The Rest of the Way Around the World - BodyShop Business

The Rest of the Way Around the World

After BodyShop Business' roving reporter Mike Lawrence returned from his two-day, 17-country whirlwind trip - in which he studied collision repair markets around the globe - he determined that while each country's market is unique, it also sounds strangely familiar...(Continued from the August 2000 issue of BodyShop Business).

More and more shops in Italy are starting to see themselves as being in the service sector rather than the repair sector.

For example, 49 percent of shops offer courtesy cars and 88 percent of those shops offer them free of charge.

Why all the extra service? Since the deregulation of insurance in 1994 — before which insurance premiums were dictated by the states — market forces now dictate prices. The resulting increased competition among insurers has put a new premium on prices, namely to lower them, so shops have grudgingly accepted the presence of DRPs and the conditions that go with them.

But this isn’t to say that shops will go under if they aren’t part of a DRP arrangement. On the contrary, customers prefer the service they receive with the independent shops. Out of the 18,000 shops in Italy, only 2,000 are on “approved” car manufacturer lists.

Customers in Italy are loyal to genuine parts, and shops appreciate that since the profit margin on OE is around 30 percent. Shops also like OE parts because they say they fit better and they prefer to replace instead of repair. Insurance companies, however, are pressuring independent shops to use non-OE parts, but this isn’t likely to change unless greater incentives are offered.

Repair costs in Italy are determined by law by the Associazione Nazionale fra le Imprese Assicuratrici (ANIA), a group that represents the majority of insurance companies. This group evaluates repair methods and times to figure costs. Currently, the average repair cost is $1,100. In addition to this fairly low cost, insurance rates in Italy are among the lowest in Europe.

While shop owners are aware that customer service is important, attaining a certain level of service is difficult because of a technician shortage. The average salary for a tech is $13,194, and many young people view repair jobs as “dirty” – so they choose white-collar careers instead. Young entrepreneurs who are interested in the repair industry are often discouraged because the start-up costs for a body shop are quite high.

You can find about 8,790 body shops in Turkey, and of those, 7,800 are considered small and 185 are considered large.

In a country that’s been experiencing an annual 10 percent growth in its car parc (i.e. the number of cars on the road), that has road conditions leading to higher-than-normal accident rates and that has citizens who have little respect for traffic laws (stop signs are seen as optional), there’s certainly room for many small shops to grow. This growth, however, may be at the expense of other smaller shops that are unable to afford expansion.

More work comes to the shops that follow what Turks call “authorized services.” Authorized services include a minimum accepted standard for equipment, training, facilities and staff. Generally, bigger shops can better ascribe to these services, while smaller shops are challenged to do so. As the number of insurers grows, so too does the number of bigger body shops working with them.

The tech shortage faced by most nations is a problem for Turkey as well, and many say it’s hard to find new techs who are adequately educated. What’s the money like? The average technician only takes home about $4,200 a year (his gross pay is $6,600), but at least his lunch is paid for. The average labor rate is about $18, and the average repair cost of a bonnet (hood) is $182 (paint and body work, paint materials and labor).

Besides the tech shortage, another problem is that independent shops aren’t viewed as trustworthy. It’s been reported that 70 percent of motorists don’t trust independent shops that aren’t considered “authorized.” Customer opinion is more favorable toward authorized shops.

India has 1 billion people and 25,000 repair shops. Like neighboring China, India’s collision repair industry is in an emerging state where the number of car owners rises annually, increasing the demand for collision work.

There’s lag time before technological advancements and consumer demands for a better repaired product catch up to the growth of automobile drivers. In other words, technology won’t be a critical factor until the demand for quality repairs makes it so. As demand dictates the need for better repairs, a lag time exists before the technology catches up. This is the state India is in now.

Motor manufacturers in India have noticed this, and it puts them in a quandary. Do they train their repairers to improve repair quality, or do they favor selling new parts, which is their bread and butter?

In India, the labor force is highly uneducated and in some independent shops, you can find children repairing cars. As a result, labor rates are low. A painter in India makes about $125 to $150 a month. But as consumers begin to demand better repairs, this lack of skilled workers will become a hindrance to shops.

Shop owners in India benefit from a state-controlled insurance industry, meaning insurers have less control over the market. However, as the industry grows and becomes more advanced, expect to see more foreign investment and insurers becoming more active.

The collision repair market in India is highly fragmented, with little connection and consistency between dealer and independent shops. Consolidation is beginning to take place in the larger cities, and if market forces push for better quality repairs, expect consolidation to increase and the number of shops to drop.

