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In 1993, AAA Washington was one of the two regional automobile clubs affiliated with the American Automobile Association (AAA or Triple A) operating in Washington State. At that time, 69% of all people belonging to automobile clubs were members of the American Automobile Association, making it the largest automobile club in North America. AAA was a national association that serviced its individual members through a federation of approximately 150 regional clubs that chose to be affiliated with the national association. The national association set a certain number of minimum standards with which the affiliated clubs had to comply in order to retain their affiliation with the association. Each regional club was administered locally by its own board of trustees and management staff. The local trustees and managers were responsible for recruiting and retaining members within their assigned territories and for ensuring the financial health of the regional club. Beyond compliance with the minimum standards set by the AAA, each regional club was free to determine what additional products and services it would offer and how it would price these products and services.
AAA Washington was founded in 1904. Its service territory consisted of the 26 Washington counties west of the Columbia River. The club offered its members a variety of automobile and automobile-travel-related services. Member benefits provided in cooperation with the national association included emergency road services; a rating service for lodging, restaurants, and automotive repair shops; tour guides to AAA-approved lodging, restaurants, camping, and points of interest; and advocacy for legislation and public spending in the best interests of the motoring public. In addition to these services, AAA Washington offered its members expanded protection plans for emergency road service; financial services, including affinity credit cards, personal lines of credit, checking and savings accounts, time deposits, and no-fee American Express Travelers Cheques; access to a fleet of mobile diagnostic vans for determining the "health" of a member's vehicle; a travel agency; and an insurance agency. The club provided these services through a network of offices located in Bellevue, Bellingham, Bremerton, Everett, Lynnwood, Olympia, Renton, Seattle, Tacoma, the Tri-Cities (Pasco, Richland, and Kennewick), Vancouver, Wenatchee, and Yakima, Washington.
Club research had consistently shown that the emergency road service benefit was the primary reason that people join AAA. The importance of emergency road service in securing members was reflected in the three types of memberships offered by AAA Washington: Basic, AAA Plus, and AAA Plus RV. Basic membership provided members five miles of towing from the point at which their vehicle was disabled. AAA Plus provided members with 100 miles of towing from the point at which their vehicle was disabled. AAA Plus RV provided the 100-mile towing service to members who own recreational vehicles in addition to passenger cars and light trucks. Providing emergency road service was also the club's single largest operating expense. It was projected that delivering emergency road service would cost $9.5 million, 37% of the club's annual operating budget, in the next fiscal year.
Michael DeCoria, a CPA and MBA graduate of Eastern Washington University, had recently joined the club's management team as vice president of operations. One of the responsibilities Michael assumed was the management of emergency road service. Early in his assessment of the emergency road service operation, Mr. DeCoria discovered that emergency road service costs had increased at a rate faster than could be justified by the rate of inflation and the growth in club membership. Michael began by analyzing the way the club delivered emergency road service to determine if costs could be controlled more tightly in this area.
Emergency road service was delivered in one of four ways: the AAA Washington service fleet, contracting companies, reciprocal reimbursement, and direct reimbursement. AAA Washington's fleet of service vehicles responded to emergency road service calls from members who became disabled in the downtown Seattle area. Within AAA Washington's service area, but outside of downtown Seattle, commercial towing companies that had contracted with AAA Washington to provide this service responded to emergency road service calls. Members arranged for both of these types of emergency road service by calling the club's dispatch center. Should a member become disabled outside of AAA Washington's service area, the member could call the local AAA-affiliated club to receive emergency road service. The affiliate club paid for this service and then billed AAA Washington for reciprocal reimbursement through a clearing service provided by the national association. Finally, members could contact a towing company of their choice directly, paying for the towing service and then submitting a request for reimbursement to the club. AAA Washington reimbursed the actual cost of the towing or $50, whichever was less, directly to the member. After a careful examination of the club's four service delivery methods, Michael concluded that the club was controlling the cost of service delivery as tightly as was practical.
Another possible source of the increasing costs was a rise in the use of emergency road service. Membership had been growing steadily for several years, but the increased cost was more than what could be attributed to simple membership growth. Michael then checked to see if there was a growth in emergency road service use on a per-member basis. He discovered that between fiscal year 1990 and fiscal year 1991, the average number of emergency road service calls per member grew by 3.28%, from an average of 0.61 calls per member to 0.63 calls. Concerned that a continuation of this trend would have a negative impact on the club financially, Mr. DeCoria gathered the data on emergency road service call volume presented in Table 5-13.
TABLE 5-13 Emergency Road Call Volume by Month for AAA Washington
Write a memo to Mr. DeCoria summarizing the important insights into changes in emergency road service call volume that you discovered from your time series decomposition analysis.