The traditional small, independently run bodyshop is facing threats from all directions, and Zurich's revelation that it is cutting its motor repair network has caused more uncertainty. So can the new kitemark help? Sam Barrett finds out
Zurich's announcement in February that it is cutting its motor repairer network has raised many questions, relating not only to its own strategy but also how this will affect the bodyshop sector as a whole.
What is particularly attention-grabbing is the extent of Zurich's rationalisation. Having worked with around 220 garages through 170 relationships, from this April it will be working with just four firms for the bulk of its repairs - approximately 75% - with additional bodyshops used for hard-to-reach rural areas. The four successful firms from the insurer's review process are Nationwide Accident Repair Services, Seward Group, ADR Accident Repair Services and DWS Bodyworks.
Tony Emms, motor claims director at Zurich, explains that several reasons prompted this move including cost, customer service and capacity. "We'd suffered problems in the past with customer complaints so we wanted to secure relationships with good capacity suppliers who can meet our demand and do the job right," he says. "Having a smaller number of relationships also makes sense from a business perspective. You can't have proper strategic relationships with 170 firms. But, with four, you can all sit down around a table and generate a proper debate."
He adds that by making the relationships easier to manage, frictional costs can be removed, pushing up the profit margin for the bodyshops in question. "We're also looking to introduce new customer service initiatives, such as web tracking for repairs and SMS texts to keep customers informed about their repair," he explains.
Reaction from other insurers has been mixed. Although none have reduced their networks so extensively, some have already started rationalisation programmes. For example, Norwich Union has been implementing its motor network repairer strategy since the beginning of 2007, choosing to work with a small number of groups as well as specialist repairers.
Others are happier to stick with a larger number of repairers, remaining adamant that this offers more benefits than the Zurich approach. For example, Phil Brailey, motor damage supplier manager at Allianz Insurance, says he is not looking to follow Zurich's model. "We have no plans to rationalise our network at the moment. One of the things that is important for us when we select a bodyshop is the cultural fit. This has to be right as they represent us to our customers." Because of this he is happy to include smaller bodyshops in Allianz's network, saying that sometimes it can be harder to achieve a standardisation of service across all the outlets of larger groups.
This view is shared by Steve Hankins, associate director of ACM ULR, the claims management arm of BGL Group. His company uses a network of 135 individually selected repairers, with the emphasis on smaller repairers rather than large groups. "Service, not cost savings, is the top priority. For many customers the repairer is the only representative of their insurance brand that they see on a face-to-face basis, so they need to be carefully selected for their quality of customer service as well as workmanship," he says. "Too many of the smaller, independent garages that provide exceptional levels of service are folding."
Tim Rankin, managing director of WNS Assistance, also questions the viability of Zurich's model, sticking with a network of around 330 bodyshops made up of both large and small firms. He believes that, by going with the larger groups, you can miss out on some of the service delivered by smaller independent firms. "With some of the smaller bodyshops, because it's their own business they care more, so service is important," he says. "We also find that some of these smaller bodyshops are better at repairing - rather than replacing - which can be cost-effective."
Giving customers choice is another reason WNS Assistance says it chooses to stick with a large network. "If a customer has a bad experience with the first repairer you suggest, or it's located a long distance away, you can always offer them a second one," he explains. "You get a much better response if you offer this choice."
There are also concerns about where the power would lie in relationships when there is such a limited number of suppliers. Mr Rankin asks: "What do you do when you have a problem with a supplier that deals with 100% of your volume? In our model you can always find a replacement repairer if there's a problem but this might not be so easy if you rely on only one supplier in the area."
While Zurich's model has not yet led to a major upheaval among insurers - with others racing to also secure 'quality capacity' for the future - it is much more likely to have implications for the bodyshop sector. By placing the bulk of its work with four large firms, the maxim of big is beautiful appears to hold true with further consolidation a real possibility. After all, motor insurers cannot all secure capacity from the same firms and it is notable, for example, that Royal and Sun Alliance already works with Nationwide and announced a five-year deal with DWS Bodyworks in November 2006 - two of Zurich's 'chosen four'.
In any case, this sector is certainly no stranger to consolidation. Steve Field, group managing director of DWS Bodyworks, explains that a large amount of this has been due to the demographics of the sector. "Many of the post-war apprentices are now hitting retirement and selling their businesses, so we're seeing a reduction in the number of bodyshops."
This is borne out by the 2007 Refinish Industry Survey. It found that, since 2000, the number of bodyshops in the UK has fallen by 40% to around 5000, with smaller business the most likely to be affected.
But other pressures are also coming into play. For example, Mr Emms points to the advances in vehicle construction that are having serious ramifications for repairers. "The way cars are made is becoming increasing complex with all sorts of materials now used in their construction. This makes them harder to repair and requires garages to invest in materials and technology to enable them to do this. Small firms simply might not be able to afford this."
