Paint & Panel was asked to submit an overview of the Australian repair industry for the 2014 IBIS Global Focus. This is distributed to conference delegates who are made up from global industry players from major suppliers and isurance groups as well as bodyshops. It's a daunting task to sum up such a complex industry in a couple of pages. Here's our submission.
Over the coming months we will be publishing some of the submissions from IBIS' other media partners across the world.
Market overview
It’s been a year of rapid change in the Australian repair landscape. Consolidation is on steroids. The main driving factor has been the constriction of the two main insurance companies’ repairer networks. Suncorp and IAG currently insure around 70 percent of Australian motorists between the myriad brands that they market through. IAG is poised to buy the Wesfarmers underwriting business including the Lumleys brand and Coles insurance - a relatively new supermarket insurance brand which has been making steady progress since its launch in 2010. The move, which has recently been approved by the Australian Competition and Consumer Commission, will increase IAG’s share of the motor insurance market from 34 per cent to 38 per cent, overtaking Suncorp as the largest player.
IAG took the path of asking repairers to pitch to them for contracts – its request for proposal began in 2012 on a state-by-state basis. This resulted in some repairers building high volume rapid repair facilities to exclusively service IAG customers. Suncorp had already established its rapid repair facilities through its joint venture company Capital SMART which has 24 sites in Australia, and this network appears to have reached maturity with Suncorp saying that it is unlikely to grow further in Australia. It also has rapid repair agreements in place with independent repairers.
IAG’s process led to a dramatic constriction of its approved repairer network. For example in Western Australia, the network shrank from 90 to 19 repairers. The new contracts are for five years and often include a guaranteed volume of cars in return for an average cost of repair. The shops Paint & Panel has talked to who have gained these agreements seem content with the arrangement, despite scepticism from those outside these agreements who predicted the shops would not be able to operate profitably.
Suncorp’s new repairer network went into bat from April 2014 and is reduced by approximately one third. The Suncorp repairers are on a three year agreement but still have to compete on a two quote system, although Suncorp’s required repairer standards should make for a more even playing field as each repairer should be competing against other Suncorp repairers who are similarly equipped.
Suncorp has created its own repairer standard that encompasses requirements for minimum equipment levels, training and health and safety standards and the use of waterborne paint, which is not mandated by legislation in Australia. These standards and the new network from IAG have helped to create a ‘mini boom’ for equipment suppliers and training organisations who reported record sales last year.
Other insurers such as RACQ in Queensland are adopting the same kind of process and inviting tenders for a new and reduced repairer network.
Suncorp has also begun a relationship with the Thatcham in the UK, distributing Escribe repair methods in Australia and investing in Thatcham researching methods for specific Aussie car models.
Repair method availability from manufacturers varies enormously. Some of the luxury brand manufacturers are said to guard this information jealously and only to share it with dealerships and factory approved repairers. Other manufacturers such as Holden go out of their way to share information and recently launched a website for repairers and ran a national roadshow to share repair methods for the new Commodore.
The Australian Automotive Aftermarket Association (AAAA) has been spearheading a campaign demanding data sharing which resulted in a report from the Commonwealth Consumer Affairs Advisory Council (CCAAC). The CCAAC called for an industry code of practice to facilitate data sharing between car makers and independent automotive repairers to allow the independent workshops access to the data they need to effectively diagnose faults and service modern vehicles.
Industry-led grading system
The Australian Motor Body Repair Association has just launched a nationwide shop grading system (in April 2014), beginning in the Northern Territory for Motor Trade Association members. This is a three tier system where shops will be assessed on equipment, skills, training and environmental compliance for their suitability to undergo different levels of repairs. Category 1 is for light repairs, category 2 for heavier accident damage excluding the repair or replacement of aluminium chassis or welded, bonding or riveted panels or structural repairs including carbon fibre and category 3 which can undertake all repairs.
