Tough economic times have led many collision shops to resort to drastic cuts in staff, training and equipment in order to stay afloat. But there are many often overlooked opportunities for shops to reduce their materials, parts and overhead costs without negatively impacting their business or their employees.

During his Wednesday session on "Controlling Costs on Materials, Parts and Overhead," Tony Passwater, president of Indianapolis-based AEII and an ABRN columnist, outlined a number of ways for shops to save money.

"A lot of shops get into a crisis mode and start cutting everything or going cheap, and that's not the way to do it," Passwater says. "If you start cutting corners, it usually hurts you more than it helps you."

There is in fact a significant amount of savings potential in both parts and paint and materials cost that remains untapped at many shops. "There are shops that still believe that paint and material is still a wash, and they're trying to do everything to break even," Passwater said. "In fact, top performers are making 30 percent to 35 percent on paint and material. Parts can be bumped to 2 percent to 4 percent gross profit, which can be a huge dollar amount."

Parts savings go beyond just getting the best initial discount, Passwater said. "Inventory control is critical when it comes to managing parts properly," he said. "If the vendor is just dropping off and dumping parts in a big pile, and not spending the time to ensure you have the right parts, or properly identifying them and marking them with the R.O. number, then the shop has to do that. Really, the vendor should be responsible for that."

Vendors should be actively involved in making sure parts have been properly marked and stored, and that the boxes have been opened up to identify any possible damage. When shops bid out their OEM business to vendors in their market area, they should look at which vendors provide the best service in addition to the best discount.

Shops also can institute agreements with aftermarket vendors to determine what will happen when a part does not fit or requires modifications. "There's a lot of miscommunication out there from the vendors," Passwater said. "You should be compensated for the actual amount of time it takes to modify that part, and for the full amount. Not half the amount. Shops are losing out on these costs because they just think that's the way things work."

Shops also can utilize the software they use to manage bolt, nut and clip inventory to help manage paint and material expenses. "Shops think they are getting a certain price on materials when they really aren't," Passwater said. "You have to have software to help manage it, because there are too many items to check. If the pricing is not what was anticipated, the system can let shop owners know there's a discrepancy.

Passwater also addressed overhead costs, noting that there are plenty of ways to save through benefits, taxes and reduced utility bills.

There also are consulting companies, for instance, that can evaluate shop's utility bills, evaluate ways to save on utilities, negotiate a better rate with providers and even get the shop a rebate if they've been overpaying in the past.

Many shops also aren't taking advantage of health savings accounts or Section 125 plans (also known as cafeteria plans). "Anything the employee can move over into pretax dollars reduces the amount of FICA match that the shop has to pay," Passwater says. "In some states, other taxes can be reduced that way as well, but not everyone is taking advantage of that."

Shops also can reduce their taxes by paying themselves rent on any property they own. "Any rent that comes in as income for the shop owner is not subject to FICA costs," Passwater said. "If you have this set up properly, you can save up to 15 percent in the tax structure for the match as well as the initial FICA."