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New MFBI report shows body repair costs rising while bodyshop profits fall

Most insurance companies realise that the current model of repair cost management actually results in inflated repair costs rather than repair cost savings. This is the key finding of a new research report from MFBI (Market Facts and Business Information) that shows average repair costs continue to rise above the rate of inflation while bodyshop profitability continues to fall.

In brief, the report says:

- Bodyshops in the UK are now operating on unsustainably fine margins with some repairers achieving average net profit margins of just £3 on an average repair costing around £1,000. While most bodyshops achieve reasonable gross profit margins, in terms of net operating profits after deducting overheads, many bodyshops are barely breaking even.

- Average repair costs have increased by 56% in current prices over the last ten years compared with an increase in the retail price index of just 29%. In the last three years, annual increases in average repair costs have accelerated from 3% per annum to nearly 8% per annum in 2003.

- The average cost of an accident repair paid by insurers in 2003 excluding VAT but including any policyholder excess contribution and bodyshop discount, amounts to £1,208. The reason for the high and rising cost of accident repairs paid by insurance companies is not bodyshop labour costs, but the high and rising cost of replacement parts and refinish paint, and the high cost of free services demanded by insurance companies. Labour repair costs have fallen as a proportion of total repair costs from 43.0% in 2000 to 39.3% in 2003.

- For the vehicle manufacturers and the paint companies, high aftermarket prices and profit margins on replacement parts and paint used in crash repairs, subsidise low profits on parts and paint usage in new car production.

- Insurance companies have been demanding higher discounts on parts and paint from the bodyshops they use as approved repairers. This means that for the majority of bodyshops, repair contracts with insurance companies are no longer profitable.

- By using SMART repair techniques, a repair that would cost £600 in a conventional bodyshop can be converted into a £300 repair, because SMART repairs are faster with more parts being repaired rather than replaced. Insurance-approved bodyshops are losing work to SMART repair specialists and smaller shops with lower overheads.

- A consequence of rising repair costs is that a higher proportion of accident-damaged vehicles is being written off by insurance companies as total losses. As a proportion of all repairs, total losses have risen from 6.9% in 1993 to 10.4% in 2003.

- Insurance companies control 76% of the repair market in the UK.

Report author Robert Macnab argues that the principal weakness of the insurance companies' current repair cost control strategy based almost entirely on low bodyshop labour rates is that it results in a lack of investment in new equipment and training by bodyshops. For this reason, insurance companies are failing to achieve any significant repair cost savings that would arise from bodyshop investment in more efficient repair methods and equipment, and face a possible acceleration in the decline in numbers of bodyshops.

Macnab says many insurance companies now realise that their attempts to reduce bodyshop repair costs by controlling bodyshop labour rates and repair times, simply results in cost inflation in other areas such as higher replacement parts and paint costs which insurers are unable to control.

To halt the rise in repair costs and the reducing pool of suppliers, the MFBI report says insurers can either increase bodyshop hourly charge-out rates from a current average level of £22.50 and negotiate reductions in parts and paint costs, or they must enable bodyshops to reduce rising overhead costs by cutting the free services provided under repair contracts including courtesy cars and the collection and re-delivery of policyholders' cars.

The Car Body Repair Market Report, price £750.00 is published on 30 October by MFBI. For further information, contact Robert Macnab (MFBI Managing Director) on

+44 (0)1825 713 035 or e-mail info@mfbi.org

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