This industry is primary about the repair of motor vehicles within Australia. Main services traditionally provided include:
- Panel beating/ body repair
- Spray-painting
- Windscreen repair
- Interior repair / auto trimming
- Rustproofing/ paint protection
Demand for smash repairs is directly linked to the number of crashes that occur on our roads. The 2 main factors that affect crash numbers are the number of drivers / cars on the road (particularly the number of young/ inexperienced drivers) and the improvements in safety technology now built into modern cars. In summary, the number of drivers is increasing every year whilst the number of crashes, as a percentage of cars on the road, is decreasing. One of the main factors leading to the lower crash rate is the rapid technological advances in crash avoidance technologies such as antilock brakes, parking sensors, reversing cameras and blind spot monitoring.
Of course older cars do not have the benefit of these features but as time goes on cars will be safer, and there will be less crashes per number of drivers. The net result of these forces has resulted in industry revenue increasing at only a slow rate of only 0.4% per annum over the past 5 years.
Industry dynamics
Traditionally this industry has consisted of a large number of small businesses due to the limited barriers to entry. In recent years there has been an increase in franchising, but this has had only a moderate affect on the industry makeup. Main franchise groups including S.M.A.R.T Repairs, LSR Autobody and Car Craft make up less than 5% of the marketplace.
Competition between each business is subject to the normal parameters of price and quality of work but is also affected by relationships with insurance companies. Another factor is the longer new car warranties whereby parts are replaced under warranty rather than via a smash repair business. Being a service industry with proximity/ convenience to the customer being a strong factor, competition is generally between local operators.
Western Australian smash repair businesses are heavily reliant on insurance companies for work, because customers are advised by their insurance company as to which businesses are their preferred smash repairers. In 2005 the productivity commission investigated the relationship between insurers and smash repairers with the aim of ensuring consumers had adequate choice of repairers and that the repairers were fairly treated in the process. The fact still remains however, that the powerful insurance companies control where the majority of work goes via preferred smash repairer agreements.
As with most industries today, technology is having a significant effect. Remote vehicle assessment is being introduced as smash repair businesses have jointly developed this in conjunction with the insurance companies. This allows insurance assessors to view the vehicle by a video camera set up at the repair shop, without leaving their office, saving time for all concerned in the process. Repair work is also continually having technology introduced including computerised measuring and paint matching. Other examples include plastic heat welding and paint less dent removal.
Cost structure
The major costs in running smash repair businesses are materials and labour. Typical cost percentages are as follows:
Materials 50-55%
Wages 23-27%
Other costs / Depreciation 8-10%
Rent/ Utilities 5%
Profit 8-9%
Labour cost is obviously a large component due to the labour intensive work required by skilled workers. In recent years recycling, waste management and occupational health and safety costs have also increased in order to comply with environmental and OHS requirements.
Forecast going forward
Over the next 10 years the Perth and Western Australian industry is expected to grow at a similar rate in revenue terms to that which it has achieved in recent years (ie. 0.4% revenue increase per annum). The industry is in the process of rationalising with more consolidations expected inclusive of acquisitions by larger players. From a strategic point of view larger businesses or franchise groups will allow more power in negotiating with insurance companies and materials suppliers to potentially move towards higher profitability.
Prices
The main benefits of smash repair businesses are that they attract purchasers that like cars and have a degree of satisfaction being involved in the industry. They also tend to operate mainly 5 days a week except in times of heavy workflow. The main shortcomings are the skilled workers required and the power of the insurance companies in terms of gaining work.
The majority of these businesses are relatively small in size. For businesses with profits less than $100,000 the ROI range is 65to75%. For profits over 100,000 the ROI range is 45 to 65%.
