NZ Body Repair Industry Facing “Perfect Financial Storm”

New Zealand’s Collision Repair Association (CRA) says experts have warned that the country’s billion-dollar collision repair industry is set to lose up to 15 per cent of its revenue to offshore-owned repairers within the coming year.

“Australian owned IAG insurers (AMI, State, NZI and Lumley), which collectively have over 60 per cent share of the local market, are rapidly vertically integrating throughout New Zealand, opening high-volume panel repair shops in Auckland, Wellington, Hamilton and Christchurch,” the CRA said.

“Each of the 11 new facilities, which will operate under the ‘Repairhub’ brand, are capable of processing up to 5000 jobs annually – four times the amount of work an average panel repairer can process and around 15 per cent of the industry’s total volume.”

According to the CRA, the projected loss of revenue comes at a time when the industry is facing a “perfect financial storm” of economic and environmental factors, including the pandemic, skills shortages, and inflation, which will adversely affect its long-term viability.

The association said new industry figures show demand for parts and repairs are down 31 per cent on pre-COVID-19 levels as significantly fewer New Zealanders travel in vehicles. Rising petrol prices have also contributed to a drop in traffic volume of up to 20 per cent in major city centres.

“The reduction in vehicle collisions on New Zealand roads has boosted profitability within the motor vehicle insurance sector to a six-year-high,” the CRA said.

“In contrast, new panel repair industry research shows that cost pressures on repairers are growing rapidly – wages in the industry have increased by over 10 per cent over the past year with other inputs including paint, consumables and services also up by as much as 15 per cent over the same period.”

To make matters worse, Neil Pritchard, General Manager of the CRA, said insurers can now selectively channel more profitable cosmetic repair work directly into their own repair network.

According to Pritchard, prior to 2019, almost all 500 collision repair shops in New Zealand were locally owned and the additional competition posed by the ‘new insurer model’ could not have come at a worse time for the industry.

“Since its inception, the local collision repair industry has been made up of hundreds of New Zealand owned panel repair shops,” Pritchard said. “With prices dictated by insurers, the industry does not operate under the same competitive forces that most other service providers do.

“The absence of these forces creates a high level of vulnerability to external cost changes for businesses and when this is coupled with the introduction of an insurer network which can artificially capture high volumes of work from the most lucrative jobs, it places our ability to develop infrastructure for more complex structural repairs in jeopardy.”

Pritchard said the economic environment threatens the long-term viability of the industry and could result in a reduction of services to consumers.

“Reduced consumer access to repair facilities that are capable of carrying out structural repairs could see more cars being written off unnecessarily, and higher insurance costs for motorists,” he said.

According to Pritchard, the industry needs more oversight to protect the interests of consumers.

“Most consumers would be unaware that the repair facility being advocated by their insurer is also owned by the insurer and the profits flow offshore rather than being retained by local businesses,” Pritchard said.

“Our concern is that with the insurance industry now effectively self-monitoring the quality of their own work, and the resulting loss of transparency in the relationship with their repairer, there is little in the way of consumer protection.”

Dean MacGregor, Executive General Manager Adjacencies and Supply Chain, IAG NZ, said the company continues to have a “very strong relationship” with the industry and industry bodies.

“IAG has been open and transparent about our Repairhub facilities,” MacGregor said. “This includes confirming that our approved repairer network will remain a critical part of our national operation. We have strong quality control standards and quality is checked at every stage of the repair. We know that Repairhub quality is as good as you can find in the market, given we have the latest equipment, high quality parts and paint, excellent training, and processes.

“The customer is our first priority – the customer can choose which repairer they go to, whether that’s a member of our approved repairer network, Repairhub or another repairer of their choice.

“IAG takes its responsibilities seriously as an industry leader. We are using the insights we gather at Repairhub to continuously improve the service as we move forward.

“Our goal is for Repairhub to operate alongside repairers. Together, we can continue to deliver a great customer experience.”

IAG NZ said Repairhub focuses on one section of the overall repair business – non-structural rapid motor vehicle repairs. The business began in 2019 when IAG trialled the Repairhub concept at a “test and learn facility” in East Tamaki. The company subsequently established Repairhubs in New Zealand’s four main metropolitan areas – Auckland, Hamilton, Wellington, and Christchurch – but said there are no plans to open facilities in other parts of the country.