This issue of FenderBender has a truly international flavor, which is fortuitous as it deals with many points I have been discussing over the last couple of years. Strangely, history has a habit of repeating itself. I see markets and countries around the world dealing with collision repair at different places in time, going through similar challenges, but all at different phases.
More than ever, we are repairing the same (or very similar) vehicles. As manufacturers build more “global” vehicles, the techniques to return them safely back to their pre-damaged condition technically should be the same. It’s everything that surrounds the vehicle repair that is the fascinating bit—and the part that will define how an industry, its insurers and its customers behave. This, in turn, has an impact on how cars are repaired, and the profitability of collision shops.
The starkest differences I see in other markets are the divergent priorities that have evolved. Specific mandates, service level agreements from insurers and the way in which shops are remunerated have significant impacts.
To predict what’s going to happen in our market here in North America, we need to look at countries that are the most progressive. If we want to see trends before they occur, or what are likely challenges coming down the pike, surely we can learn from other countries. So where is the best place to look inside the crystal ball?
Take the U.K. It’s an island with the same population (64 million) as the combined populations of California (38 million) and Texas (26 million), but only has 3,500 primary shops chasing all of that work. That compares to a total of about 18,000 shops in 1990. Due to a variety of circumstances, the number of repairs is dropping by about 15 percent per year. The questions are, “Why?,” and also, “Why has the U.S. not seen the same reductions?”
The answers lie within a few numbers. Gasoline costs about $9 a gallon in the U.K., significantly impacting driver behavior. Approximately 80 percent of vehicles are diesel, helping some achieve 80 MPG. People make fewer trips and buy smaller cars across the pond, especially with a sales tax around 20 percent. Over here, motoring is very expensive, meaning less driving and smaller cars.
The knock-on effect is a greater percentage of write-offs (some districts are at more than 30 percent of claims), less hours available per repair (now at an average of 13) and, of course, a reduction in claims frequency in a static population.
Will the U.S. follow this trend? Its population is still growing, albeit slightly, so the number of claims will not be as low. It has many of the other issues associated with the U.K. model, but it’s also a much larger market, so these impacts will not occur as quickly. Fuel prices will rise, Americans will buy smaller cars, and there will be more write-offs. This will result in fewer shops chasing fewer claims.
U.K. shops also face a high cost burden because of the over-capacity of shops versus the supply of damaged vehicles. Insurers have taken advantage of this competitive market. Most shops supply complimentary loaner cars that are owned by the shops, not rental companies or paid by insurance.
Some run two or three flat-bed trucks to carry damaged cars from a customer’s workplace or home to swap out the loaner car at the same time—again, for free—so customers may never even visit the shop! Vehicles are self-authorized by the shop, and steering by some insurers is now at about 90 percent. Typically, we see a ratio of front-end to productive technicians at about 2:1—again, a very high cost to the business.
In the U.S., insurers cannot steer work like they can in the U.K., but this trend will change as commercial pressure increases and legislation shifts. Customers can take their car to a preferred shop, but insurers may add a $400 “administrative” charge if you do.
As paint becomes more of a commodity, and paint companies seek new ways to sell their products beyond technical prowess or service levels, prices will be driven down with some discounts in the U.K. approaching 80 percent (of a price that increases about 9 percent every year).
Paint company deals with insurers in effect mandate the use of paint with an insurance contract, so if you work for the U.K.’s biggest insurer, you will be installing a certain brand of paint in your mixing room and using it on every one of their vehicles. Work with four insurers? You will need a larger mixing room to store the four mixing machines. Just think about the cost of training, inventory and increased possibility of mistakes!
Will all of this come to North America? Probably not, but I certainly see trends showing, behaviors changing and the market becoming more competitive and challenging, with shops becoming more costly to run. My crystal ball is already here, but it’s a little murky.
Jon Parker is managing director of the Byteback Group, a U.K.-based information technology and services company aimed at advancing the collision repair industry. Parker can be reached at [email protected].
