Changing Times for the Car Accident Repair Industry in New Zealand

There has been significant (and many would say detrimental) aggregation in the car insurance sector recently, both in NZ and globally. This has resulted in an extreme concentration of power and control affecting both customers and suppliers. As a natural response there has also been an accelerating trend to consolidation within the car accident repair industry (panelbeating sector). The volumes available to the consolidators could help re-balance (to a degree) the very one-sided power and influence, and provide an advantage in securing improved terms & conditions in supply contracts to those aggregated insurance groups. This of course will be to the further detriment of the vast majority of owner/operated businesses, and may further threaten their on-going viability particularly those that are highly reliant on car insurers directing work to them.

We’ve written on this subject before so it’s gratifying to see the subject discussed openly in the car accident repair industry magazine PanelTalk recently. See also http://crashmanagement.nz/bloody-aussies-not-car-insurance-fleet-fit/

PanelTalk reports that a ‘transition’ is underway. They cite the new Vero SMART car accident repair facilities in Auckland and Christchurch, and the first Gemini Group car accident repair facility in NZ. Gemini is an Australian owned consolidator that has been known to be interested in dominating the NZ sector. PanelTalk confirms that their first NZ facility was recently rebranded Repair Management NZ, and that they have senior staff actively scoping expansion plans in NZ now.

PanelTalk also references global car accident repair consolidator group Fix Auto World, they appear to be growing quickly in Australia so NZ would seem just a small extra step for them. The trends are clear and will result in a very different car accident repair market in New Zealand in the short to medium term.
These changing market dynamics were a common topic of discussion at the recent IBIS conference in Madrid, along with the global difficulty in attracting both qualified car accident repair technicians and apprentices. Fortunately, in NZ the Collision Repair Assoc has been actively lobbying the government to recognise the local staffing crisis, the Skills Shortage submission should be of serious concern to anyone reading it – we hope government is listening and does add the car accident repair sector to the recognised labour shortage list. Some skilled technicians have been brought in to help address the crisis, and in general have integrated well and are highly valued – but the current process and bureaucracy is far too slow and cumbersome – urgent action is required.

PanelTalk also mentions the amount of private equity funding that is pouring into the car accident repair sector globally. They say the funding is driving the massive growth of the consolidators, some of which operate up to 500 car accident repair facilities. Clearly this scale of corporate business will have significant operational, financial, and power advantages over the traditional individual owner/operator in the NZ market. As unprofitable as some car insurance company contracts are, most car accident repairers have subscribed to them in the hope of achieving profitability based on volume. They would now seem to be very vulnerable to losing even that small advantage to the large-scale consolidators.

These trends aren’t new but they are accelerating. Margins have been reducing for years, resulting in pressure on sustainability. This has affected the ability of business to reinvest both in training/apprenticeships and resources/equipment/technology. Few new owner/operated business are entering the sector, and a significant number of existing businesses have simply given up and closed the doors due to the combined pressure of lack of profitability and the skilled labour shortage crisis. This has now led to a service under supply at a time when the vehicle population is exploding. Unfortunately, customers suffer. There is clear evidence in the market of extended service response times of over 90 days in many areas, in addition to a reduction in customer service levels – as an example, pick-up & deliver was once a reasonable expectation but now very rarely available. Courtesy car stock too is suffering from ageing/lack of investment and availability constraints.

In short, collision repair has been under increasing margin pressure to the extent that some are questioning the trade’s on-going sustainability – but we suspect that it’s about to get a lot worse before it gets better. We’re sure much more on this subject will be covered in the media, but for now one thing has become clear – the car accident repair sector in New Zealand will probably change more in the next few years that it has over the past few decades. watch this space.

3 Responses

  1. Ken Black
    | Reply

    Major worries for the panel and paint industry and everyone inside the trade knows it will get worse. IAG NZI etc basically own the best panel shops without having to pay a cent to buy them and nail down the prices so low its impossible to make a profit. Business owners now are lucky if they have enough profit in a job to even pay themselves as much as their staff and that’s not much either. No wonder theres a labour crisis. Who’d want to work in this trade for a max $35 hour for a top technician with all the advanced quals when builders plumbers electricians wages are twice that. Even mechanics are way better off. And the reason for that is because those trades are not totally controlled by insurance companies!

  2. Justin
    | Reply

    I does look like theres no future in the panel and paint trade anymore and quite a lot has been written about it lately. At last the CRA is waking up. We’re heading the way of the Ozzies for sure and it won’t be long before the big corporate chains own all the best panel shops.
    While we wait for that to happen New Zealands biggest (almost ONLY) insurance company just keeps picking us of. Theres a good article about it on the Motor Equipment I saw today called THE CHALLENGE OF THE NEW NORMAL written by Peter Adams.

    Last month we explored the subject of “the commodity,” and how accepting the way the collision industry is being pushed towards the Australian models is fuelling your own demise. I’m delighted that several of my more experienced readers have endorsed this article as being a fair assessment of where we have come from and where we are heading.

    AlI this was further confirmed through a recent claim on a third party vehicle that has taken many months to resolve due to some important principals involving the way claims are now managed by staff assessors. As explained last month the “new efficient method” of being able to tick the box to confirm parts are to be sourced through online procurement is not necessarily the best way to repair a damaged vehicle.

    I made the point that bulk pricing instead of listing individual prices on line items makes it quick and easy for a supplier to sell more parts; however in the process it disguises the fact that some damaged panels or plastic items that could be repaired are now being dumped.

