Motor Vehicle Body, Paint and Interior Repair in Australia

Transcription

1 On a collision course: Vehicle insurers are increasing their leverage over the industry IBISWorld Industry Report S9412 Motor Vehicle Body, Paint and Interior Repair in Australia March 2015 David Whytcross 2 About this Industry 2 Industry Definition 2 Main Activities 2 Similar Industries 2 Additional Resources 3 Industry at a Glance 4 Industry Performance 4 Executive Summary 4 Key External Drivers 5 Current Performance 7 Industry Outlook 9 Industry Life Cycle 11 Products & Markets 11 Supply Chain 11 Products & Services 13 Demand Determinants 13 Major Markets 14 International Trade 15 Business Locations 17 Competitive Landscape 17 Market Share Concentration 17 Key Success Factors 17 Cost Structure Benchmarks 19 Basis of Competition 19 Barriers to Entry 20 Industry Globalisation 21 Major Companies 22 Operating Conditions 22 Capital Intensity 23 Technology & Systems 23 Revenue Volatility 24 Regulation & Policy 24 Industry Assistance 25 Key Statistics 25 Industry Data 25 Annual Change 25 Key Ratios 26 Jargon & Glossary (03) [email protected]

2 Motor Vehicle Body, Paint and Interior Repair in Australia March About this Industry Industry Definition The industry includes companies that are primarily engaged in repairing, panel beating or spray painting smashed or damaged motor vehicles. The industry also includes companies primarily engaged in replacing, repairing or tinting automotive glass and companies primarily engaged in interior repairs, car wash or cleaning services. Main Activities The primary activities of this industry are Automotive body repair Automotive trimming and interior repair Panel beating (motor body repairing) and smash repair Automotive rustproofing and undercoating Automotive spray painting Car wash or cleaning operation, and car detailing The major products and services in this industry are Automotive spray painting Automotive trimming and interior repair Car washing and detailing Vehicle body repair Windscreen repair Similar Industries C2312 Motor Vehicle Body and Trailer Manufacturing in Australia Motor vehicle body manufacturers make permanent body conversions to passenger cars, or coachwork repairs to large vehicles and truck trays. S9411 Motor Vehicle Electrical Services in Australia This industry includes repair shops that specialise in providing motor vehicle electrical services. S9419 Motor Vehicle Engine and Parts Repair and Maintenance in Australia Auto mechanics carry out servicing and general repairs on motor vehicles. Additional Resources For additional information on this industry Australian Bureau of Statistics Australian Motor Industry Federation Victorian Automobile Chamber of Commerce

3 Motor Vehicle Body, Paint and Interior Repair in Australia March Industry at a Glance Motor Vehicle Body, Paint and Interior Repair in Key Statistics Snapshot Revenue $7.1bn Annual Growth % Profit $467.1m Wages $1.8bn Annual Growth % Businesses 11,016 Market Share There are no major players in this industry % change Revenue vs. employment growth Units Number of vehicle accident deaths Year Year Revenue Employment p. 21 Enterprises Key External Drivers Number of vehicle accident deaths Number of motor vehicles Population aged between 18 and 25 Average age of vehicle fleet 10.9% WA 7.5% SA 1.7% TAS 0.9% ACT 0.8% NT 30.7% NSW p % QLD 26.2% VIC SOURCE: SOURCE: Industry Structure Life Cycle Stage Mature Revenue Volatility Low Capital Intensity Low Industry Assistance Low Concentration Level Low Regulation Level Technology Change Barriers to Entry Industry Globalisation Competition Level Light Medium Low Low Medium FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 25

4 Motor Vehicle Body, Paint and Interior Repair in Australia March Industry Performance Executive Summary Key External Drivers Current Performance Industry Outlook Life Cycle Stage Executive Summary The Motor Vehicle Body, Paint and Interior Repair industry relies on vehicle accidents to generate revenue. A combination of safer new vehicles and more risk-averse drivers has reduced vehicle accidents and decreased demand for the industry s services. New car sales have remained strong following a big spike after the global financial crisis, meaning that more consumers drive vehicles with advanced safety features. As fewer consumers have traded-in or disposed of their older vehicles, the average age of the domestic vehicle fleet has remained stable over the past five years. However, the increasing modernity of the vehicle fleet has meant that more vehicles have improved safety features, reducing collisions. As a result of these factors, industry revenue is forecast to fall by a compound annual rate of 0.2% over the five years through , to be worth $7.1 billion. Revenue is estimated to decline by 1.8% in , continuing the slow descent that began in Although the number of vehicle crashes has declined in most years, minimising revenue volatility, it is the growing power of insurance companies within the industry that is significantly reducing industry revenue. Most smash repairers rely on insurance claims to gain work, which makes obtaining preferred smash repairer agreements with insurance companies essential to ensure new customers. The falling number of motor vehicle accidents has reduced demand for industry services and enabled insurers to pay smash repairers less, contributing to the revenue decline. Similar trends are expected to affect the industry over the next five years. New cars will have even more advanced safety features installed to help drivers avoid crashes. The average age of the vehicle fleet is projected to remain steady, meaning that consumers will be driving increasingly modern vehicles as time passes. Insurance companies are expected to continue to enter the industry with chains or joint ventures of their own, increasing their own revenue but pushing down prices. Overall, industry revenue is forecast to fall at a compound annual rate of 0.4% over the five years through , to be worth $6.9 billion. Key External Drivers Number of vehicle accident deaths The number of fatal motor vehicle accidents acts as a proxy for the total number of vehicle accidents, fatal or otherwise. A higher volume of crashes will stimulate demand for repairs. In contrast, greater road safety threatens industry demand because there is less Number of vehicle accident deaths Number of motor vehicles Units 1400 % change Year Year

