Crash repairs fall behind rise in car numbers

The UK car population increased by 18% between 1998 and 2008, but the number of collision repairs to cars rose only 1%, thanks to a 10% decrease in the average distance travelled per car over the same period. That in turn has been caused in part by growth in the number of cars owned per household. As a result of this static market and ongoing margin pressure the UK analyst Trend Tracker forecasts a decline of over one-fifth in the number of bodyshops over the next five years, leading to seasonal shortfalls in repair capacity as soon as 2010.

These are just some of the many facts and figures reported by the latest, 2008 edition of the biennial mfbi study The UK Car Body Repair Market just published by the independent research firm Trend Tracker Limited.

Why the number of repairs has fallen away in relation to the distance travelled by cars is partly due to what many will see as an astonishing rise in insurance write-offs. Annual total losses declared by insurance companies increased by 86% between 1998 and this year, to a total of to 0.79 million, representing 17% of all motor insurance accident damage claims. If claims for theft, glass and personal injury are deducted, write-offs account for virtually a quarter (24%) of claims.

The £6.8bn estimated current value of the UK body repair market is only 4% higher after inflation than in 1998, and the number of accident repairs this year – to 5.78m vehicles – is set to remain below the peak of 5.83m in 1999.

Current average repair costs of £1,175 (including fleet and private cars, excess payments and VAT, but excluding claims for motor theft, glass and personal injury) are in real terms only 3% higher than a decade ago, after cuts in replacement parts prices brought prices down in 2004 and 2005.

The effect of these less than inflationary trends on the bodyshop sector forms a major part of this latest Trend Tracker report. It estimates that there are now 4,010 businesses in operation whose primary work is car body repair, which represents a decline in numbers of 36% since 1998. Bodyshops operated by franchised dealers as opposed to independents have declined faster, by 60%, from 2,200 outlets to just 870 now, with many dealers switching resources to the more profitable business of mechanical repair and servicing.

The shrinking of authorised repair networks by insurance companies is one reason for the decline of bodyshop numbers. Surplus repair capacity enabled insurers to put more work through smaller numbers of larger groups. Another is consumers’ preference to have smaller, lower-value repairs carried out without paying insurance excesses and risking no-claims bonuses. These repairs are increasingly carried out by SMART (Small to Medium Area Repair Techniques) repairers rather than by conventional bodyshops, few of which have invested in SMART techniques. This has effectively reduced the volume of the repair market for bodyshops.

This decline in numbers has not led to steady growth in the numbers of large bodyshop groups, as happened over the last decade in the franchised dealer sector, though the top 20 bodyshop groups now operate 196 outlets between them, compared with an estimate of only 40 in 1999. The vast majority of independent bodyshops in the UK are still relatively small, single-site businesses employing fewer than ten staff and repairing up to 20 cars per week – and many of them are at risk of being unable to fund the investment needed to repair vehicles featuring advanced structural materials and electronic equipment.

In stark contrast, the largest bodyshop group, Nationwide Crash Repair Centres, operates 70 outlets, and had sales turnover last of £151.9 million with a healthy net operating margin of 4.3%, comfortably beating most franchised dealers’ returns.

The mfbi reports forecasts average repair costs will rise by 17% at 2008 prices, from £1,175 in 2008 to £1,370 over the next five years. That 17% increase in average repair costs combined with a 2% increase in volume repair demand will result in a 19% increase in market value at constant 2008 prices, to £8.09 billion. Within that figure, the proportion of repair costs accounted for by labour and replacement parts will rise as vehicle complexity continues to increase, with premium marques increasingly requiring specialist repair skills and more expensive parts.

The recent introduction of the EU Paint and Products Directive (PPD) and the development of the PAS 125 repair standard will continue to work through the supply structure of the car body repair market as bodyshops, and in particular smaller bodyshops, face the greater investment burden that compliance will require. Consequently, Trend Tracker expects that the number of primary bodyshops operating in the UK car body repair market will decline by 21% between 2008 and 2013, from 4,010 outlets to 3,160. Small bodyshops will experience the sharpest decline, by 37% from 1,930 outlets in 2008 to 1,210 by 2013.

The declining number of repairers, combined with a projected 2% growth in repair demand will have a significant impact on total UK repair capacity. Even taking into account the approximately 0.5m annual repairs capacity provided by SMART repairers, the market will move into absolute repair capacity deficit by 2010. But Trend Tracker analyst Robert Macnab believes this deficit may not result in enhanced labour rates for bodyshops. Most are members of at least one and usually several insurer-authorised networks, and committed to contracted levels of service and labour rates.

Capacity generally only becomes a severe problem for insurers when they are unable to have their non-fault accident claims repaired promptly; otherwise, they can overcome delays by providing non-fault customers with courtesy cars, the costs of which are claimed against the at-fault party’s insurer. Moreover, repair capacity shortfalls tend to occur only during the winter peak demand period, when insurers may find an increase in variable claims costs preferable to a fixed cost increase from higher labour rates applying through the year.