At the recent IBIS conference in Switzerland Xiaolong Peng from Longco and consultant Karen Fierst gave a fascinating presentation on the Chinese repair market. The size of the market is mind boggling and there were a few Australian repairer delagates remarking that expanding into China would definitely be an opportunity worth looking into.
Below is the China section from the 2013 IBIS Global report
China’s private passenger vehicle parc is approximately 10 years old. It has been growing rapidly during that time. As of July 2012, there are approximately 115 million passenger car and light farm vehicles on the roads.
Some of the growth was likely driven by the 2009- 2011 government incentives such as favourable tax breaks and rebates on the purchase of domestic Chinese brand vehicles and scrappage. These incentives were developed as a way to minimise the impact of the global economic crisis on China’s automotive manufacturing sector.
Collision repair shops
While it is possible to find a mechanical repair shop which does not also provide collision repair, in China today it is virtually unheard of to find a standalone collision repair shop. According to the China Automotive Maintenance and Repair Trade Association (CAMRTA) in 2011 an estimated 421,110 motor repair shops (including motorcycles) employed 2.65 million employees. Nearly half of these repair shops (approximately 200,000) do both collision and mechanical repair – this includes the approximately 15,000 4S dealer collision repair shops. 4S stands for sales, service, spare parts and survey.
The government classifies auto repair shops into three levels:
Class 1 Authorised by government to do whole vehicle overhaul including collision repair. Most domestic brand OEM authorised shops (including some 4S shops) are in this category. The majority have an internal insurance surveyor, some with up to RMB10,000 (approximately $1,660) decision authority.
Class 2 Authorised by government to do whole vehicle overhaul, including collision repair. Most 4S shops are in this category. The majority have an internal insurance surveyor, some with up to RMB10,000 (approximately US $1,600) decision authority. Some special work can be subcontracted to third party specialists.
Class 3 Quick fix shops. Authorised by government only for maintenance and repair of parts (eg engines/transmissions). A quick fix shop normal investment is typically less than RMB500,000. Specialist repair shops are included in this category.
The government defined classes include a number of different types of auto repair shops:
15,000 – 4S (the first class) – inc collision
70,000 – second class (multi-brand repair) – most do collision
180,000 – third class (multi-site/chain and SMART) – unknown how many do collision
Tens of thousands of ‘street’ repair shops operating without proper equipment and training. It is unknown how many do collision.
4S dealerships
By definition all 4S dealers provide both maintenance and collision repair. The 4S dealer business model was introduced by the Japanese in the 1980s. All 4S dealers are directly affiliated with a particular foreign or domestic vehicle manufacturer. Each vehicle manufacturer has its own requirements and standards for 4S dealers. Vehicle manufacturers periodically evaluate whether the 4S dealer is in compliance.
According to the China Automotive Dealers Association (CADA), CAMRTA and the China Auto Maintenance Equipment Industry Association, in 2011 there were approximately 15,000 4S dealerships in China. This compares with just over 6,000 dealerships in the US with collision repair centres.
Today, 4S dealerships do the vast majority of collision repair work on newer cars. Like many other parts of the world, new car and high-end luxury vehicle owners prefer to have any necessary collision repair work done by a 4S dealership collision repair centre, especially when the car is within the warranty period. According to a well-known expert in the field, between 20-30% of the workload in 4S shops is from collision repairs, the remaining 70-80% is from maintenance repair work.
Non-4S shops work hard to develop good relations with insurers. As new car warranties expire, consumers slowly increase the usage of mixed brand and independent shops (non-4S), used car sales increase, and the growing trend of 4S shops to subcontract their collision repair overflow to mixed brand and independent shops all contribute to greater collision repair volume in non-4S shops. About 80% of the work done by these shops is collision repair, much of it insurance directed.
Accidents
The number of collisions increases every year as a result of the rapidly growing number of cars on the road. Among the reasons for an increase in accidents is the fact that most drivers in China get a driver’s license shortly before they buy their first car. More cars, heavier traffic, insufficient infrastructure and new drivers all contribute to the growth in the number of accidents on the road. However, accidents do not necessarily result in insurance claims.
Statistics on the website of the Ministry of Public Security show that in 2010, the total number of accidents was 3,906,164. There is a 35.9% increase in accidents on a year-to-year basis. However, statistics are opaque and smaller ‘fender benders’ are often not reported as drivers are encouraged to conduct an on the spot negotiation, rather than reporting to the insurance company. In 2011 some insurers estimated that between 70-90% of vehicles on the road were in some type of collision each year.
Based on a small, informal study of Toyota, Mazda, Honda and Porsche 4S shops carried out by Longco, small accidents represent approximately 85% of collision repair. Because of the rapidly increasing number of cars on the road, the high accident rate and caps on insurance pay outs, there is an increasing demand for fast repair for small accidents by private car owners. As such, in addition to full body repair and paint technicians, there is also a growing demand for more qualified technicians to join the fast body repair segment of the industry. Attracting and training quality technicians is a huge challenge in China.
Training
China’s training issues include:
- No consistency of equipment, curriculum, teaching methods, and education of entry level employees
- Insufficiently trained instructors
- Need for more hands on training
- Low salaries and poor safety environment
- No repair standards
- Perceptions of the industry
Providing consistency in training is a very big challenge in China. Unfortunately, there are currently no repair standards in China and no training organisation like the UK’s Thatcham. However, some steps are being taken to move towards more consistent training and repairs.
Networks
The relevant networks in China’s collision repair sector include:
- 4S branded dealerships
- 4S dealership group networks – common shareholders (various sizes)
- State holding (less than 50%)
- Joint ventures
- Non-state owned private investment groups
- Listed companies (stock issued)
- Mixed brand networks - more than one vehicle brand
- Non-state owned private investment
Employee owned
- SMART repair networks
- Car care networks
- Glass replacement network
- Insurance company repair networks
The concept of 4S Mega Dealership Groups is very strong in China. In Beijing and Shanghai there are repair networks which were created with private investment and government investment. Some of these are listed on the stock market.
Insurance company repair networks
The majority of automotive insurance policies are provided by state holding insurance companies. Currently the majority of insurance policies sold to new car buyers are sold at the 4S dealership. This relationship between insurers and 4S dealers gives the 4S dealers a lot of leverage over insurance companies who want to continue to sell policies at the new car point of purchase.
Since personal vehicle ownership has exploded in the last 10 years, especially since 2005, the insurance industry was caught unprepared and understaffed with skilled insurance adjusters. Currently, there is no standard for training estimators. Also, while individual insurance companies have developed their own, dedicated electronic estimating systems, standardised electronic estimating has not been introduced in a meaningful way in China. As a result of this situation there is an urgent need for trained estimators. Insurance companies are scrambling to develop their staff of inspectors by depending on private companies to provide training.
Since the majority of collisions are small, insurance companies rely heavily on network collision repairers to write the estimate. There is then a negotiation between the repairer and the insurance company representative, who often has very little experience in collision repair. Situations also exist where the repairer will write an estimate for a car owner, who does not plan to report the accident to the repairer. This usually ends up with the repairer and car owner negotiating an acceptable price.
What to expect in the future
- A rapidly maturing auto industry
- Increasing sales of both new and used cars
- Ageing vehicle parc
- Continued government influence/new laws
- Rapidly evolving auto insurance sector
- Changes in consumer demands
- Changes in 4S dealership influence and power
- Strengthening of non-4S segment
- Continued emphasis on infrastructure development