5 Motor Vehicle Body, Paint and Interior Repair in Australia March Industry Performance Key External Drivers continued need for vehicle repairs. The number of vehicle accident deaths is projected to fall in Number of motor vehicles Demand for motor vehicle repairs depends on the size of the motor vehicle fleet. As more vehicles are driven on Australian roads, the number of accidents requiring repairs is likely to increase. The number of motor vehicles registered in Australia is projected to rise in , potentially creating more business for the industry. Population aged between 18 and 25 People aged between 18 and 25 are among the least experienced drivers on the road. Therefore, any increase in the size of this age group tends to increase the volume of motoring accidents. This age group is projected to grow as a proportion of the population in , increasing the likelihood of motoring accidents and providing an opportunity to boost industry revenue. Average age of vehicle fleet Older vehicles are more likely to require repairs due to ongoing depreciation, fewer safety features and a lack of crash-avoidance technology. When the average age of vehicles is higher, there are more old cars on Australian roads that require the industry s services. The average age of the vehicle fleet is expected to remain stable in Current Performance The Motor Vehicle Body, Paint and Interior Repair industry relies on vehicle accidents to generate revenue from consumers and insurance companies. As motor vehicle accidents are essentially random events, the industry has limited control over demand for its services. The number of road collisions is falling from year to year, as factors such as crashavoidance technology in new vehicles and road safety awareness campaigns reduce the number of crashes. However, the decline in collisions is occurring slowly. In the meantime, the rising number of motor vehicles on the road is increasing industry work unrelated to crashes, such as car washes and prestige paintwork. This has limited the industry s revenue decline to a forecast compound annual rate of 0.2% over the five years through , to $7.1 billion. This includes a larger forecast revenue decrease of 1.8% for , as insurance companies continue to take advantage of weak demand to offer lower prices to industry operators. Participation and profit Falling industry revenue and the growing bargaining power of insurers is expected to have increased industry consolidation over the past five years. The number of industry establishments is projected to have fallen over the period, but the revenue generated by each establishment has risen. The remaining establishments have increased their average revenue by becoming more productive. Although employment has decreased, the revenue generated per employee is expected to have increased, driving a small rise in the industry s average wage. Greater productivity has resulted in profit margin growth over the past five years, particularly as consumer sentiment has largely remained positive and real household disposable income has increased.

6 Motor Vehicle Body, Paint and Interior Repair in Australia March Industry Performance Safety features Motor vehicle manufacturers have invested a significant amount of capital into developing crash-avoidance technologies and driver-assistance features to improve vehicle safety over the past five years. Features such as anti-lock brakes and traction control are now common in modern vehicles. Other features, like parking sensors and reverse cameras, can help cars avoid minor collisions that might have traditionally needed to be repaired. The number of deaths caused by motor vehicle accidents has declined over the past five years, indicating that the overall volume of accidents has fallen. This trend has been detrimental to industry operators, as fewer crashes have decreased demand for body, paint and interior repair work. Vehicle fleet The average age of Australia s vehicle fleet has remained steady over the past five years. While sales of new cars has been strong, the stable age of the domestic vehicle fleet indicates that this has been offset by other factors, such as decreasing disposals of older vehicles. Thus, although many motorists have bought new vehicles with improved safety features, there is still a large number of older, more dangerous vehicles on the road. The number of motor vehicles on the road directly affects industry revenue. The number of motor vehicles registered in Australia is forecast to increase by a The number of vehicles on the road has increased, ensuring continued demand for the industry compound annual rate of 2.4% over the five years through With more vehicles on the road there is greater potential for accidents to occur, increasing demand for industry services. There is also greater demand for custom work, further driving revenue growth. Increased repairs Drivers aged between 18 and 25 are more prone to motor vehicle accidents than older, more experienced drivers. Younger drivers tend to have lower incomes and as such, often drive older, less safe, cheaper vehicles. They are also less experienced on the road and more likely to engage in risky behaviour. These factors all increase the chance of drivers in this age group being involved in vehicle accidents. The number of Australians in this age group has risen over the past five years, partly counteracting the fall in industry demand from improving vehicle safety technology. Erratic weather patterns can also affect industry performance. Hailstorms cause damage to vehicles, as do floods and storms. The increased incidence of severe weather conditions over the past five years has indirectly contributed to vehicle damage that has required the industry s repair services. Insurance conflicts Industry operators rely on insurance companies to provide them with most of their work, as consumers make claims to insurers to pay for vehicle repairs. In 2005, after complaints about the power of insurance companies to dictate industry workflow, the Productivity Commission investigated the commercial relationship between repairers and insurance companies, releasing its report in March The Federal Government responded by establishing a task force to develop a voluntary code of conduct, which remains in place in The

