The association’s chairman, Jeff Williams, told GoAutoNews Premium that the latest move by insurers into the repair industry was the announcement by Insurance Group of Australia (IAG) – which includes SGIC, NRMA, AMI, CGU and NZI – that it would supply genuine parts when repairing vehicles.
Jeff Williams
Mr Williams said this was generally seen as a good move by the industry but he said the move also raised serious concerns because genuine parts cost more than non-genuine parts.
“There is a lot of concern (in the smash repair industry) about who is going to pay for genuine parts,” he said.
“From IAG’s point of view, they are aware it will involve extra cost but it would give them a point of difference with customers.
“But the insurance company can’t start charging more premiums because of it (using genuine parts) because customers won’t pay (more for them). So someone has to pay the difference and that someone will be the smash repair industry.”
Mr Williams said to make up the cost difference between genuine and non-genuine parts, the insurer may seek to reduce the labour content portion of the repair.
This means the insurer may reduce the allocated time it will pay to repair a car. Mr Williams said the insurer will argue that genuine parts are quicker and easier to fit than non-genuine parts.
“But, overall, the margins to the repairer will shrink.” he said “There will be no small area where he can make up for time lost if the repair takes longer than expected.
“If there is a fixed price on parts, there is a fixed cost for repairers because the repairer has no room to move.”
GoAutoNews Premium contacted IAG for comment. It said, in a statement, that it had been operating a genuine-parts trial in Sydney and Melbourne for the past three years and that it was delivering “better customer experiences while retaining parts margins for our partner repairers”.
“The parts trial is available to our partner smash repair network, by invitation, and is voluntary for partner smash repairers to participate,” IAG said.
“The parts trial will improve operational efficiencies which will both benefit a smash repairer’s ability to affect quality repairs and manage the customer experience.”
But Mr Williams said the centre of the problem lies in the insurers moving into the parts business, including dealing direct with the car distributor on parts pricing to bypass parts outlets and franchised dealerships.
“This means they can buy parts cheaper because of the volume and by dealing direct with the manufacturer of the parts, rather than go through a dealer or other parts supplier,” Mr Williams said.
“Insurers can forge a stronger relationship with manufacturers than a repairer and that includes dealing with volumes of parts and – because they have a lot of money – do not have to arrange long-term credit.
“So that means the repairer will miss out on a margin on the purchase of the parts – say, about 10 per cent – which now goes to the insurer.”
Mr Williams said that genuine parts prices are likely to fall.
“GM Holden has recently reduced the list price on 270 parts items – though not all are fast moving items – which makes it better for the repairer or insurer to buy genuine,” he said.
“At the same time, these lower prices also makes it harder for non-genuine parts suppliers and wreckers to get into the supply chain.”
Mr Williams said the AMBRA believed insurers want repairers to move to fixed-price repairs so the insurance companies can then determine costs.
“The previous system was the repairer would deal with the insurance assessor and the customer and then it was decided how the vehicle was to be repaired and the cost in consultation with the assessor and then with the customer,” he said.
“The repairer would source the part at the best price he could and then fix the car.
“Now, the move is to isolate the repairer from the equation. So the customer doesn’t see the repairer.
“The insurer sends the part to the repairer. But if the part is the wrong one or it doesn’t fit, it is up to the repairer – not the insurer – to hunt around and return the part and find a new one.
“In most cases, he doesn’t know where the part came from because it was sourced by the insurer. That extra time and work involved is not recouped by the repairer because he has no ability to create a profit margin.”
Mr Williams said: “Repairers are falling into the same hands while all the customer wants is their car fixed and in the customer’s eyes, the repairer is always second to the insurer.”
Mr Williams said it was another reason that the smash repair industry was shrinking.
“A lot of businesses are closing down,” he said.
“On top of this is an insurance industry that is looking to maximise profits by controlling the repair industry.
“It has a roll-on effect. It affects not only the repairer but the dealer down the road who once supplied parts to the repairer.
“Dealers and parts suppliers are now worried that the repair industry is shrinking so they won’t have an outlet to supply their parts.
“It is an abusive market situation,” he said.
What the MTA of WA says …
THE Motor Trade Association of WA said there was little argument that genuine parts will cost more and therefore the cost of repair will increase.
MTA of WA CEO Stephen Moir said: “Mr Williams is correct in saying that this increase will not necessarily be passed on to the consumer by way of higher premiums, but more likely will be passed on to the repairer through a reduction in the time allowed for completing the repair.”
Mr Moir said there were two issues with the introduction of a genuine parts policy.
“The first is the right for a consumer to have the vehicle – especially if it was under warranty – repaired using genuine parts,” he said.
“On that basis, the insurers are to be congratulated.
“The second issue is a little more complex and goes to the question of whether an insurer should become involved in the parts supply chain.
“No one can buy a car directly from a manufacturer – with the exception of Tesla – so the manufacturers are at fault in this instance by selling parts directly to the insurers.
“By doing this, they are cutting their franchise dealer out of the deal. This damages both the franchise dealer and the repairer.”
Mr Moir said insurance companies should “stick to insuring vehicles and remove themselves from the supply chain”.
“Body repairers can only buy genuine parts from franchise dealers and will try to get the best price possible,” he said.
“My concern is that, if the insurance companies keep this pressure up on repairers, we will see an accelerated exiting from the industry of repairers as the financial pressure becomes unsustainable.”
Who’s who in the repairer zoo
Australia’s main insurance groups are Suncorp and IAG.
Suncorp owns about 50 per cent of its preferred repairers network and that is expected to go as high as 80 per cent in the future.
IAG – which recently said it would use genuine parts in car repairs – uses shops from the general repair industry.
Suncorp also owns ACM Parts which is a company that sources genuine, non-genuine, and used parts to repair a car.
By Neil Dowling
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