Parts availability, the skills crunch and cost pressures; Australia is not alone in the big issues the repair industry is facing.
Wherever in the world you operate, the industry serves up many challenges. NCR columnist Barry Edney takes a look at the European situation and some of the issues Australian repair businesses will recognise and some they may not.
In my last article in May 2023, I looked at how the repairers here in the UK were managing the current challenges in the industry. This month, I have an update on the UK market and look at the key challenges being faced by the repairers in two key European markets, Germany, and France. These two markets interestingly show many of the same issues being faced by UK repairers despite the very different market structures.
Parts availability
In my last article for NCR, I covered the UK parts situation in quite some depth and reported the growing trend to use recycled parts. This is not only to reduce costs but also being driven by the urge to recycle and scrap less, along with the ongoing parts availability issues. In a recent survey by Der Zentralverband Karosserie – und Fahrzeugtechnik (ZKF) Germany’s Central Association of Car Body and Vehicle Technology, 28 per cent reported that jobs were delayed due to parts availability and 72 per cent said that rising parts prices were squeezing margins on jobs. Interestingly I reported that parts pricing was under pressure in Europe 5 years ago and this is still the case today. In most cases, the repairers complain about declining purchasing power which reflects Europe wide trend of parts discounts being squeezed as vehicle manufacturers consolidate their parts distribution.
Although there is no hard data available, my contacts in France are reporting similar issues with parts availability. This seems to be affecting the independent repair sector more than the dealership-based repairers. Independents are usually smaller repair shops than we see in the UK or Australia. Larger shops are typically part of a dealer site and repair single makes, giving them access to the manufacturers parts system where they can source from across the EU. Even so, there have been challenges obtaining parts made overseas, particularly for Asian sourced items.
The latest feedback from shops in the UK, France and Germany is that parts availability has eased recently, but it is too soon to tell if this will lead to a consistent improvement of Work in Progress and reduced cycle times.
Skills and skills training
Skills and skills training has been a challenging topic across our industry for as long as I can remember. No matter what country I visit or research, the feedback is always that there are a lack of trained technicians and a lack of new trainees coming through training pipeline.
In the UK, we are seeing a real skills crunch. Insurers are pushing repair over replace to keep costs down, but also to ensure cars are not part finished as they wait for parts to arrive. This has highlighted the shortage of fully trained and experienced technicians and caused a surge in wages as body shops compete for new workers. Of course, this just adds to the cost pressure on the business. A lecturer at one of the UK training providers complained to me recently, that there are not enough experienced technicians in the body shops to fully train the apprentices in practical repair techniques. This means that even when they complete their apprenticeship, they lack the comprehensive hands-on skill to focus on the repair instead of replacing of parts. Two large consolidators, Steer Group and Gemini have both set up their own training academies in an attempt to address this challenge.
France is facing the same challenge and competition for skilled and experienced tradesmen is driving up wages there as well, also contributing to the pressure on profitability. To address this, many repairers are approaching trade schools directly to recruit newly qualified repairers, settling for trained but not experienced workers in an attempt to remain fully staffed.
An issue that I wrote about in an earlier edition of NCR was the lack of skills available to install and calibrate the multitude of ADAS equipment found on modern vehicles. This is also seen as a key challenge for the independent repairers in France who are generally smaller and are unable to invest in the equipment needed or the skills development required.
In Germany, I hear similar reports but with a different structure to the market and an active industry association, they seem to be managing the skills development. The key challenge is attracting young people to a career in car repair in the first place.
Cost pressures
All businesses are facing increasing cost pressures, seemingly from everywhere. The most common themes are wage growth, fuelled by high inflation and the skills shortage, high interest rates, energy costs and parts costs. Wage growth and interest rates have probably been the least recoverable costs for all repairers as insurers pay the same rate to all repairers regardless of their cost base.
In Europe, we are all feeling the impact of the Ukraine war on energy costs both domestically and in businesses. For quite a few years, many EU countries were encouraging businesses to take advantage of green energy schemes and install wind turbines and solar panels to reduce dependence on the grid. Interestingly the recent ZKF survey suggested that 68 per cent of repairers have already, or are planning to, install alternative energy solutions. Of those already using alternative energy sources, 80 per cent are using solar panels. Take up in France and UK is much lower and no data is available to fully understand the trend.
I have reported before how the vehicle manufacturers have restructured their parts distribution networks across Europe, making them more streamlined and focussed on specialist distribution. The effect of this is reduced discounts and rebates which pushes up prices that cannot always be passed on to insurers.
The collapse of Nationwide in late 2020 and further car dealer closures since has made UK banks nervous of the industry and they see independent repairers as a credit risk and that makes cashflow tight, limiting flexibility.
Capacity crunch
All these pressures have really made the independent repairers rethink their options and we are now seeing decisions made that really impact capacity of the market.
We did see a few body shops close during and just after Covid, but that seems to have settled down for now, with no recent examples coming to my attention. The key reason for the squeeze in UK capacity is the requirement to repair over replace, as it just takes more labour hours and relies on experienced technicians. Many shops found during Covid, that they could repair fewer cars and remain profitable, reducing capacity when they reopened.
For most UK repairers, getting cars in the door is not a problem. Work providers push their work into around 75 per cent of body shops, trading volume for price. The remaining shops are managing to fill their shops with work from local fleets, contracts with local businesses, and vehicle remarketing work. As there is no sign of claims rates falling, the capacity problem in the UK will only get worse in the UK as the skills shortage continues to bite.
The market is structured quite differently in Germany. Car dealerships take the lead in all repairs as they are seen as the experts. In most cases they will subcontract the body repair to a local body shop and subcontract the painting to a separate paint shop. As a result, there is good access to the parts and repair data but little chance to make a margin on parts and consumables. This is leading many of these businesses to consider their future and the ZKF survey indicates that 40 per cent of shops plan to downsize or handover their business at some point. 31 per cent of all respondents indicated they would exit their business within 5 years. Only 4 per cent said they are considering selling to a consolidator which would suggest these shops will be lost to the industry.
In France, most car dealership sites include a full collision repair centre. There are quite a number of independent shops, but these are generally smaller. The split between dealer based and independent is currently estimated as 40 – 45 per cent independent – 55 – 60 per cent dealership based. With the rapid growth of electric vehicles and the reduced levels of servicing these vehicles need, there is a lot of concern that many car dealerships sites will close, taking the collision centres with them. Independents are also concerned that as ADAS technology advances, requiring more skills, more equipment and more space, it will simply make repairing cars too difficult in their smaller shops. With the added complexity of handling EVs and the growth of collision avoidance systems, they fear they will be forced out of the market.
Some bright(er) spots
It’s not only bad news. As always, I try and look for the positives and make sure to highlight them where I can.
The UK government recently pushed back the deadline for eliminating 100 per cent fossil fuelled vehicle to align with the EUs target date. They have also loosened restrictions on domestic oil and gas extraction to reduce the reliance on overseas sources, which they hope will ease price pressures. Many insurers across Europe have increased rates a little, although it’s not clear yet whether this is enough to relieve all the cost pressures repairers are facing.
There will be some more failures and some of our colleagues will decide to hang up their collision repairer’s hat. But as always, the great people in our industry are finding a way to succeed and will come out the other side.