7 Motor Vehicle Body, Paint and Interior Repair in Australia March Industry Performance Insurance conflicts continued code of conduct aimed to address concerns including full disclosure in preferred smash repairer (PSR) arrangements, retention of PSR status upon sale of a business, upfront disclosure on whether insurance policies provide choice of repairer and a fairer system of guarantees for repairers. While the code of conduct has eradicated some anti-competitive activity within the industry, car insurers have still managed to become increasingly powerful within the industry over the past five years. The majority of industry business goes to firms that have PSR agreements with car insurers, most of which are owned by Suncorp Group and Insurance Australia Group. Suncorp has entered into joint venture arrangements with smash repair franchises Capital S.M.A.R.T Repairs and QPlus Production, and tends to filter insurance claimants to establishments owned by these companies. For other smash repairers, car insurers have demanded cost reductions. This, combined with high input prices, has limited profit margin growth among body, paint and interior repairers as they have tried to gain repeat business from car insurers. Industry Outlook The Motor Vehicle Body, Paint and Interior Repair industry is expected to continue its decline over the next five years due to improving vehicle safety technology and safer roads. The number of fatal road accidents is projected to keep falling, indicating that the overall number of collisions will decrease. The industry s only positive driver will be the growing number of motor vehicles on the road, which will increase the probability of accidents particularly minor accidents resulting in low-grade vehicle damage. The relationship between motor vehicle body, paint and interior repairers and insurance companies is expected to change over the next five years, as insurers continue to make their way into the industry. Industry revenue is forecast % change Industry revenue Year to decrease by an annualised 0.4% over the next five years, falling to $6.9 billion in Stalling demand New vehicles with better safety and crash-avoidance technologies will continue to be introduced into the Australian market over the next five years, which should help prevent motor vehicle accidents. The scheduled exit of local motor vehicle manufacturers over the next five years and the new free trade agreements with Japan and Korea are expected to make new vehicles more affordable. However, the price decreases will be limited by a depreciating Australian dollar. These factors are expected to enable continued strength in new car sales. While the average age of the vehicle fleet is expected to remain stable over the next five years, as new cars sales are offset by declines in disposals of older vehicles, this still means that the average vehicle in will have been manufactured in Vehicles manufactured in this period are likely to be fitted with safety features and crash-

8 Motor Vehicle Body, Paint and Interior Repair in Australia March Industry Performance Stalling demand continued avoidance technology; therefore the average vehicle on the road will be generally safer. These factors are expected to cause industry demand to fall further, although growth in the number of vehicles on the road will mitigate the decline. Falling demand is projected to reduce industry employment over the next five years, as there will be less work available. The average wage of the industry workers is forecast to remain fairly stable. Enterprise decline The continued decline of road accidents will mean that the industry will continue to suffer from overcapacity. With capacity slow to react to the reduced business volumes, greater competition will result in slimmer margins in the short term. The overcapacity is expected to lead to some operators becoming unviable, causing a decline in the number of industry enterprises. However, the expected exit of marginal players and increasing industry consolidation are projected to improve profit margins over the next five years. Small-scale repair shops are less likely to survive due to expected increases in health and safety regulations, which will require operators to invest in fume and dust exhausts, paint booths and repair measuring systems. Small operators usually do not have a baking oven and are often unable to invest in new equipment to repair front-wheel drive vehicles. These small companies will be threatened, particularly if they rely heavily on insurance companies for work. These operations currently survive on doing minor damage work at a low cost, but this work may dry up as larger operations with greater economies of scale are able to undercut their prices. Insurer entrance The expansion of large companies is expected to result in better management in the industry, including computerised costing and quoting facilities and better purchasing power. The changes will enable operators to pass on cost reductions to consumers. Chains will allow the possibility of a fairer negotiation balance with insurance companies as they have greater bargaining power. However, insurance companies are also expected to continue entering the industry themselves. Insurers generally aim to have repairs completed at the lowest cost. Suncorp Group has entered the industry through its part-ownership of Capital S.M.A.R.T Repairs and QPlus Production. Suncorp Group owns car insurance brands including AAMI, GIO, Apia, Shannons, Just Car, Insure My Ride and Bingle. Through these brands it can push consumers to use a preferred smash repairer that it actually owns. This trend is expected to continue over the next five years as insurers aim to gain greater control over the claims and quoting process.

