Too Many Tow Trucks! Rotations and Non-consent Towing

In my state there is a state board that oversees the hospitals. When a hospital wants to purchase new equipment or add more beds (increase service capacity), they have to get approval from the hospital board first called a “certificate of need”. By requiring certificates of need the state ensures that unnecessary costs are avoided, and the price of healthcare isn’t driven up by unneeded expenditures. This is important because when you need medical attention you don’t have time to go shopping around for the best deal; market forces are very limited in the cost of healthcare.

When someone is in an accident or otherwise requires a tow in which they don’t have time or opportunity to shop for the best price, again market forces have little to do with how much that person, or their insurance company, will wind up paying for that service. The towing company sets rates to make a return on their investments, cover their costs, and make a profit.

If the police call just a single company for service in a particular service area, the company can determine how much to charge based on the average number of calls. They then divide their expenses (trucks, fuel, labor) by that number and come up with a price per call. If the police add a second company to the rotation and each company gets half the calls, the cost per call doesn’t decrease because there is now competition, it goes up because each tower has to cover their fixed costs with half the work! While this example is a simplification, it is meant to represent the not-so-obvious relationship between non-consent prices and the number of rotation services on the list. Just like we can’t afford two or three hospitals in every community, the law enforcement community needs to keep in mind that more is not always better when it comes to rotation towing lists.

There are other effects of too many wreckers services on the lists. In reality, there are few services that survive by just doing police towing, that has to be part of a mix with retail towing and other services. If there are too many companies sharing all the police work, that reduces the percentage of income that any of them receive from police referred work, and reduces the incentive to be available and provide the excellent response times usually expected. While wrecker companies try to compete for police work the only way they can, with good service, if too many companies are added to a list, eventually either prices will have to skyrocket, or service levels will have to falter.

Gourmet Service for Fast Food Prices?

Motor Clubs and Law Enforcement Towing

Lately, I have been thinking about the real costs of police ordering motor club (m/c) tows. I dropped all associations with motor clubs quite a while ago after determining that their re-imbursement rates didn’t even cover my costs (plus a reasonable salary), and profit was an unheard of concept. Why some towers continue to work at these rates, while not a mystery, is the subject for another posting.

What is the real effect of a police officer requesting a motor club affiliated wrecker, either through the m/c dispatch system or directly? If the request goes through the m/c’s dispatch system, substantial lag times occur resulting in increased time tying up the officer and additional time on the side of the road for the vehicle. This is not just a monetary problem (time is money) for the short staffed law enforcement agency (and possibly a fire department too) but also represents a safety hazard every additional minute they sit there. Did you know that a disabled vehicle parked on the shoulder of the interstate constitutes something like a 20% obstruction to traffic flow?

When the police call a tower directly, they expect that he will (reasonably) be in-route immediately to meet their needs, “gourmet” service. Normally the towing company can charge a profitable rate for this immediate type of service. All calls for service from police have to be treated the same way for a tower to stay on a rotation list. When the tower accepts m/c rates (often between a third and one half of regular rates) for his best service that generates a deficit in his income. To make up for this the money has to come from somewhere. On accidents most towers will pressure the vehicle owner to convert it to an insurance pay tow, if they have coverage. On disablements though, they often just have to take the loss and make it up elsewhere… by raising their regular police towing rates! Think about it, how come a tower will accept $25 from a motor club and charge $100 or more for the same service if it is a police tow?

Therefore, when law enforcement agencies support motor clubs, either by requiring participation from their rotation towers, or by enabling requests for motor club service, they unknowingly increase rates for everyone else. I recognize that the police are trying to meet the needs (or honor the requests) of the general public, and probably get a very bad time from motorists who don’t get their club affiliated service provider request. The unseen consequence of raising all other rates should have a balancing effect though. A good analogy for the situation can be found in the health care system, where Medicare only covers a set (small) amount and all others pay through the roof.

These programs are in reality just another type of insurance. If the police call a non-club wrecker, most programs still cover all (or at least a portion) of the tow, albeit as a re-imbursement rather than a “free” service. Except in a few metropolitan areas, there really is no such thing as a “club” wrecker. Services are provided primarily through subcontractors, who (due to the low rates) are increasingly far and few between. Hopefully police agencies will start to recognize that maybe the best situation is to support a closest/fastest rotation-service provider system, and leave the towing insurance aspect to sort itself out on it own.

Rate Comfort

I am just winding down from a short winter, and since it was about six weeks shorter than normal, I am not feeling like the checking account is a flush as it might be. If global warming is here to stay then my "normal" winter revenue cycle is probably going to be permanently shortened. So, to make the same money in fewer weeks I really need to raise my cost per call.

I have used a $75 minimum charge since I started in business. I used to break my rule when I had a string of pullouts on the interstate, but dropped that a couple of years ago (it's just too dangerous out there to discount). I'd like to nudge my prices up some, but in the last 3-4 years the only charge I have changed has been my milage rate, by just 50 cents. So, I know my rate chart by heart. I rarely make a mistake and short change myself. The numbers rattle out quickly and professionally, no "ummm, let me find a calculator". It's comfortable.

When I started in the towing business I purposely set my rate higher than the guy already running here in town. I didn't want to undercut him and honestly, I didn't want a heavy work load since I was winding down something else that was flexible but still took a fair amount of my time. Now the other guy is towing very little and I am the "go to" guy for tow calls around here. People know my rates, which are now equal or less than the other guy's, and it's pretty, well, comfortable.

Comfortable customers, comfortable operator... static tow prices. The only problem is that means I am now netting less per call than I was a year ago (or worse, than three years ago). And if I have to pay for my four wheel drive wrecker with three months of work vs. five months or winter, that's a higher caost per call. Since I am now the "go-to" guy, I am making it up on volume (like the triple A motto, LOL) , but that can only go so far.

My point is, when your rates get comfortable, maybe it's time to start looking around and make sure your not missing some of the picture, or some of the profits. If you don't, sooner or later inflation is going to creep up on you and you are going to have to make a sharp adjustment in rates, which will really confuse (or more probably alienate) your customers.