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Decline in body shops combined with an expected 2 percent increase in the number of repairs will create an 11 percent shortfall in repair capacity by 2020, says Trend Tracker.
The latest United Kingdom (UK) Car Body Repair Market report, by independent research company Trend Tracker, warns that insurance company profits in that country will be dented by a repair capacity deficit.
The number of UK body shops has declined by 32 percent over the last decade, and Trend Tracker predicts a further 9 percent decline to just 3,020 shops by 2020. This, combined with an expected 2 percent increase in the number of repairs, will create an 11 percent shortfall in repair capacity by 2020. The resulting backlogs, Trend Tracker states, will increase insurers’ costs and leave vehicle owners frustrated.
In the UK, insurance companies pay for around 70 percent of all accident repairs, and body shop owners, according to Trend Tracker, have long bemoaned the lack of profit in insurance-funded repairs. This, coupled with a fall in the number of accident repairs since the 2006 peak, has led to many body shops closing, says Trend Tracker.
Based on an average insurance accident repair cost of £1,380 ($2,119), a large insurer-approved body shop, operating on modern factory flow-line repair principles, will typically earn just £13.52 ($20.76) net profit on a job taking 15.7 hours to complete (source: ABP Club). This equates to a profit of just 86p ($1.32) per hour per repair.
“As recently as 2004, there was a repair capacity excess of nearly 50 percent,” said Robert Macnab, lead analyst at Trend Tracker. “Insurers were spoiled for choice in terms of who to give work to and could dictate terms. The increasing repair capacity deficit will put quality body shops in a much stronger position to secure a better deal from insurers.
“We will see more repairers renegotiating or simply rejecting the least profitable insurance contracts, particularly where there is an open-ended obligation for them to provide courtesy cars at their own expense. The hourly labor rate is also likely to rise, further denting insurers’ profits.
“Passing on these extra costs to motorists might not be an option for insurers. The UK motor insurance market is highly competitive, and attempts by insurers to raise premiums have often come unstuck, particularly due to the influence of price comparison websites, which encourage low prices.”
Since peaking in 2006, Trend Tracker says the annual volume of crash repairs has fallen by 28 percent, and the number of body shops has declined by 24 percent. The rise in oil and gas pump prices during that time discouraged consumers and businesses from using their cars, Trend Tracker states, resulting in fewer accidents. This trend was compounded by the onset of recession in 2008.
Trend Tracker, which has been analyzing the market since 1994, notes that the UK collision repair market has historically been very stable and resistant to macro-economic trends. The recent upheaval is unprecedented, it says.
Now, the market seems set for a period of sustained, albeit modest, growth, Trend Tracker states, as lower fuel costs encourage greater car use, resulting in an increase in the number of accidents and the number of collision repairs.
With the number of repairs forecast to rise from 4.2 million in 2014 to 4.3 million in 2020, and the average repair cost to rise from £1,115 ($1,712) to £1,157 ($1,777), the overall market size will increase by 5 percent to £4.94bn ($7.6 billion) by 2020, Trend Tracker predicts.