DO AS I SAY, NOT AS I DO
Aren’t you tired of hearing what an integral business “partner” you are in the world of vehicle manufacturing, repair and insurance – but all you get is the stick and never the carrot? How many more audit hoops plus equipment and training investments need to be made to stay a part of the “club” without any promise of work? Just how long can the proverbial golden goose survive on oxygen alone? Surely there should be some give and take – but it seems that it’s just take on all fronts right now for body shops.
In yet another drive to reduce sustainability, a new proposed directive from a large insurance company, is seeking to cap a number of parts costings that will effectively reduce repair profitability across the board once again. With unreasonable and unachievable levels of success, the insurer’s proposal will disrupt any ongoing commonality of purpose with the collision repair industry as the company is targeting repairer margins once again.
This flies in the face of OEM strategies to be able to complete today’s complex vehicle structures to pre-accident levels of safety. It is also on the back of a 4.5% increase negotiated at the end of last year by the same insurer, which is below inflation. The last time I checked, the repair industry wasn’t a Section 21 company.
This initiative will have far reaching consequences with its proposed erosion of both profitability and company sustainability in the collision repair industry.
To clarify, the proposed mark-up changes on parts are unworkable. Secondly, to escalate this market dominance principle being employed currently by some major insurance companies is a point of concern for free enterprise. This needs urgent intervention from the Department of Trade and Industry (DTI). The collision repair industry is a serious contributor to the GDP and employment and as such bodies like the DTI should intervene and collaborate on practical solutions to a more sustainable approach. They need to be made award of unreasonably high OEM parts prices which drive up repair costs and write-off vehicles quicker – unworkable for all in the long-term.
Another facet to be recognised is the company directive, that if you fail to respond in 30 days to their new envisaged protocols that you will be struck off their approved repairer list of body shops for not meeting contractional conditions. This is unacceptable.
The sheer market disconnects coming from many insurers flies firmly in the face of the reality of the modern complex vehicle parts escalation of parts pricing.
Associations have discussed this latest proposal with their members, and it has resulted in great unity across the industry. A resounding “no thanks” is the result. This will most certainly directly impact your ability to apply a fair and sustainable bottom line.
Industry data indicates that overhead costs account for at least 30% of total sales. Given that parts usage typically yields a 20% gross margin, most repairers receive a 25% markup on net cost, leaving other workshop operations to cover the shortfall. As a result, this structure can have a negative financial impact.
The fact that labour rates have been suppressed for decades is thanks to the never-ending cycle of those in charge of this sector at insurance companies being able to show that they saved the company a wad of money by not keeping up with inflation and market costs. This results in a big fat bonus for one person to enjoy, while their business “partners” continue to battle to make ends meet. This is a global trend from the insurance industry against the body shops. I’m sure any “partner” would prefer to be wined and dined before being “screwed” over once again! When will we decide as a collective that we don’t particularly enjoy this dance of courtship?
Personally, I think it’s a disgrace that anyone can walk into your business and dictate what profit you make and what you can charge! I think we should tell them that we believe their monthly premium is only worth R100 – take it or leave it. What do you think the answer would be? Exactly, so why do we tolerate the insurance industry interfering constantly in the business of vehicle repair?
The jobs you have trained to do saves lives! It’s a serious profession with life-or-death consequences, but safety is trivialised because of Rands and cents. It just shows you the absolute greed that the insurance industry suffers from.
On a positive note…
Having had several meetings with various OEMs, it makes my heart happy to report that one manufacturer is listening and implementing suggested feedback with great results. Others are listening too, while some are still draconian in their dictatorial approach, concentrating only on sales and not even concerned with the repair sector, despite generating over 35% of their profit annually.
Each part of the industry has its place, and each has the potential to be successful, but not at the expense of another. We need to adopt a servant-leader posture for all to succeed, allowing room for reason and trust to be restored.
How do you eat an elephant? One bite at a time! Let’s concentrate on the smaller wins and the rest will follow while we stand united.
By Claire Mafie