If you could put collision repair development on a line — with the most crude forms of repair at one end and the most technologically advanced repairs at the other —

China would be closer to the middle. Repairers there don’t yet face many of the problems shared by shops in Europe and the United States. Higher standards of repair have yet to be demanded, but as the number of cars on China’s streets continues to grow, shops that adjust to higher standards will have a better chance of survival.

With 1.2 billion people living in China, you may be surprised to learn that China only has about 1.7 million cars and 11 million vehicles. But the number of vehicles is predicted to hit 34 million by 2010. This growth – along with many miles of roads in poor condition, bad driving and low quality parts – makes the Chinese market a good one for collision repair shops. Auto production is growing by 10 to 20 percent annually, and with such a high population — and with more people moving to urban areas — there’s lots of room for growth.

In China, the government sets salaries for most occupations, and what’s paid to technicians is relatively low. A brain surgeon makes about $250 a month, while a technician earns about $80 a month. This might not seem so bad, until you find out a cab driver makes $300 a month.

Compared to the cost of doing business, the labor aspect of owning a body shop is financially minimal. It’s normal to see five or six techs working on a car at once, each with his own little job. People are so plentiful in China that it’s an effort to find enough work for all of them.

When it comes to fixing cars, techs are very knowledgeable but are technologically behind. They’ll straighten out the car by hand. But it’s not because the techs can’t use advanced equipment; they just never get the chance. Human labor is cheaper than machines, so shop owners are better off using 10 people instead of one piece of equipment. And this is fine with China’s insurance industry. Generally, an appraiser and shop owner agree on the price, and how the shop owner does the job for that price is his business. It’s not often you’ll see supplements in China.

South Korea
If your Hyundai is in a collision in South Korea, you don’t take it to be fixed anywhere but a Hyundai dealership.

Shops generally fix one brand of Korean car. If a shop fixes Daewoos, that’s all they fix. Same with a Kia-specific shop.

The 100 dealer shops dominate the market in South Korea, and they’re more likely to have current technology. It’s not unusual to see state-of-the-art bench systems with select-number measuring. Meanwhile, the country’s 2,000 independent shops are generally behind technologically. Their equipment isn’t as advanced, and when it comes to color matching, the eye is the guide. There’s no specific color-matching formula, which may be a reason why shops deal with one specific brand of car; the color scale they use is for that car company only. At the same time, it’s uncommon to see blending of panels at the independent level.

Unlike China, where you can see five guys working on a car at once, more individual work is done in South Korea. One person may do all the panel work and another does all the painting, or in some cases, one person may do all the major work.

A stronger insurance-controlled market is emerging as more responsibility is given to appraisers by insurers in an effort to reduce repair costs.

Despite the fact that South Korea has similar weather patterns as the United States — it’s just during different times of the year — many shops have carports where work is done outside. In fact, many shops have lots of open areas for parts, car repair and detailing.

Japanese motorists have traditionally been quite loyal to OEM parts.

The use of A/M parts in the Japanese market is low, so it’s normal for a consumer to take his car to the dealer when he needs collision repair. But, since most dealerships don’t have a body shop, they subcontract the work out to independent shops. As a result, independent shops are quite dependent on dealerships and generally have to discount labor sales by 30 to 35 percent to secure the work. On the other hand, dealers have plenty of shops to choose from: 45,000 repair shops in Japan do body work.

But change may be brewing as more dealerships look into building body shops of their own. And the few that have done so have built state-of-the-art facilities. In the regions where this has taken place, subcontract work has nearly disappeared, and independent shops in those areas that relied on those repair orders must now develop marketing strategies to procure work.

One such strategy is getting on a DRP. Conditions from insurance companies vary, but they usually include free pick-up and delivery of the customer’s vehicle, a free rental car, a lifetime repair quality warranty and a 10 percent labor discount.

Relations between insurers and repairers have included some animosity and mistrust, but more and more people are starting to believe that cooperation between the two needs to take place to enhance customer service. Why would this be so important? Well, the typical Japanese motorist sees the repair industry as a mysterious black box that he’s not sure he should trust. He isn’t sure what happens to his car during the repair, and he doesn’t know why it should cost so much.

And prices for a repair in Japan are relatively high. The average repair cost on an insurance claim hovers at $2,000, with a labor rate ranging from $59 to $72 per hour. The average salary for a technician is $44,000.

