The IBIS Global Summit held in May each year publishes a Global Focus Repair Report produced by the editors of each of the media partners in different countries around the world. It is a very difficult task to sum up the industry in a few hundred words in the format IBIS has put together. Here's what Paint & Panel submitted a few months ago for the report - we'll be running similar reports from other markets such as the US, Canada, South Africa and European countries in the coming weeks. We're sure you may disagree with some of the report - if so feel free to leave comments on the website.
IBIS 2016 Global Focus Repair Report Australia
The Australian repair landscape has undergone dramatic change over the last 12 months. The two major catalysts have been the adoption of insurer approved repairer networks who receive large volumes of work and the aggressive consolidation strategy of the AMA group which merged with the largest national repair chain Gemini in September 2015.
What trends are evident within the market?
Major trends are consolidation and a move to larger, higher volume repair facilities. Increased pressure from insurance companies for repairers to improve cycle times and offer consistent average repair costs have led to many businesses increasing their shop footprint to allow for a higher volume of generally similar-style repairs. If shops repair both light and heavy hits many have separated these processes either in different buildings or different work streams. In order to speed up key-to-key times there has been investment in the latest infra-red drying equipment and a heightened focus on 'lean' techniques.
The two major MSOs are AMA incorporating Gemini Accident Repair Centres with 70 sites and the Suncorp insurance company-owned fast turn-around network Capital SMART with just over 30 sites. These two entities have considerable influence on the supply chain and have been able to secure purchase deals that allow them to offer more competitive repairs, in conjunction with efficient working practices and the economies of scale MSOs can achieve. The general trend towards larger shops is squeezing out a huge number of smaller, traditional, family-owner single site operators as volume is channelled through the insurer-approved shops. Although there is no way of tracking through statistics, anecdotal evidence and feedback from suppliers indicates a significant number of smaller shops shutting their doors. This is a trend that is likely to continue, especially in the two most populous states New South Wales and Victoria where there is still an oversupply of workshops for the number of repairs available.
Bodyshop trends
There are increasing number of MSOs as many bodyshop owners realise that they cannot compete as single site operators. In addition to this there are two major 'affiliation' groups – Car Craft and Australian Accident Repair Network (AARN). Car Craft is a buying and networking group which began in Western Australia and then spread to Queensland. Last year the group announced its intention to spread nationwide and to be a force which allows repairers to gain the buying advantages of MSOs while still maintaining total independence. Since then it has since added members in the Australian Capital Territory bringing group numbers to just over 70 shops. It has also recently announced that all its members will comply with a set of shop standards developed by AMBRA (Australian Motor Body Repairer Association) called National Shop Grading. AARN has developed its own standards and practices and has around 85 independent repairers in the network.
While there isn't a franchise operation here yet, Sheen Panel Services is a semi-franchise operation in Victoria where staff can buy shares in one or multiple shops. It has 24 shops in the network but only operates in one state. Fix Auto held a national road show at in February to inform owners about how the franchise works. The group reported a great deal of interest in the model and we await further announcements on whether it will begin operating in Australia.
How are insurers influencing the repair sector? What impact is this having on supply chain relationships?
Insurers currently hold all the cards and now exert iron control over the marketplace, often dictating which parts are used, which methods and how much they will pay. Suncorp and IAG are the two dominant insurers between them insuring nearly 70 percent of the market through their many brands, although banks and smaller insurance brands are beginning to nibble at market share, the duopoly will continue to dominate for the foreseeable future.
Both Suncorp and IAG have a network of repairers who they enthusiastically encourage their policyholders to use. Suncorp also has its own repair network Capital SMART which has around 30 sites and specialises in drivable repairs and those just out of this scope. These high volume shops have taken a huge number of repairs out of the local market. Suncorp announced when presenting its latest financial result that it plans to repair 40% of all its policyholders' cars by 2017.
IAG shrunk the numbers of it network of repairers aligning itself with many entrepreneurial repairers some of whom have built large scale high volume shops specifically to repair the insurer's cars. IAG signed a five year agreements with these repairers guaranteeing volume.
Suncorp also has its own parts company set up last year with LKQ whom it recently bought out. The disruption in the marketplace occasioned a mini-boom in equipment sales last year while repairers sought to ensure they would meet Suncorp's own repairer standards and a number of new shops were built for IAG customers but now suppliers are facing a slump as many business owners hold off investing in uncertain trading conditions.
In what way are vehicle manufacturers increasing their involvement/influence in the collision repair sector? What signs are evident?
