This is a great article from Tow Times magazine July 2002. Gary Coe is a founder and past president of the Oregon Tow Truck Association and the Towing and Recovery Association of America, owns six towing industry related businesses and partners with his wife, Donna Coe, in industry seminars and towing company business consulting.
AAA Article Right On Target
In 1959, we became a AAA contractor for downtown Portland, Ore. Our performance serving AAA members was excellent. Over the years, we approached no fewer than seven emergency road service managers at AAA with facts and figures, pleading for a rate increase. Many times I heard the same answer McGovern described in his article, "If you don't want the contract for what we are willing to pay, I have a list of people waiting in line for the contract."
In February 1997, Speed's became part of the RoadOne consolidation. AAA was very concerned about Bill Miller's comments in a late 1996 magazine article about why he was consolidating towing services. As a result, AAA immediately canceled four Speed's AAA contracts. AAA had to dig deeply to find the replacement contractors and it took seven companies to fill our shoes. Nevertheless, the service levels dropped drastically. AAA eventually had to start its own fleet of trucks to serve the core of the City. They soon discovered how much it really cost to run those calls. However, their staff was sworn to secrecy, because their cost was more per call than they were paying contractors.
In December of 2000, we were able to buy back our former Portland operations from RoadOne. We are far more profitable now than we ever were running AAA calls. Through an activity-based costing analysis, we realized that our cost per call is well above what AAA is willing to pay.
AAA is now capturing more and more non-member business. The AAA/General Motors contract was the most disastrous event to ever hit our industry. It took millions of dollars out of our pockets by turning dealership warranty tows from profitable work into below-cost work. Part of AAA's rate used to be based on a high percentage of service calls. However, with computerized engine controls and fuel injection systems, a vast percentage of the "won't start" calls that used to be started, must now be towed to a repair shop.
Today, AAA has a new contract with Porsche. Towers are no longer towing just Chevrolets for this low rate. The risk exposure has now been increased while the pay remains at the same low rate.
Speaking of risk exposure, many towers have complained of the huge increase in the cost of insurance premiums. While we can immediately pass on that cost to many of our customers, how many AAA clubs will step up with an increase to address this cost?
Many (not all) of the other auto clubs and dispatch services have tried to pay a fair rate for volume business, sometimes more than double AAA's rate. However, now that AAA is competing with them in the marketplace for the business of GM, VW, Sprint, Porsche and others, a huge pressure is placed upon the other clubs to lower their bids for that business. Even though the other clubs are able to attract quality towers unwilling to work for AAA rates, some clubs are losing market share to AAA because they cannot bid as low to the manufacturers, many of whom are focused on lowest cost instead of high quality.
Let me ask this of the AAA towers reading this: Are you proud to be associated with all of your fellow AAA contractors?
Most AAA clubs have established a mileage rate that their contractors are "allowed" to charge the club and members for tows beyond the member's basic coverage. Many AAA contractors, to avoid confusion of their own employees, end up adopting that AAA mileage rate as their commercial mileage rate. Then, when municipalities take a survey of towers to see where their law enforcement contract rate should be set, that low AAA mileage rate has an artificial lowering impact upon the average. Because of this, AAA has yet another negative impact on overall mileage charges within our industry.
Until enough towers walk away from below cost work, there will be a continuing downward spiral of towing rates. The time is now to determine the future of your company.