Paint & Panel is the media partner for IBIS Worldwide and each year produces a report on the Australian market for the IBIS Global Focus at the start of the year – read all around the world. This was first published in the July/August 2018 magazine.
The repair landscape in Australia is shifting at an unprecedented pace. Insurers are very much in charge of the market and are continually finessing their approved repairer network, many favoring fixed price repairs. The efficiencies and buying power of the larger repair entities make it extremely difficult for smaller businesses to even come close.
The increasing complexity of vehicles is both an opportunity and a challenge for repairers. Those who don’t invest in training are unlikely to be sent cars by insurers.
Car sales are robust and while new cars are safer, there will be more cars on the road and an increase in younger less experienced drivers is predicted, which means that there is unlikely to be a sharp decline in accidents.
What trends are evident?
The most significant factor in the last 12 months has been the stellar growth of the AMA Group. When the two largest consolidators merged back in 2015 they had 70 shops between them and a turnover of around AUD$200 million. In the last two years the group has doubled – with 120 sites through both acquisition and new build and now a turnover of around AUD$450 million. The next largest entity is Capital S.M.A.R.T which is owned by one of the two largest insurers in Australia, Suncorp with around 50 sites nationally. Between these two major consolidators it is thought that they repair approximately one third of all crash damaged cars in Australia. Both groups are also courting manufacturer approval, particularly for rapid repairs.
The two groups have had a profound effect on the market both in terms of adopting a rapid repair mindset and methodology and the realisation that insurers like to deal with MSOs. Accordingly there has been an increase in smaller scale MSOs of two to five sites. Having said that AMA has bought two of these in the last six months.
While the buyout deal with US capital venture company Blackstone, owner of Service King, fell through it is likely that AMA will find a way for a demerger of the crash repair business which Gemini founder Andy Hopkins would run, while the rest of the business would be privatised leaving the other major AMA partner Ray Malone in charge of a procurement business which would supply the repair chain. Meanwhile there is credible intelligence that a smaller venture captital company is in the process of setting up a rival repair network which could be launched towards the end of this year.
In response to this the buying and networking group Car Craft has seen a steady rise in membership. Car Craft is a group of just over 100 repairer businesses which is well established in Western Australia, Queensland , the Australian Capital Territory and South Australia. It is also setting up in Sydney and Melbourne. The group of independent repairers is taking part in the AMBRA shop grading scheme, has a strong emphasis on training and is working hard to become a significant player in the marketplace and offer an attractive alternative to consolidators for insurers.
The rise of larger groups could lead to smaller entities turning more towards third party and rectification work. There is a trend for consumers to raise their excesses to lower their insurance premiums and there is opportunity for some smaller shops to target these below excess repairs.
Another impact of fixed price repairs and larger operations leveraging economies of scale to repair cars more economically is increasing competition among repairers, which is to the advantage of the insurance companies. Bodyshops are having to find ways of being more efficient in order to make profit and this is particularly hard on smaller enterprises.
The franchise Fix Auto set up in Australia two years ago and has 14 franchisees in three states.
The first ‘repair pods’ have recently been launched in Australia for fast repairs. Hail repairs are another growing sector as large scale hail and weather-related events have become more common.
How are insurers influencing the repair sector and what impact does this have?
The insurers have been favouring the approved network approach and sending as much work to their network repairers as possible. One of the two largest insurers IAG caused consternation in the industry in September when it made choice of repairer an option that consumers had to pay extra for. Previously, consumers had a choice of repairer, now they must choose an ‘any repairer’ option if they want to use a non-approved bodyshop. This could cost at least $80 more to select this option and consumers are unlikely to tick a box to spend more on a policy. If consumers do choose a repairer outside the approved networks there are a number of caveats such as cash settling for the repair and: ‘You can’t claim under our lifetime guarantee if you arrange repairs after we cash settle your claim – that is, we do not authorise repairs.”
IAG has also being trialling a genuine parts scheme which the Australian Motor Body Repaiers Association has many concerns with the scheme especially how it will impact repairers’ parts margins.
