonable market acquisition cost reference List price reduction would be adequate Shops would demand hourly labor rates The Rebalance Continue with actual market acquisition cost to reflect true market movement Provide price modeling capability to facilitate transition Intense market communication by all stakeholders

Agenda Introduction Rebalancing Background Component Based Pricing Next Steps

What exactly is Component Pricing? Parts: The NAGS list price will be an accurate reflection of Acquisition based pricing.  The glass pricing will change with the actual glass market pricing. Labor Accurate recognition of the value of services performed by a skilled work force.  Fair compensation for labor based on the Industry Standard published labor Times. Materials Accurate reflection of adhesive types and quantities required for safe installations.

How should shops determine labor prices? Time versus Rate: The time provided by NAGS is the time allotted to perform a particular operation.  The rate is the charge per NAGS labor hour that the shop charges.  It is the rate that NAGS cannot and should not determine or suggest. The hourly rate should be determined by the Shop.  Only you, the shop, knows what it cost to operate your trucks, how much you pay for electricity, rent, admin cost and your cost of labor. First step is to know your cost of doing business. Do market research. Find out what other service oriented businesses are charging in your area. Body shops are most likely the closest to the same skill level.

Who Benefits? What’s In It For Retailers? Allows full value recognition on each component of replacement work (Glass, Labor, Installation Materials/Kits) If the time showed 1 hour, charge for 1 hour.  If the job showed 2.5 hours, then charge 2.5 hours. The majority of profit in the invoice would be in the labor.  The margin on the glass would be less but evened out and materials should be charged for materials used. No more “r” parts.

Who Benefits? What’s In It For Insurers? Confidence in realistic glass prices and pricing stability More defensible position on labor compensation Possible savings in taxes where labor is not taxable What’s In It For Distributors? No More “R” Parts ~ requiring fewer addenda Easier trade agreements ~ if using NAGS List as reference What’s In It For NAGS? Enhanced usability in Benchmark Reduced “scapegoating” allowing more focus on enhancements

Why Does NAGS Care? We Support The Aftermarket Glass Industry Our information is the common language that facilitates electronic information exchange among trading partners It is important to us that our information is credible and useful to the industry we serve Vehicle and glass information must be accurate Installation materials and labor times must be realistic Pricing must represent a measure to costs

Agenda Introduction Rebalancing Background Component Based Pricing Next Steps

Next Steps

Communication Plan

Questions?