The New Zealand collision repair industry trade publication PanelTalk recently re-published an interesting article from IBIS (the International Bodyshop Industry Symposium). It focused on the state of the sector in the U.S. but directly mirrors the New Zealand environment. This is particularly true of the extraordinary control exerted by the major car insurers including unsustainably low rates and margins. Ultimately there are strong similarities with the treats and challenges faced by the New Zealand collision repairer industry and the trends that are starting to emerge. The article makes interesting reading, as present below. For more, see http://crashmanagement.nz/changing-times-car-accident-repair-industry-new-zealand/
WHAT ARE THE MAIN CHALLENGES & OPPORTUNTIIES FACTING THE U.S. COLLISION REPAIR MARKET?
The challenges remain much of what they have been over recent decades, and similar to the New Zealand collision repair industry. With labour prices largely controlled by insurers and well below that made for mechanical repairs, shops struggle to remain profitable. To survive shops mainly adopt operational models that cut waste and improve efficiency and productivity in order to create as much revenue as possible. Shops must also market themselves in ways that bring in steady streams of business. This frequently means having to join insurer direct repair programmes (DRPs) whereby insurers direct their customers to those DRPs. Joining a DRP has some negative points since shops must agree to insurer programme rules which can mean turning more decisions over to insurers and providing work at a discount to already discounted rates.
Cost layouts for upgrades in tools, equipment and training remain significant. With new vehicle technologies and materials demanding greater equipment and training investments, shops are pressed to find ways to create as much revenue as possible. This has led to the growth of Multi Site Operations (MSO’s) that can better leverage their profits to pay for the investments needed to remain in the collision repair business. the growth of MSOs in many cases is creating more competition for standalone shops and smaller MSOs that must constantly look for new ways to squeeze more revenue from their operations.
WHAT TRENDS ARE EVIDENT WITHIN THE MARKET?
The number of MSO locations continues to grow as larger MSOs turn more attention to buying up smaller MSOs as opposed to standalone shops. The is a similar trend starting to take effect in the New Zealand collision repair industry. The other major trend is the increase in manufacturer involvement. As vehicle technology has increased in complexity with each model year, manufacturer training has become more important. In past years simply having access to manufacturer repair procedures was a challenge. Today access is much easier though considerably expensive, but shops have begun placing a premium on manufacturer training. Training organisations like I-CAR now incorporate more manufacturer training in their offerings. This training is not only the preferred method to lern repair procedures, in many cases its a required part of joining manufacturer certified training programmes which is also growing in popularity.
With more parts utilising sensors and computer networks, manufacturer assistance is increasingly needed to calibrate or flash parts to get them to work. This operation can often only be performed at dealerships since independent repairers currently are not given access to this repair technology.
WHAT PARTICULAR COLLISION SHOP TRENDS ARE EMERGING?
Once again, MSOs continue to grow in size and number and take up greater portions of the repair market and the largest consolidators continue to look for ways to expand nationwide. The growth in pat, has helped fuel the increase the number of businesses. For nearly two decades the number of shops has declined, but this past year saw noticeable growth. This points to the relative health of the repair market.
Even with these increases, many small and medium sized shops are being pushed to find new ways to do businesses in a market that also is seeing increasing operating costs. some experts predict that eventually a number of shops will no longer be able to afford to serve a wide range of vehicle models but instead will need to specialise and focus on specific brands or specific types of repairs.
HOW ARE INSURERS INFLUENCING THE REPAIR SECTOR? WHAT IMPACT IS THIS HAVING ON SUPPLY CHAIN RELATINSHIPS?
As in the New Zealand collision repair industry, Insurers maintain substantial control over the repair market. The vast majority of repairs are insurer paid and insurers dictate labour rates, parts sourcing choices and repair procedures. This degree of control has create significant friction between insurers and repairers for decades, especially the poor labour rates which have remained relatively stagnant for years. Repairers complain that rates are so suppressed that they make it onerously difficult to remain in business. Insurers counter that lower rates keep insurance and repairs affordable.