9 Motor Vehicle Body, Paint and Interior Repair in Australia March Industry Performance Life Cycle Stage New markets are limited due to crash-avoidance technology The industry has been rationalising The industry s contribution to the economy is underperforming GDP % Growth in share of economy Maturity Company consolidation; level of economic importance stable Quality Growth High growth in economic importance; weaker companies close down; developed technology and markets Key Features of a Mature Industry Revenue grows at same pace as economy Company numbers stabilise; M&A stage Established technology & processes Total market acceptance of product & brand Rationalisation of low margin products & brands 10 5 General Insurance Quantity Growth Many new companies; minor growth in economic importance; substantial technology change Motor Vehicle Electrical Services 0 Motor Vehicle Body, Paint and Interior Repair -5 Motor Vehicle New Parts Wholesaling Motor Vehicle Body and Trailer Manufacturing Paint and Coatings Manufacturing Decline Shrinking economic importance % Growth in number of establishments

10 Motor Vehicle Body, Paint and Interior Repair in Australia March Industry Performance Industry Life Cycle This industry is Mature The Motor Vehicle Body, Paint and Interior Repair industry is in the mature phase of its life cycle. The industry relies on motor vehicle accidents to gain business. The increased safety of new cars that have advanced crashavoidance technology has reduced industry activity, but growth in the number of registered vehicles has had the opposite effect. Car insurers are also holding more sway over the industry, as operators increasingly rely on insurance claims through preferred smash repairer agreements to gain business. As car insurers are paying the repair costs, their market dominance has driven down prices and consequently industry revenue despite the high number of claims processed. Industry value added (IVA) measures an industry s contribution to the overall economy. IVA is expected to increase by a compound annual rate of 0.1% over the 10 years through IVA is therefore underperforming the overall economy, with real GDP forecast to grow by a compound annual rate of 2.7%. While the industry s contribution to the overall economy will decline, the industry will continue to gain a consistent stream of business as more cars are registered to drive on Australian roads. The industry is rationalising. The industry is expected to consolidate over the 10 years through , with the number of industry enterprises declining due to acquisitions by larger players. The increased size of larger players will better enable them to increase their bargaining power with parts suppliers and car insurers, allowing for more profitable operations. The industry has also suffered from overcapacity, as there are too many repairers for a relatively small fleet of vehicles. Inefficient repairers are being driven out of the market through acquisitions or bankruptcy, which is driving up profit margins.

11 Motor Vehicle Body, Paint and Interior Repair in Australia March Products & Markets Supply Chain Products & Services Demand Determinants Major Markets International Trade Business Locations Supply Chain KEY BUYING INDUSTRIES K6322 Z General Insurance in Australia The General Insurance industry pays for motor vehicle body, paint and interior repairers as part of insurance claims. Consumers Households that own vehicles with damaged bodies, paint or interiors are customers for the industry. KEY SELLING INDUSTRIES C1916 F3504 F3505 Paint and Coatings Manufacturing in Australia Paint manufacturers supply paints to repairers, as motor vehicle body repairs have to be painted. Motor Vehicle New Parts Wholesaling in Australia Wholesalers supply new motor vehicle parts to replace damaged parts. Motor Vehicle Dismantling and Used Parts Wholesaling in Australia Motor vehicle dismantlers and used parts dealers provide used parts to repairers. Products & Services The industry is segmented on a supplier basis, with smaller operators concentrating on minor repair jobs while larger establishments provide most services. Industry services include automotive body repair work, vehicle painting, windscreen repair, vehicle trimming, salvage operations and rustproofing. Vehicle body repair Vehicle body repair involves repairing the exterior of motor vehicles and is the largest segment. This is due to the higher price of replacement parts, the value of the labour needed to carry out repairs and the higher likelihood of damage to a vehicle s outer body in an accident, compared with windscreens and interiors. Vehicle body repair includes replacing or repairing body panels, bumpers, lights and mirrors. Panel beating is also part of this service segment. Vehicle body repair is projected to have shrunk as a share of industry revenue over the past five years. Demand for vehicle body repair is declining as road accident numbers slowly diminish due to improved awareness of road safety and safer vehicle designs. Automotive spray painting Automotive spray painting involves using a compressed gas to atomise paint and Products and services segmentation ( ) 7.4% 3.8% Other services Car washing and detailing 7.6% Automotive trimming and interior repair 51.2% Vehicle body repair 12.5% Windscreen repair 17.5% Automotive spray painting Total $7.1bn

