Free add-on repair services, like courtesy cars and valeting, combined with higher discounts on labour rates, parts and paint, have slashed bodyshop profitability, according to analysts Market Facts & Business Information (MFBI).

Its latest research into the accident repair market reveals that work directed by insurance companies is “relatively unprofitable”.

Bodyshops are “doing well” if they achieve profitability levels of 3-5% of sales turnover – in the 1980s they averaged 15%.

“High fixed operating costs make bodyshops dependent on repair volume to absorb costs,” said the MFBI UK car body repair market report.

It accused insurers of exploiting the situation by negotiating volume-related discounts without specifying the level of work that would be provided. They also tended to renew approved contracts during the quiet summer months, securing future repair capacity in the peak winter demand at low cost.

“UK bodyshops fail to maximise the value of their labour, parts and paint sales during the winter period when repair demand exceeds repair capacity,” said the report.

MFBI believes franchised dealer bodyshops are “better placed” than independents to exploit other forms of revenue over the summer to absorb overheads and maintain profitability.

It said: “Franchised dealers have opportunities to generate revenue from internal sources such as used car preparation and warranty work.”

The MFBI report was launched as automotive consultant Autopolis published its findings into the problems faced by body repairers.

Autopolis, appointed by the Body Repair Industry Campaign (BRIC), found that franchised dealer bodyshops operated at a slightly higher profit level than independents, probably due to a lower cost base, while small repairers were more profitable than medium and large businesses.

The research cast doubts on the widely held belief that larger bodyshops benefited from economies of scale. Clearly, these economies are difficult to manage for some companies.

The study claimed that insurers kept repair bills down “at the expense of repairers”.

Vicky Gardner of Autopolis said: “In real terms the total cost of labour has risen by 8.6% in 10 years, that of parts has fallen by 8% and that of paint and materials has risen by 63.5%.”