Shop closures
Many Australian repairers have lacked the skills to market their business effectively to the insurance companies. Many repair shop owners are tradesmen who have come to own their shop and still ‘work in the business instead of on the business.’ The change in market conditions has been widely predicated in recent years and those businesses which have not adapted, and invested in the technology and training necessary to repair cars to manufacturers’ specification, are finding their business to be unsustainable in the current market. As such a large number of shop closures are predicted in the next couple of years. In the two most populous states New South Wales (NSW) and Victoria this has been predicted for some time, as there are an oversupply of repair shops for the available work. Because of this many shops have been undercutting each other in a desperate bid to get work through their doors and this has been driving down the cost of repair to unsustainable levels given the necessary investment to correctly repair today’s vehicles.
The new insurance repairer networks are creating a ‘haves’ and ‘have nots’ division where the insurer approved shops have as much work as they can handle while shops outside of the network who have not specialised e.g. by becoming manufacturer approved, prestige repairers, 4x4 specialists etc. are struggling to keep going.
The cessation of motor vehicle manufacturing in Australia by 2016, announced by Ford, Holden and Toyota, is going to have a profound affect on the whole automotive supply chain. There are a vast number of potential ramifications including the make up of the current vehicle parc as the former manufacturing brands will lose the tax advantage given to homegrown models.
According to the latest Environmental-Scan by Auto Skills Australia, (ASA) - the body responsible for the development and maintenance of nationally accredited automotive training qualifications in Australia - the industry will no longer have a manufacturing hub, but will instead predominantly comprise sales of imported vehicles and parts plus servicing and repairs.
The path of industry consolidation is cutting a swathe through automotive small businesses, which comprise approximately 94% of the automotive industry. They are facing severe pressures and are closing in increased numbers, particularly sole proprietor and partnership businesses.
Within this cohort vehicle body repair businesses are closing in the greatest numbers, accounting for one-third of all closures , say ASA.
The report goes on to note that commensurate with these closures will be a loss of skills and critical mass within the industry.
These closures are expected to escalate significantly over the coming years. Accident rates are reducing thanks to avoidance technology and improved road conditions.
Many small workshops do not have the capital or time for the necessary investment and so are faced with selling their business, hiring out their premises or closure.
ASA says: “those enterprises seeking to remain in the industry will need to have innovation at the core of their business models, along with modern workshop facilities, ongoing investment in staff training and capital equipment, and a keen customer focus and service outlook.
“Furthermore, to survive and prosper, such businesses will need to be regular employers of apprentices and offer career progression as well as financial and other incentives in order to attract and retain staff.
“The fact that the average age of registered motor vehicles on Australia’s roads is 10 years has enabled many businesses to continue to trade in ‘older’ technology vehicle repairs and servicing, thus avoiding decisions on their future.”
Leaner operations mean that skills shortages are not reported to be as severe as in previous years. ASA calculates a skills shortage of 4294 panel beaters and 2663 spray painters.
Worryingly for the future of the industry, many shop owners have been less willing to take on apprentices.
MSOs on the rise
Multi site operators (MSOs) are in the ascendant. None more spectacularly than the Gemini group, owned by the UK’s Hopkins brothers. The group has been on a grand scale acquisition spree, especially in Western Australia, tt now owns 32 shops nationallly. There are other multi-site operators although traditionally these have not been interstate operations, that is also changing. The new breed of MSO operators not only see the benefits of streamlined operating costs and procedures but also that larger organisation can offer a career path that is more enticing to the next generation of repairers than the more limited opportunities in the traditional workshop.
Fact & figures
Population of Australia: 23.458,527 million (source Australian Bureau of Statistics ABS)
GDP: $1.532trillion (US dollars) (source World Bank)
Number of passenger vehicles 13million Source Australian Bureau of Statistics ABS
Number of motor vehicles including motorcycles registered for 2013 census 17.2million
Average age of vehicle fleet is 10 years (AAA)
No of motor insurance brands: around 50 (source Insurance Council of Australia)
Number of drivers: 14.1 million (source Roy Morgan Research)
Number of accidents 3 million (source Roy Morgan Research)
Number of vehicle brands on sale 67
Number of bodyshops: Vigorously debated, average of estimates circa 3800 nationally