12 Motor Vehicle Body, Paint and Interior Repair in Australia March Products & Markets Products & Services continued direct it at vehicle body panels. While declining vehicle accident rates are reducing the need to repaint damaged automobiles, demand for customised paintwork in the prestige market is outweighing this decline. Thus, the automotive spray painting segment is estimated to be increasing as a share of industry revenue. Windscreen repair Windscreen repair involves the repair of automotive windscreens, which are made from hardened safety glass that crumbles instead of shattering into large, sharp shards. Technological advancements are widening the service offerings without removing the glass of industry operators in this segment. The process involves drilling into the fractured glass to reach the lamination layer. Repairers then inject clear adhesive resin, which they cure with ultraviolet light. This technique offers an opportunity for revenue expansion and has resulted in this segment accounting for an increasing share of industry revenue over the past five years. Customers are more likely to opt for a repair because it prevents the risk of leaking and bonding problems associated with glass replacement. The downside for industry operators is that this process generates less revenue per service than traditional glass replacement. Automotive trimming and interior repair The trimming and interior repair segment is a smaller segment because customers tend to only repair severe damage inside their vehicles. Therefore, the segment is mostly made up of customised work for prestige and vintage vehicles. Being mostly custom work, the trimming and interior segment is expected to have gained revenue share over the past five years due to increased demand from the higher quintile income earners, whose incomes have grown as a portion of Australian incomes over the long term. Car washing and detailing Car washing and detailing services include self-service car washes, in-bay automatic car washes, conveyor tunnel washes and manual car washes and detailing. The segment has increased its revenue share over the past five years as consumers are increasingly using selfservice bays and automatic car washes, rather than washing their car at home. This trend was driven by stringent water restrictions during Australia s most recent drought. Despite the drought officially ending in 2012, consumers have continued to use these facilities, as they are more water efficient and environmentally friendly. Other services Rustproofing involves treating automotive metals with a thin, clear coat that protects the vehicle from elemental damage. Undercoating is less expensive and involves applying an additional layer of protection and insulation to the undercarriage of a vehicle. This segment is relative small in its share of industry revenue because vehicle manufacturers already provide rustproofing and undercoating for the vehicles they produce. This service segment mostly targets customers that want added protection or to replace worn off rustproofing and undercoating. Similar to services involving trimming and interiors, demand from high income earners is expected to have led to these other services gaining as a share of industry revenue over the past five years.

13 Motor Vehicle Body, Paint and Interior Repair in Australia March Products & Markets Demand Determinants Demand for motor vehicle body, paint and interior repairers is derived from households, insurance companies and fleet operators. The volume of repair work available largely depends on the number of vehicles on the road, the incidence and severity of vehicle accidents, and factors such as theft and weather damage. The motoring habits of vehicle drivers are the major factor determining the level of industry activity. Motoring habits are largely influenced by road regulations and legislation. The introduction of speed cameras and, to a lesser extent, drinkdriving laws has contributed to slower growth in industry activity. Drink-driving campaigns and booze bus blitzes have prevented motorists from driving when they are at high risk of crashing. The age of drivers on the road also plays a part in industry demand. Drivers on their probationary licences have a higher risk of being involved in accidents, so growth in this population cohort drives demand for the industry s services. Insurance companies dominate demand for the industry s services. The remainder is made up of private payment jobs, such as restoration work, and people with third-party insurance cover only, who have to pay for repairs to their own cars. Demand for the industry is primarily from comprehensive and third-party property insurance policy holders. On a smaller scale, compulsory third-party insurance policy holders and buyers of damaged vehicles from vehicle auctions contribute to demand. Major Markets Insurance companies generate the majority of industry sales. A high number of crashes result in drivers claiming the cost of repair work through their insurer, particularly when the potential cost is greater than their insurance excess. Industry operators gain business with insurers by being a preferred smash repairer (PSR) or by having their quotes for consumers verified and approved by insurers. Consumers can also contract industry operators to perform repair work outside of insurance claims. Insurers using preferred smash repairers The majority of demand from insurance companies is met through PSR agreements. These agreements provide preferential treatment to specific repairers. All car insurance providers have PSR agreements, which typically span between 100 and 1,000 industry operators. The criteria for being selected and retained as a PSR varies among insurers, but generally includes keeping average costs low while providing highquality repair work. Major market segmentation ( ) 8.7% Insurers using independent smash repairers 4% Other 67.9% Insurers using preferred smash repairers 19.4% Households Total $7.1bn

14 Motor Vehicle Body, Paint and Interior Repair in Australia March Products & Markets Major Markets continued The effect of these agreements on the industry is ambiguous. PSR agreements help to keep costs low and assist in speeding up the work process for insurance claims. On the other hand, PSR agreements also give insurers bargaining clout, as they are much larger companies than independent smash repairers and can often dictate their own terms. Revenue generated from insurance work provided under PSR agreements is expected to have increased over the past five years as major insurers Suncorp Group and Insurance Australia Group have expanded their PSR networks. Insurers using independent smash repairers With some insurers, consumers with damaged cars are given the opportunity to find their own smash repairers. As the insurer is paying for the repairs, there are different systems in verifying independent smash repairers to prevent insurance fraud. A typical system involves the consumer sourcing two separate quotes and the insurer choosing the particular smash repairer. The two quote system has been considered controversial, as it can encourage smash repairers to underquote to gain business and then cut corners in the repair work once the business has been acquired. Other insurance claims are expected to have fallen as a percentage of industry revenue over the past five years as insurers expand their PSR networks and filter more claims through to them. Households This segment includes consumers that source industry services outside of insurance claims. While these may be uninsured consumers, they are more likely to be consumers with minor repair jobs that are cheaper to pay for outright than through an insurance claim. Additionally, the household segment includes noncollision related custom paint jobs. The households segment is expected to have fallen over the past five years as motor vehicle dealers increasingly provide new car add-ons themselves. The other segment includes fleet operators and motor vehicle dealers that have direct agreements with repairers. International Trade Motor vehicle body, paint and interior repairers are not involved directly in international markets. The industry primarily services the domestic market, providing repair services for vehicles owned by Australian households and businesses and registered for Australian roads. In the absence of imports and exports, domestic demand is equal to industry revenue. The industry is exposed to foreign markets because purchases make up a large percentage of revenue. Replacement parts are often required for vehicles that have high-grade damage that cannot be repaired. Many of these parts are manufactured overseas, including bumpers and interior trim. The appreciating Australian dollar over the past five years has resulted in purchase costs for imported items falling.