This trend is factored into the Refinish survey's predictions. It estimates that, by 2010, there will be 3690 bodyshops in the UK - down from the 4130 it predicted at the start of the decade.
As a result of these pressures, new bodyshop models might evolve. "Some of the regional firms might get together to form network-style propositions," predicts Mr Emms. "Likewise, we may see networks forming where each firm covers a different area of repair so they can offer a full service as a group. As part of our tender process we asked whether they'd considered this approach and - although most hadn't - I can see the market evolving in this way." For example, if a group had several bodyshops in one urban area, each could specialise in different motor manufacturers or vehicle repair techniques.
But while there is a lot of uncertainty about how the market will shape up, there is plenty of optimism in the bodyshop sector too. Mr Field says: "It can be tough if you want to make it tough but generally it's a fairly buoyant market. Consolidation is a positive thing, making the remaining businesses a lot sharper."
One of the factors that has helped drive this optimism is the launch of PAS 125, the industry-agreed technical specification for vehicle repair. The standard, which is owned by BSI, lays out the processes and procedures required for the safe repair of accident damaged vehicles. "It's great to have PAS 125," says Mr Emms. "The British kitemark is a well recognised symbol by the public, which will help the image of this sector."
Since it was launched in February 2007, 75 bodyshops have achieved the standard with a further 284 paid up and proceeding through the application process. On top of this, the BSI has received 1790 enquiries from bodyshops looking to obtain the kitemark. Steve Hamon, general manager for kitemarking services at BSI, adds: "Once a bodyshop has applied and paid for PAS 125 they will be audited to see whether they reach the standards required. If they're unsure, we can do a gap analysis, whereby we'll come into their company, assess how they would do and recommend any areas where they could make improvements."
With momentum gathering, many of the insurers are now insisting that bodyshops hold PAS 125, or are at least in the process of obtaining the standard. For example, last July AI Claims mandated the kitemark, claiming to be the first motor claims management company to do so. Nine months on, Mr Field reports that most insurers are requesting that bodyshops are at least aspiring to achieve the kitemark.
As an example, Allianz is currently reviewing its position on the standard. Shortly after its introduction, the insurer agreed with its repairer network that they could either be accredited under the Retail Motor Industry Federation QC scheme, PAS 125 or a manufacturer's standard for single marque repairers. "A strategy paper has been submitted proposing we go with PAS 125," explains Mr Brailey. "If this is accepted we will give bodyshops time to achieve it."
While there appears be a significant degree of optimism about how the kitemark will help raise standards, this is brought into question by one of the findings of the Refinish survey. It found evidence of a shortage of training throughout the sector - with 44% of independent bodyshops having no apprentices and between 70% and 80% of bodyshops not sending staff on training programmes.
This may change over time - or even be forced to. In its present format, PAS 125 only requires 25% of bodyshop employees to achieve the standard. Once it has bedded in, this percentage will be increased until it applies to all employees.
Even fans of PAS 125 admit it has its failings. Mr Field was involved with the creation of the kitemark and sits on the steering group. "There is a bit of a misconception about what it actually is," he says. "The standard is about safe vehicle repair - not anything to do with the way the customer is treated."
Insurers appear to have taken this on board, requiring other standards to be met alongside the bodyshop acquiring the kitemark. Mr Rankin explains: "PAS 125 is a good quality standard but it's not all-encompassing. We carry out our own audit on bodyshops, looking at other factors, such as whether the toilets are clean, there are sufficient parking spaces and there aren't any potentially offensive 'girlie calendars' in the public areas, as this helps ensure our customers receive a good level of service."
He also worries that the existence of the kitemark could mask possible problems. "If someone who's been trained leaves the company, or the calibration gets changed on a piece of equipment after a bodyshop's been audited, then the existence of a kitemark is fairly pointless," he says.
Because of this, WNS does not require bodyshops to have achieved PAS 125, although Mr Rankin says this may change in time. "The standard will mature as more bodyshops achieve it. Once this happens we will probably include it in our requirements," he explains.
To address these sorts of concerns, the BSI has a rigorous auditing process. Bodyshops that have achieved the standard can expect anything from one to four visits from BSI auditors a year - depending on the size of the company and the complexity of the work it carries out. For example, a bodyshop carrying out repairs on cars built from aluminium can expect to receive more audits than one repairing cars made of more traditional materials.
And Mr Hamon is quite clear about the serious consequences of a poor audit: "Bodyshops earn the right to display the kitemark; so if one doesn't meet the standard we will suspend the licence and they'll have to remove the kitemark from their literature and premises."
He adds that PAS 125 licences have already been suspended, with the bodyshop given an opportunity to make changes and prove it can achieve the standards required. "Sometimes it's just been a matter of days with a couple of emails sent to prove the standard has been met. But if we find serious failings we can withdraw the licence completely," he explains.
As well as a robust auditing process, PAS 125 is also designed to evolve, taking on board new technologies and material in motor repair. Mr Field concludes: "This is a valuable standard and as such it needs to evolve or face extinction."
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