As for supply chains, insurers prefer that shops use aftermarket and salvaged parts as much as possible to help reduces repair costs. repairers frequently prefer genuine manufacturer parts due to the superior fit and finish that make repairs more efficient. Repairers also question the use of salvage parts when locating and accessing them adds days to repair cycle times.
IN WHAT WAY ARE VEHICLE MANUFACTURERS INCREASING THEIR INVOLVEMENT & INFLUENCE IN THE COLLISION REPAIR SECTOR?
Manufacturers are increasingly adopting certified repair programmes or networks globally including the New Zealand collision repair industry. These programmes demand member shops to invest in required training and equipment to work on newer model vehicles that often involve aluminium or alternative material structures or parts. In some cases, manufacturers will only sell structural parts for vehicles to programme shops. Manufacturers of luxury vehicles often limit membership in these programmes to allow those shops to offset the significant investment in tools, equipment and training by ring-fencing markets for the work.
With the increasing use of aluminium and alternative materials, becoming manufacturer certified is becoming increasingly popular, particularly MSOs, who pick up multiple manufacturer certifications. Many industry leaders see certification as one of the most important market trends. Manufacturers are also becoming more involved in the area of pre and post-repair scans. Modern vehicles feature complex electronic and digital networks with sensors reporting & controlling a number of vital vehicle systems. Often the damage isn’t readily apparent. Manufacturers therefore have posted position statements recommending shops run full pre and post-repair scans to ensure sensors are working properly.
Unfortunately the cost investment of scanning tools can not be justified by many shops. Scanning/calibration tools can vary widely between manufacturers and some aren’t available in more affordable aftermarket versions. This can mean sending a vehicle to a dealership for this service, which adds extra time and cost to a repair.
WHAT INFLUENCE IS REPAIR TECHNOLOGY HAVING WITHIN THE MARKET?
The technology promises to make repairs more thorough, efficient and effective than ever. Shops have access to equipment like computerised measuring tools and scanning units that can help uncover hidden damage and ensure vehicles are brought fully back to specifications. The latest paint products and tools can also more efficiently duplicate the correct finish formulas and apply them with less waste.
HAT IS THE CURRENT STATUS OF THE NEXT GENERATION, EMPLOYEE AND SKILS MARKET FOR THE SECTOR?
The New Zealand collision repair industry faces significant challenges in helping create the next generation of skilled workers, and this is a global trend. Young industry members often are turned off by the physical nature of collision repair. Working on the mechanical side which often involves more computer-based tools and procedures, frequently is more enticing – and better paid. Also, considering the cost of collision repair equipment, many vocational/technical school students don’t get real-world experience during their education. They typically don’t spend time working in an actual repair business and leave technical school without any knowledge of what a collision repair career offers. Some shops have responded with their own mentoring programmes where they either provide all training in-house or complement school-based instruction.
WHAT ARE THE LIKELY TRENDS & DEVELOPMENTS THAT WILL IMPACT THE SECTOR OVER THE NEXT 5 YEARS?
Shops will need to continue to work more closely with manufacturers to address areas like training and pre and post-repair scans. The biggest areas of concern will be the continued growth and stability of the economy. Following the 2007 – 2008 GFC repairers saw significant decreased in business. Now with a new government in power, economic stability and prosperity is at risk, and repairers will keep a close eye on national economic trends.
Other areas of concern are the decreasing popularity of vehicle ownership, this is consistent in the U.S., Europe, and globally (except China). The proportion of the population with a driver’s licence is also decreasing in most countries, and the looming prospect of driverless and “accident-less” vehicles could signal the end of the collision repair sector. Though on balance this presents a positive result, even in NZ the industry employs thousands of people and contributes over $1billiion to the economy annually so would be a catastrophic loss to many, and the end of the New Zealand collision repair industry..