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Letter to the Editor

Under the Microscope:

The UK Collision Repair Market

A Special Report from BodyShop Magazine's Chris Mann

INSIGHT Note: Setting the Stage:

The UK has a population of 59 million, about one-fifth of the USA’s 275 million number. With about 25 million passenger cars on the British roadways, versus over 242 million registered vehicles in the USA, the size of the UK Collision Repair Market is smaller, despite a higher accident frequency and greater average dollar amount of total damage per accident in the UK. British body shops number approximately 5,600, about one-tenth of the estimated 53,000 American collision repair facilities (See chart). While in the USA the average ratio of clock hour to flag hour is 160 percent, in the UK a shop is working in "real time" - equivalent to the door rate.

Changes

Up until the mid 80s, British repairers were pretty profitable but run very much on cottage industry lines. Management accounts were unheard of, estimates were ‘back of fag (cigarette) packet’ affairs carried out using "opinion times" i.e. the best guess of the bodyshop’s estimator, based on his accumulated repair experience. The estimate value would vary according to the skill of the estimator, how busy the bodyshop was at any one time, how much they wanted the work, how much the estimator thought he could ‘get away with’ and whether it was an insurance job or private work.

Insurance was universally sold through third party "brokers". When the policyholder had an accident he would inform the broker who would then get the motorist to fill in a lengthy claim form and expect him to go round getting estimates from two or even three or more bodyshops. The motorist would then be told to accept the cheapest quote and get his car repaired there. If there was a waiting list at the bodyshop, or the repairer had to wait for parts, the motorist was often without his car for weeks on end yet still felt guilty at having had an accident in the first place and thus inconveniencing his insurer.

Then, in the late 1980s, two developments took place. Firstly there was the introduction of "direct insurance" via Direct Line. They advertised extensively on a platform of cheaper insurance and instant quotes (historically, your broker would take several days to get quotes from different insurance companies before coming up with "the best" quote). Suddenly people could get an instant quote, more often than not cheaper than the traditional insurers who had to pay a chunk of their premium income to the middleman in the shape of the broker. In the early stages the traditional insurers were very dismissive of these Johnny-come-lately direct insurers, and worked on the basis that if they ignored them they would soon go away. They didn’t and, today, direct insurance probably accounts for over 50 percent of the private car market in the UK.

Computerised Estimating

Another development in the late 80s was the introduction of computerised estimating. For many years there had been "standard times" estimating data available in the UK, using repair times and processes generated by the vehicle manufacturers. As often as not, though, only passing reference to these was paid by estimators creating their ‘fag packet’ opinion times estimates. The UK insurance industry’s own research centre - The Motor Insurance Repair Research Centre - or Thatcham as it is commonly known, also carried out research and generated their own repair times, and these were incorporated in a series of reference manuals.

The European market leader, a Swiss company called Audatex set up shop in the UK in 1987. Registered repairers, were authorised to log into Audatex’s own mainframe computer, where extensive vehicle repair data was stored, and they then paid a user fee to Audatex for each estimate originated by them.

Fantasy hours/fantasy rates!

The move away from opinion times estimating to standard times estimating was resisted strongly by bodyshops as well as by insurance company engineers. Over the years there had been a sort of unwritten protocol whereby bodyshops charged fantasy hours - i.e. uplifted considerably from the actual time taken to carry out the repair - and insurers paid fantasy rates - i.e. artificially low rates based on the padded hours. This system meant that bodyshops could earn a decent living and insurance company assessors could bang on to their superiors about what fantastically low labour rates they had been able to wring from the repairers. (Editor’s note: Does this sound familiar?)

Bodyshops, naturally, were concerned that standard times estimating would slash the amount of time they were able to charge and insurance engineers were concerned that if the assessment process was automated, their "negotiating" role would no longer exist. A bit like turkeys voting for Christmas, I suppose.

In fact, what happened was that computerised estimating, using either Thatcham based times or manufacturers standard times, became the norm. This has resulted in the number of hours chargeable for individual repair processes being reduced dramatically from the ‘good old days’ of opinion times estimating. What has not happened, though, is for the unrealistically low labour rates previously being paid by the insurers to be adjusted to reflect the change from fantasy hours to real hours.

All other things being equal, bodyshops would have gone bust in about ten minutes under this new regime, but the situation has been masked to a considerable degree by the fact that, as a result of new product technology, e.g. more sophisticated paints and applications technology, more efficient use of staff and improved repair equipment and technology, bodyshop productivity levels in the UK have increased dramatically over the past ten years with flag to clock hours now being at a level of about 110 percent.

Trade Associations

Once upon a time, there was only one trade association representing the interests of the vehicle repairers in the UK. This was the Vehicle Builders and Repairers Association, which had been established in 1914. Based in Leeds, it had become wealthy, powerful and influential reaching its apogee in the 1960s and 70s when it was very much involved in the "collective bargaining" process of determining wage rates and wielded considerable influence with the government.

In the 1980s the VBRA initiated a programme to improve repairer standards and set out a series of requirements in terms of equipment, staffing levels and so on which, over a period of time, bodyshops would have to meet if they were to remain members. This obviously had considerable investment and training implications and many repairers who had been operating from hand to mouth, with minimal equipment, resisted these standards requirements.

In the late 1980s, a new association - the Motor Vehicle Repairers Association - was set up as a sort of bolt-hole for those disenfranchised repairers either unable or unwilling to meet the new standards set by the VBRA. Thus, member numbers for the VBRA started falling, although their philosophy was to go for a smaller number of higher quality repairers, whilst the MVRA started building up member numbers.

Overcapacity

Then, along came a major economic recession in the UK. Car usage declined and, of course, so did accident numbers and repair levels. The situation was exacerbated by the fact that, as a result of improved product technology and repair techniques, repairer productivity levels had increased significantly and this resulted in considerable over-capacity in the marketplace.

As already mentioned, the insurance companies themselves were coming under considerable pressure from the new "direct insurers" and so, to reduce their costs, they started bearing down more heavily on repairers in an attempt to reduce their claims costs. Repairers, meantime, were desperate to generate more work and, in order to differentiate themselves from the competition, a number of repairers started offering free courtesy cars to customers bringing their car in for repair. This proved extremely popular, worked well and was soon taken up by the insurance industry. (To be continued next month)

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