15 Motor Vehicle Body, Paint and Interior Repair in Australia March Products & Markets Business Locations NT 0.8 QLD 21.3 WA 10.9 SA 7.5 NSW 30.7 VIC 26.2 ACT 0.9 Enterprises Cold Zone (<10) <25 <50 Hot Zone (<100) Not applicable TAS 1.7

16 Motor Vehicle Body, Paint and Interior Repair in Australia March Products & Markets Business Locations The distribution of motor vehicle body, paint and interior repair businesses across Australia largely follows the distribution of registered motor vehicles, which generally follows population distribution. New South Wales, Victoria and Queensland make up the bulk of industry revenue, but this is primarily because they account for the majority of registered motor vehicles. The three states are all slightly overrepresented compared with their share of registered vehicles, indicating that population density provides viability to many smaller operators. States with lower population density tend to be underrepresented compared with their share of registered motor vehicles. Tasmania, the Northern Territory and the Australian Capital Territory are all underrepresented compared with both their shares of registered motor vehicle and their population shares. Many areas of these states and territories have markets that are too small to allow for a significant number of competitors. When only a small number of businesses can remain viable in an area, the number of enterprises per capita will be low. Growth in the number of industry Percentage Distribution of enterprises vs. population ACT Enterprises Population NSW NT QLD SA TAS VIC WA enterprises tends to lag behind population growth. This is particularly the case in Western Australia. The state has undergone tremendous population growth over the past five years, which has caused its share of registered motor vehicles in Australia to increase. Growth in the number of motor vehicle body, paint and interior repair operators has been sluggish in catching up to the increase in demand.

17 Motor Vehicle Body, Paint and Interior Repair in Australia March Competitive Landscape Market Share Concentration Key Success Factors Cost Structure Benchmarks Basis of Competition Barriers to Entry Industry Globalisation Market Share Concentration Level Concentration in this industry is Low The industry is fragmented due to its ease of entry. This ensures that there are always new entrants to the industry when profit margins are sufficient. The majority of enterprises tend to only hold a small share of the market and are unable to gain significant economies of scale. This situation is changing with an exodus of smaller operators, such as working proprietors. The proportion of working proprietors to total establishments is estimated to have declined over the past five years. This has been partially due to the exit of working proprietors from the industry and the expansion of franchises, which has slightly pushed up market share concentration. Key Success Factors IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are: Ability to quickly adopt new technology It is important that companies introduce new technology to increase internal efficiencies. Proximity to key markets Being located in an area with a high vehicle density increases the potential volume of customers. Ensuring pricing policy is appropriate The business skills of operators are important, particularly in the areas of costing, quoting, negotiation and general management, because repairers are constantly dealing with large insurance companies. Business expertise of operators Experience in the industry provides operators with knowledge of more efficient operation methods and customer retention and referral strategies. Provision of development programs for personnel Staff need to constantly update their skills because of new technology being incorporated into new vehicles. Ability to secure a preferred smash repairer arrangement with an insurer Preferred smash repairer agreements lead to more work and faster payment for the repair shop. Cost Structure Benchmarks Cost structures within the industry generally depend on the size of the company and the services that it provides. Larger companies tend to keep wages down and can generate strong profit margins through economies of scale. The industry has a mix of companies that mostly perform minor repairs and others that can perform more extensive repairs. The specialised equipment required for major repairs results in these companies being more capital-intensive. Profit Profit margins in the industry are restricted by the need to quote low prices and the bargaining power of insurance companies. The majority of business in the industry comes from insurance claims. Industry operators need to develop relationships with insurers to become preferred suppliers. However, due to the strong bargaining power of insurers, costs need to be minimised to make it a profitable enterprise for the insurer. Despite these restrictions, margins are expected to have grown over the past five years as the economic outlook has improved after the global financial crisis. Purchases The major purchasing costs for the industry are paint and replacement motor vehicle parts, such as panels and trim. Parts can be genuine original equipment, which are manufactured by suppliers officially contracted by motor vehicle manufacturers. Non-genuine parts are generally much cheaper but can be lower quality. Industry operators typically