Suncorp directs as much work as possible through its repair chain Capital S.M.A.R.T. The chain initially repaired driveable cars whose accident damage was in a rigid scope. It has now branched out with S.M.A.R.T Plus which deals in light structural repairs that are out of scope of the rapid shops. Captial S.M.A.R.Ts repair around 40% of Suncorp’s vehicle claims.
Another significant directive from IAG is that all of their approved repairers must become I-CAR Gold. I-CAR is a training organisation aimed at upskilling technicians and other bodyshop staff. Attaining I-CAR Gold involves a commitment to ongoing training for a number of staff within the business and can take up to two years to achieve.
Another trend is that when insurers have a good working relationship with repairers they encourage them to open more shops to undertake more repairs for the network. This will support a rise in MSOs even if it is on a small scale of two to five sites.
In what way are VMs increasing their involvement/influence in the sector?
Vehicle manufacturers are becoming increasingly involved in the repair sector as their vehicles become more complex they feel a need to protect their brand and ensure their vehicles are restored to pre-accident condition. The majority of the major vehicle manufactures have approved repairer networks with Holden shortly to launch theirs
There are a number of manufacturer customer assistance systems coming online in the next 12-24 months which could have a significant impact on the repair industry. In the event of a crash, sensors will calculate the damage and could call a tow truck if necessary and tow the car to a manufacturer approved repairer. Being able to direct repairs within the approved network is likely to impact the non-approved repairer who might otherwise have received these cars for assessment.
What ‘standards’ are currently in operation within the sector?
AMBRA shop grading has been slow to roll out but its adoption by the Car Craft group will boost the scheme. The system inspects bodyshops and grades them for the type of repairs they are equipped to carry out based on equipment levels and training. Holden is basing its selection criteria on AMBRA shop grading which will also boost uptake.
I-CAR has filled what was almost a total void in post apprenticeship training for independents and also delivers some manufacturer training too. Several of the major insurance companies have also upskilled their assessors to become I-CAR Gold insurers. Accordingly I-CAR Gold has become an industry standard. Currently there are only around 10 independents that hold Gold status but there as many as 50 who have nearly completed the training and the IAG directive that all of its network is Gold will boost the scheme further.
What impact/influence is new vehicle technology having on the sector?
In terms of diagnostics and sensor resetting most bodyshops are happy to take cars to the dealership. There has been an increase in shops investing in diagnostic training and equipment but on the whole most shops use contracters for non-panel and paint requirement in a repair such as mechanical, wheel alignment and auto electrical.
What influence is repair technology having within your market?
There is great concern from trainers and manufacturers about the welding skills in the market place. I-Car offers a welding recertification course and the number of technicians completing it is low. Older panel technicians who haven’t undertaken any training since their apprenticeship are unlikely to have the knowledge to correctly weld different steels and materials used in body construction.
At the luxury end of the market where manufacturers provide training, investment in equipment is on the increase. Mixed material body contruction demands specialised dust and fume extraction and dedicated areas to undertake these repairs.
Current status of skills market
Apprenticeship numbers are still dismal as is the drop out rate. However, there are many organsations that are undertaking programs to promote the industry to schools and to run accelerated apprentice schemes or ensure that apprentices are mentored and supported through their training. In 2017, the 457 visa system was scrapped and another put in its place making it both harder for the bodyshop industry to bring workers over and less attractive for those workers. Spray painters were taken off skilled migrant list, campaigns are underway to have them reinstated.
Likely trends to impact the sector in the next three to five years?
Consolidation is far from mature in Australia. With the majority of shop owners circling retirement age, selling to the AMA Group instead of competing with them is an attractive option both as an exit strategy and a way of looking after their staff.
The continuing need for investment in training and new equipment and the stiff price competition in the market will see the demise of more small, one site bodyshops. In the meantime, those with good relationships with insurers are likely to open more sites encouraged by up front five year contracts.
The insurers are likely to continue to direct the industry while repairers compete against each other for approved status and keep offering cheaper repairs.