There has been an upturn in vehicle manufacturer approved repairer networks. One reason for this is to encourage the use of OE parts when many insurers specify aftermarket or recycled parts. Another obvious factor is the increasing complexity of cars and the need to ensure repairers have the correct equipment, training and methods to ensure vehicles are repaired to their own specifications to protect their brand. Toyota is the latest manufacturer to set up an approved network which includes dealer-owner facilities as well as independent repairers. The company is encouraging its dealers to acquire or build their own repair shops. Volkswagen has also rolled out an approved network. Car manufacturers are also running a campaign called Genuine is Best through the Federal Chamber of Automotive Industries to inform the public about the benefits of genuine parts.
What impact/influence is new vehicle technology having on the sector?
I-CAR the leading training company for upskilling collision repair technicians in body repair considers that many repairers aren't factoring in the impact of new vehicle technology as much as they should. The organisation feels that only a small section of repairers and industry stakeholders are paying any real attention to the training necessary to repair new cars accurately. Research indicates the majority of body repair technicians are five or six years behind where they should be in terms of knowledge, with many not understanding the basics of high strength steel repair and joining methods, let alone the sophisticated electronics and driver aids currently seen in many modern vehicles. Many repairers use Thatchamnet or Ezi Methods and the Victorian motor trades association (VACC) has a telephone technical centre with the largest technical library in the southern hemisphere. Generally technical information is freely available although luxury brands such as BMW and Mercedes-Benz and Audi are very selective about who they give repair methods to.
Influence of estimating systems
The introduction of Audanet by Suncorp has caused consternation among repairers who are using it. As well as the controversial $54 per hour 'system' rate, repairers report that quoting is cumbersome and extremely time-consuming, so much so that some are having to take on extra office staff, affecting profits. There have been a number of new workshop management programmes launched over the last couple of years which can be accessed by phones and tablets which also help to keep customers informed of progress on their vehicles.
Next Generation
There is no national initiative to market careers in repair to the next generation. An historic automotive summit took place in Canberra in August last year with key politicians including cabinet ministers attending. One of the issues high on the agenda, organised by the Motor Trades Association of Australia, was the critical skills shortage the industry is facing with technical colleges struggling to attract enough apprentices and seeing department closures. There is also a huge percentage of apprentices who don't complete their course and leave the industry. Immigration lawyers are probably benefiting the most from the situation with many tradesmen being 'imported' from markets such as the UK and the Philippines.
Likely trends/developments
Industry consolidation will continue to gallop ahead and the number of independent repairers will decline. While accident rates will continue to fall, repairers are slightly shielded by the older vehicle parc, the vast distances (leading to driving fatigue and accidents) people can travel and road hazards such as wildlife – as well as the biblical weather conditions which can prevail. While autonomous car trials have begun in South Australia the small population and size of the country will mean that Australia will be slow to adopt the infrastructure needed for fully autonomous transport.
The industry is at a crossroads with a number of directions possible which will depend on insurance industry trends, the success of affiliation groups and whether the relatively newly consolidated businesses can integrate, thrive and continue to influence market forces.
Australia facts
Population: 24,031,663 (Australian Bureau of Statistics ABS)
GDP: $1.62 trillion (Australian dollars) (ABS)
Total vehicle parc: 18,007, 767 (ABS)
Number of Registered passenger vehicles: 13, 549, 260 (ABS)
Number of Accident repairs per annum: Approx 1million
Total new road vehicle sales (FCAI)
2013: 1,136,227
2014: 1,113,224
2015: 1,155,408
Number of reported deaths per annum: 1207 (gov stats)
Number of motor insurers: Approx 50 brands
Top three motor insurers by number of vehicles insured:
1 IAG Group
2 Suncorp Group
3 QBE
Insurance approved collision repair networks in operation: Yes
Insurance owned collision centres in operation: Yes
Vehicle manufacturer approved collision networks in operation: Yes
Accident management companies active within market: Yes
Accident management company approved collision repair networks in operation: No
Total number of bodyshops: No accurate data available, suppliers estimate at around 3,000
Types:
Independents: Yes
Dealer: Yes
Networks: Yes
Group/multi-site operators (MSO): Yes
Franchise operators: Yes
Largest operators by number of sites:
1. AMA group
2. Capital SMART
3. Sheen Panel Service
Mobile SMART repairers in operation (e.g. paintless dent removal specialists): Yes
Number of mobile SMART repair operators: Unkown
Other vehicle damage repair facilities/models in operation (eg please list along with brief explanation/numbers): Hail damage centres set up as needed.
Average cost of repair: Approx $2,800 AUD (will vary from state by state)
Average cycle time of repair (key-to-key): 7 days
Average labour rate: Because of sytem called funny time funny money average will be around $35 but shops need to recoup between $82-$120.
Accident repair market value: $7.1billionAUD