18 Motor Vehicle Body, Paint and Interior Repair in Australia March Competitive Landscape Cost Structure Benchmarks continued purchase genuine parts directly from manufacturers or from specialist part wholesalers. While these costs are transferred to the consumer, they make up a significant percentage of revenue. Purchases are expected to have fallen as a percentage of revenue over the past five years as the high Australian dollar has pushed down the prices of imported parts. Wages Wages are the second highest cost due to the large manual labour requirements of repairing motor vehicles. Repair activities are difficult to automate due to the variety of vehicle models and repairs needed. Companies performing work on minor damage are likely to be more labour-intensive because all of it can be manually completed. Wages as a percentage of revenue are expected to have remained stable over the past five years despite the average wage increasing. While industry operators have held on to their most skilled employees, cost-cutting measures have led to lower skilled workers being laid off as operators aim to improve productivity. Depreciation and other expenses Depreciation as an expense is expected to have increased over the past five years due to significant compliance requirements. The recycling or waste management of paint residue and metal is becoming more important to the industry as more stringent environmental legislation is introduced. Industry operators have also been subject to increasingly rigorous occupational health and safety requirements. These requirements have placed increased demands and cost pressures on repairers. Necessary capital investment has occurred for fume and dust exhausts, paint booths and paint mixing rooms, fireproof storage facilities, personal protective clothing, noise testing for electrical equipment, and health testing for spray painters and other employees. Other cost items include leasing, cleaning, administration, insurance, security, rent and utilities. Sector vs. Industry Costs Average Costs of all Industries in sector ( ) Industry Costs ( ) Percentage of revenue P r o fi t Rent Utilities Depreciation Other Wages Purchases

19 Motor Vehicle Body, Paint and Interior Repair in Australia March Competitive Landscape Basis of Competition Level & Trend Competition in this industry is Medium and the trend is Steady Competition in the industry is primarily based on price, quality of work and relationships with car insurers. There is minimal competition from outside of the industry because operators provide a specialised service. Internal competition The basis of competition between industry operators largely depends on where demand is coming from. If consumers are aiming to use the services of body, paint and interior repairers privately and outside of an insurance claim, price will be a major factor. Consumers will often source multiple quotes. The operator that provides the lowest quote is likely to be deemed the most attractive option. Consumers also place emphasis on quality. While motor vehicle accidents requiring such repairs are relatively infrequent, consumers can gain knowledge from word-of-mouth appraisals and online reviews. When consumers want their own vehicle repaired, they are most likely to want the best quality outcome. When body, paint and interior repairers are sought out for an insurance claim, price remains a significant factor. Relationships between body, paint and interior repairers and insurance companies are highly important. Industry operators that demonstrate an ability to provide consistent, quality services at reasonable prices are likely to gain repeat business from insurance companies. External competition The Motor Vehicle Body, Paint and Interior Repair industry operates in the wider motor vehicle retail market and faces some external competition from motor vehicle dealers that provide their own services, particularly motor vehicle trimming and panel beating. The only other competition can come in the form of new car warranties. Motor vehicle manufacturers often provide replacement parts under warranty, preventing industry operators from generating revenue. Barriers to Entry Level & Trend Barriers to Entry in this industry are Low and Steady The industry exhibits low barriers to entry. The main barriers involve cashflow problems and new entrants requiring trade skills to perform motor vehicle body, paint and interior repair work. New industry operators have to become efficient in providing the fastest turnaround of a damaged vehicle without it being returned due to faulty workmanship. To be able to do this, the operator has to have an excellent understanding of repair operations, team building and quality management. Cashflow problems are less the result of technical knowhow and more due to underlying economic conditions. New entrants could have significant capital requirements depending on the scope of work they plan on doing major body repairs often require machinery. Beyond the cashflow required for capital, it is also needed for initial rent Barriers to Entry checklist Competition Concentration Life Cycle Stage Capital Intensity Technology Change Regulation & Policy Industry Assistance Level Medium Low Mature Low Medium Light Low and wage expenses prior to the firm turning a profit. While new entrants generally have access to finance, funds can dry up in turbulent economic conditions, making it difficult to invest in a new start-up. Apart from the necessary trade skills and capital requirements, there are few regulatory barriers to entry into the industry. The situation in New South

20 Motor Vehicle Body, Paint and Interior Repair in Australia March Competitive Landscape Barriers to Entry continued Wales differs from other states in that entrants need to be licensed by the State Motor Vehicles Repair Industry Council under the Motor Vehicle Repairs Act The site has to be approved by the local council and the licensing entails the use of prescribed equipment and the employment of tradespeople. Industry Globalisation Level & Trend Globalisation in this industry is Low and the trend is Steady The industry exhibits a low level of globalisation. There is no international trade because industry operators primarily service the domestic market by providing repair services for motor vehicles registered to be driven in Australia. Furthermore, there is no evidence of foreign ownership within the industry.