    Further than this it robs good repairers of the opportunity to make a greater profit on a job without necessarily increasing the cost as they have the equipment and expertise.

    So in the case of the job that took months to resolve, the repair was straight forward enough, and could have involved the reconditioning of a headlight and a front bumper. Our insurance company client instructed us to do an independent assessment, and we learned all damaged parts were to be replaced.

    We interviewed the repairer and he accepted that some of the plastic items could be repaired in-house for the right money. Our assessment incorporated allowances for reconditioning these items, and it was around $1,100 less than the staff assessor had allowed using all new parts on this commonly available five-year-old Japanese vehicle.

    Before the repairs had started we advised their claims officer of our findings and were essentially told their assessor had followed established company processes. The arguments over the recovery of their costs was protracted, and we were even told at one point that reconditioning of plastic parts was an inferior method as welds can split in a future event.

    We were requested to provide a letter from an independent reconditioner to support our contention; however this was rejected on spurious grounds.

    Inevitably an impasse was reached and the other side rejected a compromise settlement and stated the matter would need to be resolved in the Disputes Tribunal. Our offer to survey members of that insurer’s network to see how many of them still recondition plastic parts on their behalf was regarded as flippant, but it was entirely relevant given the explanations we had been quoted.

    Before we get to the conclusion of this saga, let’s reflect on the wider issues pertaining to insurance companies and their reality.

    The new normal
    We now live in an era where the new normal is that it’s rare for a company to maintain a truly competitive advantage for very long. Easy access to digital information and social media has created an environment where customers are now better informed, less loyal, and more demanding.

    Advertising a superior insurance product is at best flaky as there is generally little difference between the various offerings. It is expensive to be continuously promoting a point of difference message throughout a broadening range of communications channels. Hype is put to the test at claims time, but the interesting bit is the personal touch actually comes from you guys at the coal-face dealing with the real people who for whatever reason are in need of your expertise.

    Every year when I see the results of the CRA workshop surveys I reflect on what the various insurance companies have done to cause them to move up or down the leader table. Some are constantly rated highly because they understand the symbiotic relationship they have with collision repairers, and are less reliant on the formula-based establishment of repair costs.

    Others are often in turmoil over customer service matters and takeovers, or the latest catastrophe. Another has introduced a computer-based method of establishing a repair price that involves six pages of detail that even their own assessors have trouble explaining.

    And then there is the company that thumbs it’s nose at the need for recognition by panel shops, and seems to be forever at the bottom.

    The point is that market forces are continually at work driving the need for innovation. Regardless of whatever happens behind the scenes, the vital aspect is customer perception. A repairer who believes he has been shafted by an underwriter, either through their processes or the application of them by their assessors, will never be a great advocate.

    As the expert entrusted to restore a vehicle to pre-accident condition, your knowledge and skills are essential to the smooth running of every insurance company.

    Last month our exploration of the complex nature of this industry was from the viewpoint of a commodity service. This month it’s from the new normal – the need to continually innovate to stay relevant.

    I say “relevant”, because I doubt that market leadership is anything we can easily achieve with limited means or time. However, what can be controlled is who you work for and the methods you employ to restore vehicles. Obviously manufacturers’ standards must be adopted, but it’s important to note you make your money when you write the estimate, then lose it as you do the job.

    – Buy the equipment that speeds up key operations and ensure your team are well trained.
    – Determine where the bottlenecks are, and work together to eliminate them.
    – Repair parts to avoid the grief of having the wrong ones sent from the other end of the country.
    – Sell your labour at a decent rate because your team has the expertise.
    – Don’t be hood-winked into buying more parts simply because there is a dumb idea being widely promoted that a certain box must be ticked.

    The reason for introducing the example of the third party claim we were involved with is that it clearly puts two methods of assessing repair costs to the test. One of them clearly failed despite best efforts to whitewash the results.

    Repairing parts is a far more sustainable proposition than replacing them every way you look at it. So when faced with the obvious conclusion they would have to prove they acted reasonably to win any case with an impartial adjudicator. The insurance company abandoned its support of its tick-box processes, and the matter was quickly resolved.

    A word about insurance companies
    Insurance companies must have accountability among their staff and their suppliers. What they can measure they can manage, and it would be irresponsible for them to operate without a wide range of robust processes in place.

    No one has the monopoly over the ultimate way to achieve a particular result as there are so many permutations – every job is different, and all have their challenges. Flexibility is the vital ingredient for sustainable survival in the new normal.

    Unfortunately it would seem that few underwriters recognise the implications of their actions on the complexity of the automotive industry.
    The challenge for all of us is to work together in relative harmony within the laws of the land. If you don’t enjoy a mutually rewarding relationship with any client or supplier save us all the grief – stop whinging, grow a spine, and dump them – after you have figured out how to live without their business!

  3. ShaneM
    | Reply

    Aint this the truth. Its a really tough business to be in these days and getting harder every year. Can’t wait to see the shake down from the next round of NZI contracts. There was a lot of talk about that at the CRA road shows plus Crash Management – what’s up with NZI and you guys anyway? We’re happy to do both. You’ve got to face the facts that a tiny margin business means you need masses of volume pumping through. Not everyone at the road show likes you though Crash so whats that about? Too much control or sour grapes maybe they’re the shops that didn’t get your contract?

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