Even though the use of A/M parts is uncommon, the use of recycled parts has become more prevalent since an improvement in the quality of remanufactured parts and the implementation of warranties. Plus, it’s a way to reduce costs for repairers and insurers.

One thing to keep in mind with Australia is that in terms of area, it’s as big as the United States, yet has only 8,500 shops – and the market is shrinking as smaller shops find it difficult to afford new technology.

For such a big country, many areas within it aren’t that developed. In some of the major cities, however, you can expect to find two or three state-of-the-art shops on the same road, sometimes side by side.

As in many other countries, insurers are looking for ways to reduce repair costs. Even though competition among insurers is fierce, only a few firms dominate. One insurer controls 70 percent of the market in some regions. This indicates that some of the smaller insurers will be forced to consolidate or face going out of business. And with insurers having to answer to their shareholders, expect to see more DRPs emerge in the near future.

As DRPs become more prevalent Down Under, the way many Australian shops conduct business may be turned upside-down. Traditionally, shops haven’t been that aggressive in procuring customers. It’s generally been a wait-for-the-customer-to-come-in approach. Now, as shops see that DRPs may be the wave of the future, they’re realizing that waiting for customers won’t work. Shops that are currently on DRPs like them since they bring in business – despite the fact they often have to reduce their parts mark-up (from 17.5 to 8 percent) or give a 5 percent discount on the invoice.

Another concern is the tech shortage. To combat this, shops must become more efficient and find ways for four techs to do the work of eight. This may be quite difficult in Australia, since many techs are craftsmen and, as such, are tunnel-vision perfectionists on each repair. An Australian tech will spend just as much time fixing a Dodge Dart as he would fixing a Ferrari.

What do techs earn? In the cities, a tech earns about $40,000 per year, while in the country, they average $25,000.

Labor rates vary across the country. Panel rates range from $23 to $31 per hour, while paint rates range from $43 for a solid group to $70 per hour for pearls. The paint is included in the paint rate.

New Zealand
Insurers and repairers in New Zealand seem to have a cordial relationship with one another, with both sides pushing for greater customer service.

The big question has been determining who pays for that service. This may be why all the major insurers in New Zealand — except for one — have approved shops. The level of persuasion to entice customers to use these shops varies. For example, an insurer may only guarantee the quality of work if a customer chooses an approved shop.

A couple new schemes have also recently developed in an effort to cut costs. One particular insurance company removed the parts margin, causing some concern among other shops in approved networks. Another insurer has supplied a technical center where cars come in for multiple quotes. That insurer’s approved repairers are then invited to put a bid on a job, and usually the lowest bid gets the work. The repairer is then contracted to do the job at that price and isn’t allowed to request supplements for any missed parts or repair procedures.

Shops in New Zealand tend to be small. The average number of employees per shop is only 1.5. Over the last few years, the number of shops has remained the same while the number of employees has fallen. Out of New Zealand’s 1,500 body shops, 600 are located in or near Auckland, the nation’s capital.

Despite New Zealand’s small population numbers (3.8 million people and a total of 2.2 million cars), labor rates vary from $24 per hour on the South Island to $34 in Auckland. Technicians earn about $34,000 annually, which is slightly above the average for all New Zealand workers.

With skilled labor in short supply and an ever-increasing obligation to invest more in technology and imaging capabilities, a level of mistrust is growing among shops because some are suspicious of others who turn out work under the labor rates stated above.

Around the World In Two Articles
If you could somehow transport your shop in the blink of an eye from one country to the next in order to maximize your profits and minimize your headaches, you would most likely take your shop to those countries with emerging body shop markets – a place with bad roads, poor equipment, unsafe cars and horrible drivers. Then, when those countries evolve to the point where technological influences decrease demand for repairs while increasing demands for better quality, you could take your shop to another emerging country.

But every emerging country – as it continues to emerge – sooner or later will be faced with certain problems: animosity with insurers over reducing repair costs while improving customer service, doing better repairs while facing a tech shortage, keeping an information-hungry customer base satisfied, etc.

The biggest overall problem appears to be finding ways to do more with less.

Sound familiar?

Though each country covered is at a certain stage of development, much can be learned by studying other nation’s collision repair markets. Some less advanced markets may remind you of where you’ve been, while more highly evolved markets may be a prediction of where you’re about to go.

This information can be beneficial. Take it, study it and apply it wherever you can – to create a better shop for yourself and a better industry for your nation.

Writer Mike Lawrence is the associate editor of BodyShop Business.

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