Cost, Capacity, Consolidation - Chris Weeks

After seven blog posts outlining the perfect storm, it’d be all too easy to batten down the hatches and just think this is all too big, too problematic, too much to think about, let alone solve.

All of the people we’ve spoken to have gone into detail on the individual issues stacking up around our industry - Steve Plunkett on the skills shortage, Mark Ormerod on the challenges posed by the switch to electric, and of course Joe March on the historic reluctance to go green.

There’s a lot to think about, and what would be great is if someone could summarise the problems we’re facing in a few words.

Chris Weeks, director at RMI, can do it in three. Cost. Capacity. Consolidation.

That’s who Kirsty’s speaking to this week.

 

Costs are rising

Chris has taken a look at the latest NBRA Repairer Market Summary, and believes it’s clear that three factors are having a bigger impact than any others. Cost, capacity and consolidation. The first of these, cost, is immediate to every repairer up and down the country, and everyone that works with them.

“It’s the cost of doing business. Raw materials for vehicle components - nickel, lithium, platinum - they all come from Russia and Ukraine. Two countries we can’t currently do business with, which means fewer and more expensive parts. Add on logistics problems in China, and you can see how the supply chain is becoming costlier than ever.”

But do rising costs present an insurmountable obstacle?

“None of this is particularly new. Costs have always risen. Bodyshops have always had inflation. The current problem is all about the rate of change.”

“Most other industries can move swiftly to counteract the impact of inflation, for example, when raw materials cost goes up, so does the price of paint and materials. When the wholesale price of fuel goes up, so does the cost to the motorist.  Unfortunately, most bodyshops are tied into heavily discounted contracts with insurers and whilst the rates do move they are very slow to happen and typically don’t cover the full impact of inflation.  This means that we’re seeing a situation where more and more bodyshops are left on the back foot with depleted cash reserves.”

“NBRA has lobbied insurers for years to work with us to build an index linked mechanism that forecasts change allowing for underwriting pricing and records the reality allowing for whole market movements whilst insurers retain their individual aspects of competitive market advantage.  Now more than ever is the time to revitalise these conversations.”

 

Capacity is shrinking

If all repairers had to worry about was rising costs, they could just raise prices a little and bring in more work to cover the extra expenses. But what we’re also seeing is that there’s more repair work to do and fewer people to do it.

“The rising cost of parts means that the value of used cars is rising - by up to 35%. That means it’s more viable than ever to repair a damaged vehicle. In 2020, a bodyshop would expect to repair 75% of the vehicles that they see. That’s now 85%.”

“So there’s a rise in demand, which is good, and would offset the rise in costs. But repairers aren’t able to do the work. Wages are up, which means you can’t bring on new staff to handle the extra work. Hourly rates have escalated by between 12.5% and 20% depending on the specialism in question, and every day repairers have conversations with technicians leaving for seemingly greener pastures.”

This lack of capacity has seen the average lead time for a repair multiply from up to 15 days to around about 45, according to the NBRA report. But what can repairers do about it? We’ve already heard people talk about the importance of training, but Chris can see another option:

“The NBRA is urging our whole sector to support a petition to add technician roles to the UK Government Shortage Occupations List. That makes it easier for overseas workers to get a visa, and it will go some way to combat the skills shortage. It’s already in place for care staff, doctors and electrical engineers. Adding vehicle specialists to the list can only make life easier.”

 

Co-operation

Costs and capacity are two issues we’ve heard plenty about in recent weeks, but Chris is the first person to flag up the potential problem caused by consolidation in our industry.

“What the report also shows is that there’s more private equity in the industry than ever before. That has a knock-on effect for independents, who can’t compete on costs with a large, growing repair group funded by private equity.”

Where previously we had a large, diverse network of independent repairers up and down the country - much like the network Cogent Hire has so carefully built up with our trusted repair partners, we could see a more consolidated marketplace. One with less choice for drivers and for insurers. And when that happens, the friction we’ve been trying to eliminate can creep back into play.

“We have to recognise that there are many different business models in play now, some with competing objectives.  But one thing is for sure, cars will need repairing for some time to come and there is only so much capacity to do this.  We need to move away from the outdated situation where repair fulfillment was left to procurement professionals with one sole aim which was to reduce the commodity cost of repair.” 

“There is far too much at stake now to be so naïve as to think that repair cost is the sole differentiator.  Our focus needs to rapidly swing from cost to industry sustainability if we are to avoid a huge problem this winter.  Observers may argue that it’s simply Darwinian evolution – some will fail and others will thrive, that may be true, but in the process we will inevitably lose skills from the industry that will take decades to replace and consumers will face increased disruption.”

“NBRA has called for an urgent summit to at least understand the state of the industry and to assess the issues and risks.  Many organisations believe they have insulated themselves from risks through their strategies but NBRA believes this is firmly not the case.”

You can read Chris’ full thoughts on the NBRA report here. But he’s clear. Cars will all need repairing. The industry will always be needed. And the moves required to get us all through the winter will happen if we all stick together, if we all collaborate, and if we pull in the same direction.

We’ll let you know the outcome of the summit when it happens, but with people like Chris involved, we’re sure it’ll help to break the perfect storm down into more manageable, smaller waves.