With effect from this month, Ford has cut some of its repair parts prices, and abandoned an across-the-board trade discount to repairers in favour of a reduced variable discount structure where each 'Major Part Line' has a different discount ranging according to type of part from 6% to 25%.
Across the board” discounts have typically ranged between 25% and 30% depending on spend and location of the repairer. Inner city repairers usually receive lower discounts because property costs and distribution costs are higher.
Until two years or so ago similar deals were also typically struck with Rover (27%) and Vauxhall (27%). During the last year or so MG Rover has reduced its top across-the-board discount from 27% to 19% and Vauxhall to 25% from 27%.
Repairers working for insurers on approved network status give some of their parts margin to insurers in the form of a discount averaging 8% off the manufacturer's recommended retail price. This, says Shepherd, allows the repairer to retain about 19% from the volume makes parts. When marques that offer lower discount levels on their parts are taken into account, then the repairers retained margin on all parts sold is about 17%. The high volume large discount deals effectively subsidised the other manufacturers who offered lower discount structures on their parts, but Shepherd notes that the decline shares of repair work of the former top three marques has reduced this effective subsidy.
Deejay, a firm well-known and respected in the bodyshop sector, recently made redundancies in the face of sharply deteriorating trading conditions; it achieved a profit of just £6.00 per repaired vehicle over the last five years.
MD Dave Shepherd now says: “The impact of losing any amount of the retained parts margin (17%) in our business or £396,700 in cash terms last year would be catastrophic even if restricted to the margin from Ford parts. This figure includes a much-increased use of non-OE and alternative parts during 2003.
“Repairers need to have the shortfall in margin reinstated somehow, or there is a real danger their businesses will fail. There is no way the repair sector can absorb this decrease in revenue. Equally it is not obvious how insurers absorb this additional repair cost in many cases for an existing policy whose premium was set in a different market.”
Shepherd suggests among possible but imperfect solutions that insurers might agree to pay for Ford parts at cost plus an agreed mark-up, which would present practical problems; that there could be an agreed uplift for all Ford retail parts prices entered in estimating systems, and alternatively, that an agreed fixed levy or surcharge could be agreed for all repairs to Ford vehicles, irrespective of job size or parts spend.