AMA Group said it will close its Gemini business in Prestons, New South Wales at the end of June, after commercial negotiations failed to achieve a “fair price that reflects the value of work delivered at that site”.
According to AMA, the site has operated on a ‘predictive cost model’ contract with a fixed price, but the average actual costs of repairs regularly exceed twice that amount.
“It is not in our shareholders’ or the wider industry’s interest for AMA Group to continue work under unprofitable arrangements,” said Carl Bizon, Chief Executive Officer of AMA Group. “This site has been loss making for a while, and the exit will bring an annualised benefit of somewhere around $1 million EBITDA.
“This is not a situation where an individual repairer’s cost competitiveness comes into question. The fundamental cost of the repair, prior to any overheads, as assessed by an independent, globally recognised, sophisticated cost assessment programme, used by both insurers and repairers, exceeds the price paid for the repair.”
Mathew Cooper, Chief Operating Officer, said the contract in place at Gemini Prestons didn’t reflect the work being completed. “With a nationwide labour shortage and a vast network of sites across Australia, we can redeploy all team members to adjacent sites,” Cooper said. “This will allow us to operate those sites at greater efficiency, while removing a significantly loss-making site from our network.”
According to AMA, to achieve fair compensation for the value of work delivered by its collision repair network across Australia and New Zealand, the Group is systematically addressing commercial agreements with insurer clients and focusing on sites that have consistently underperformed financially.
AMA said it has already renegotiated some contracts within its portfolio to better reflect current underlying economics and will continue to do so in a collaborative manner with its insurer partners. Those revised commercial arrangements are designed to take into account labour cost inflation, vehicle OEM manufacturer parts price, and anticipated paint cost pressures as a result of global supply chain challenges.
“As such, a focus on the underlying commercial agreements under which the Group operates is a priority to achieve a reasonable commercial outcome for the company,” AMA said. “The industry has historically been under pressure to absorb cost increases as an offset to perceived productivity initiatives, but the magnitude of these increases can no longer be absorbed into underlying profitability.”
Bizon added: “While it may take some time, and we need to assess contracts across our network holistically, we understand that as the largest collision repair network across Australia and New Zealand, buying collision repair volume at uncommercial arrangements both damages the value of the Group, and damages the industry. We will continue this process so that the Group will ultimately receive fair compensation for the work we do.
“While of course we compete with other MSOs and independent operators, this issue is bigger than that. The ‘purchase’ of repair volumes at any cost damages all operators. Given the size of the AMA Group, we are in a position to say “no” and place our valued productive labour capacity elsewhere, without putting any of our team out of a job,” Bizon said.