Is This The End For The New Zealand Collision Repair Industry?

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..

3 Responses

  1. JohnnyB
    | Reply

    You’re on the money as usual Crash I think the blacksmiths will survive long after we’re gone. They don’t have to justify every dollar to a desk jockey insurance assessor and stand there while every dollar of margin is ground away. Mr Crowther had more to say about this a couple of months ago. In case you didn’t see it.

    IBIS report NZ: how do we compare?

    Report by Panel Talk editor Rex Crowther.
    Market trends:
    There are signs of more Australian based consolidators moving in with greater numbers than at present. There are now a number of multi site operators but they are only two or three sites, with the largest having seven.
    A major factor in New Zealand is the large market share held by two insurers, which could be as high as 90%. This domination tends to keep repairers on the back foot, with a lot of them fearing retribution if they do not follow suit with insurer rules.
    Suncorp’s Capital Smart has recently opened in the two major cities of Auckland and Christchurch, taking care of VERO and AA Insurance claims.
    They are mostly taking the small claims at present, but there is evidence that they are moving into the medium hits area as well.
    VERO have applied to the Commerce Commission to purchase Tower Insurance, one of the larger of the remaining locally owned insurers, which will see more repairs going to the insurers own repair facilities in the major centres.
    Bodyshop trends:
    There are definitely more MSO’s due to some shop owners having enough of trying to make a dollar out of the industry and selling out to other owners who have a little more drive to make a go of it. Some shops that are changing hands have seen new owners from outside of the collision repair industry.
    There are no signs of new shops opening at this stage, although there is some solid speculation around Australian consolidator AMA/Gemini doing a deal with IAG and opening a number of new facilities, but there is no proof of this at this stage.
    There are some networks or buying groups in operation. A new twist to our market is a PPG Paint distributor linking with several large rental car companies through large rebates from PPG back to the rental car companies. The threat of losing this business has seen a number of repair facilities changing there paint to PPG.
    Technological impacts:
    Any structural repairs have to follow manufacturers specific repair methods to the letter, in most cases with insurers not paying repairers unless proof that repair specs are acquired and followed.
    This has led to a greater number of total losses and has lifted the part content costs of repairs significantly.
    Access to data, while easier than before is still an issue, especially with one insurer only accepting manufacture specs.
    This issue is acerbated by the large number of second hand imports that feature in the countries car parc.
    The next generation:
    It is becoming increasing difficult to find that next generation at present, with better opportunities in front of the young in a very buoyant economy.
    There seems to be reluctance among youth to take on a trade that involves physical work, and the young are not anywhere near as car mad as previous generations.
    In New Zealand we have a great penetration of training in modern vehicle technology and repair, both amongst tradesmen and apprentices, however there has definitely been a move away from the actual repair side of the panel trade, and these skill gaps are starting to show.
    Key statistics:
    Number of collision repair centres: 712
    Types of collision repair centres:
    • Independents: Yes – 700
    • Dealer: Yes – 12
    • Networks: None
    • Group/multi-site operators (MSO): Yes – Approx 18
    • Franchise operators: None
    Largest operators by number of sites:
    1. 7
    2. 5
    3. 3
    Average cost of repair: $2300
    Average cycle time of repair (key-to-key): Not measured in New Zealand, but is becoming a bigger focus for repairers.
    Average labour rate: $98
    Mobile collision repairers in operation (eg panel repair/s within mobile rig/booth): No
    Number of mobile collision repairer operators: None
    Mobile SMART repairers in operation (eg paintless dent removal specialists): Yes
    Number of mobile SMART repair operators: Approximately 24
    Other vehicle damage repair facilities/models in operation – None
    Total accident repair market value: Approximately $920,000,000

    Read more at http://www.paintandpanel.com.au/news/news/ibis-report-nz-how-do-we-compare#GMTglsV68EdiZpGl.99

  2. Crash Management
    | Reply

    I think everyone agrees that the Australasian collision repair sector is in crisis, and it’s difficult to see where it will end. We received a link today to a disturbing article in the Aussie PanelTalk equivalent PaintAndPanel regarding yet another profit-destroying initiative by some sneaky Australian insurers. The policy option called ‘any repairer’ alerts consumers they are being asked to pay an extra premium for a fundamental right to choice of repairer, rather than accepting an insurance-specified repair shop.
    Read more at http://www.paintandpanel.com.au/news/news/ambra-comments-on-iag-s-any-repairer-option#Gupux4JecH1IEKmi.99

    • Johnny
      | Reply

      And theres more! IAG Aussie are shouting about “new parts for new cars” but here in NZ their sticking to the old junk parts rule. One rule tor them one rule for us! No surprises there! The trade might be stuffed in Aussie but it’s way more stuffed here. With so many shops are closing now maybe the power will swing back our way one day. Ha! just kidding.

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