Collision Repair Sector Crisis!

The collision repair sector appears to be in a crisis, factors are many and varied but the ultimate cause is highly constrained profitability.  The downward trend is continuing, and the following have contributed already this year

• Gemini Group: A corporate scale operation currently moving into NZ, buying up independent collision repair facilities to create a dominant chain to replicate the Australian model with the objective of securing the lion’s share of big-brand insurance repair contracts.
• Fix Auto: Another giant overseas group, based on a franchise model.
• Vero SMART Repairs: We’re told that customers are being aggressively directed to Vero-owned SMART collision repair facilities in Albany, Penrose & Christchurch regardless of distance or customer convenience – could this be the end of customer choice? Independent repairers also advise that their repair quote submissions to Vero’s assessing portal PNET are being intercepted so suitable cases can be re-directed to a Vero SMART shop.  This results in substantial wasted/unpaid time for these independents. The lost business is significant and appears to be affecting all small – medium scale profitable work, leaving only the most technically difficult or marginally profitable jobs for the traditional trade.  Is this fair & ethical, and the kiwi-way – we think not.
• We’re told that the giant insurer IAG now accounts for over 60% of vehicle policies in NZ. Collision repairers are now complaining that it can take weeks to get damage repairs assessed. Mass IAG redundancies were rumoured last year at the time it was announced that some claims functions would be out-sourced to India. Could these two issues be related? We’re advised that claim/assessing delays have further deteriorated this year and, understandably, customer frustrations are increasing.  At the same time it has been noted that the NZI/ Lumley/AMI parent company IAG recently announced a 30% increase in profit.
• The Collision Repair Assoc (CRA) publication PanelTalk recently highlighted several premium repair facilities that are ready to “pull the pin” on a number of insurance company contracts. More are simply exiting an industry that barely returns even a meagre profit, and has become unsustainable.
• The labour shortage crisis. The collision repair sector has not been able to generate a sufficient financial surplus (profit) to offer competitive wages to the highly qualified senior staff it relies on.  As a result, tradesmen & women are deserting the industry for more lucrative careers. Attracting and funding trainees and apprentices presents the same challenge.  Fortunately, thanks to the efforts of the CRA the trade has finally be accepted for the Immediate Skills Shortage list which is making overseas recruitment easier.  It’s a helpful band-aid for now but does not address the driving forces, and does not serve potential kiwi job seekers well in the long term.

The CRA trade magazine PanelTalk covered the issues more comprehensively this month including the Editorial which we report in full.

PanelTalk reports that collision repair industry is in “an interesting space” at the moment. In the last month two operators that are putting the finishing touches on fantastic new multi- million dollar repair facilities, but most are struggling.  The Editor is a highly respected veteran of the industry and goes on to state that:

“I have spoken to several really good repairers, running good operations, who are ready to pull the pin on their contracts with a particular insurer. Now the interesting thing is, it is not the same insurer that’s causing them grief”.

“I have also spoken to a couple of really good people with great businesses, who are either selling up or closing the doors citing health issues created by the difficulties (ie stresses) in running a successful collision repair facility today. In fact when I went to see one, a very staunch proud man in his late thirties, he broke down in frustration at what seems to him like an endless black hole created by a lack of profitability”.

“In the past I have been guilty of ignoring all discussion around mental health issues, but over the last several years I’ve witnessed genuine issues too often not to reassess my thinking. The constant outside interference in a collision repair facility’s business is reaching such a stage that our industry is at real risk of developing a reputation as a driver of unsustainable stress levels. So many associated business people preach sustainability in their promotional material but only pay lip service to it in the real world”.

“It is time for an honest round table discussion between repairers and insurers to rethink the way things have been heading over the last several years because in the current environment the cost of repairs is often being driven up by misguided insurance company thinking. There is too much interference by insurers in what is the most cost effective correct way for a vehicle to be repaired. It is this misguided thinking that creates so much negative pressure on repairers’ profitability while at the same time it is driving up the costs to the insurers”.

“This type of thing is at the heart of the problem for repairers. They are fed up with the delays to their process, while they debate the repair methodology to be used, instead of being able to take the manufacturer’s specifications (if a structural part is to be replaced) or simply repair the panel safely – an operation that speeds up the repair process and lowers the cost”.

“If my conversations are anything to go by, perhaps there is now a groundswell to create some much-needed change, to the benefit of all parties. The 2018 CRA conference is just around the corner and I strongly recommend repairs attend, not only to learn more, but to interact with many different repairers from across the country. It is by this interaction that people realise that they are not alone, the same problems are faced by the wider trade, and it is always beneficial to see how others handle the situation”.

We at Crash Management have certainly seen more good quality collision repair facilities close the doors over the last two years, than in the past two decades – 2018 will be interesting, we’ll keep you posted.

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