21 Motor Vehicle Body, Paint and Interior Repair in Australia March Major Companies There are no major players in this industry Other Other Companies The Motor Vehicle Body, Paint and Interior Repair industry mainly consists of small, privately owned, independent businesses. However, there is a significant and growing number of chain operators. Chain operators benefit from sharing information, stronger group buying power and better cashflow management. Notable industry chains include Capital S.M.A.R.T Repairs, LSR Autobody and Car Craft Group. Capital S.M.A.R.T Repairs Australia Pty Ltd Estimated market share: Less than 3.0% Capital S.M.A.R.T Repairs specialises in performing repairs on driveable vehicles with low to medium levels of collision damage. The company was established in 2007 and is based in Bentleigh East, VIC. It operates 24 repair centres across Victoria, New South Wales, Queensland, Western Australia, South Australia and the Australian Capital Territory. Capital S.M.A.R.T Repairs entered into a joint venture with Suncorp Group in Suncorp Group is a major player in car insurance, owning AAMI, GIO, Apia, Shannons, Just Car and Bingle. Capital S.M.A.R.T Repairs now exclusively performs insurance repairs, generally for consumers that are insured with one of Suncorp Group s brands. Consumers are unable to contact the company directly, and must do so through their insurer. Growth in insurance claims being processed through preferred smash repairers has driven market share expansion for the company. LSR Autobody Pty Ltd Estimated market share: Less than 1.0% LSR Autobody is a niche operator, specialising in luxury and sports car repairs. Operating for over 35 years, LSR Autobody is located in Sydney. It is a factory-approved repairer for Mercedes- Benz, Ferrari and Porsche. The company is also a factory-preferred repairer for Maserati vehicles. LSR Autobody employs about 20 staff who are kept up-to-date with the latest manufacturer construction methods and materials. The company uses state-of-the-art repair technology and only sources genuine (original equipment) parts. LSR Autobody is a preferred supplier to several large insurance companies including NRMA, Allianz, Suncorp, Lumley and QBE. Car Craft Group Estimated market share: Less than 1.0% Car Craft Group was formed as Car Craft Panel & Paint Ltd in 1987 in Western Australia. It has since grown to a group of over 40 accident repair centres. The centres operate as a cooperative throughout Western Australia and Queensland. The cooperative provides strong supply chain contracts to its members and focuses on superior customer service. It is also involved in promoting industry education and training to address the shortage of qualified staff.

22 Motor Vehicle Body, Paint and Interior Repair in Australia March Operating Conditions Capital Intensity Technology & Systems Revenue Volatility Regulation & Policy Industry Assistance Capital Intensity Level The level of capital intensity is Low The Motor Vehicle Body, Paint and Interior Repair industry exhibits low capital intensity. The industry spends an estimated $11.07 on wages for every dollar invested in capital. Traditionally, smash repairing has involved labourintensive panel beating and painting techniques. The high labour usage involved in the industry s work has meant that capital intensity remains low. Labour expenses include the wages paid to skilled panel beaters, spray painters and administrative staff. Over the past five years, repair technologies have advanced in a number of areas. These areas include plastic heat welding, computerised alignment systems, computerised paint matching and infra-red paint boots. To some Capital intensity Capital units per labour unit Economy Personal Services Motor Vehicle Body, Paint and Interior Repair Dotted line shows a high level of capital intensity extent, these changes have been necessitated by the improved technology present in modern vehicles. Tools of the Trade: Growth Strategies for Success New Age Economy Recreation, Personal Services, Health and Education. Firms benefit from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labour skills are key to product differentiation. Investment Economy Information, Communications, Mining, Finance and Real Estate. To increase revenue firms need superior debt management, a stable macroeconomic environment and a sound investment plan. Labour Intensive Traditional Service Economy Wholesale and Retail. Reliant on labour rather than capital to sell goods. Functions cannot be outsourced therefore firms must use new technology or improve staff training to increase revenue growth. General Insurance Motor Vehicle Body and Trailer Manufacturing Motor Vehicle Electrical Services Motor Vehicle New Parts Wholesaling Motor Vehicle Body, Paint and Interior Repair Capital Intensive Old Economy Agriculture and Manufacturing. Traded goods can be produced using cheap labour abroad. To expand firms must merge or acquire others to exploit economies of scale, or specialise in niche, high-value products. Change in Share of the Economy

23 Motor Vehicle Body, Paint and Interior Repair in Australia March Operating Conditions Technology & Systems Level The level of Technology Change is Medium Depending on the type of work carried out, different equipment requirements do apply. Technological requirements are highest at the upper end of activity, where the operator is performing heavy repairs. It is common for these operators to invest in different pulling systems, baking ovens, jigs and paint booths. High skills are required in these types of operation to provide accuracy and speed in repairs, ensuring the highest quality work and quick turnaround times. At the lower end of activity, where the operator is predominantly involved in driveable repairs, technological requirements tend to be less important and manual operations are the norm. A remote vehicle assessment system has been introduced by the insurance and motor vehicle repair industries. It provides improved customer service and a significant reduction in vehicle repair times. The system combines sophisticated software, a video camera and a modem connection between the repairer and the insurer to allow assessors to appraise damaged vehicles on their office computer without visiting the repair shop. Insurance companies in a number of states use the system to obtain quotes based on a tendering system. The system does not discriminate on equipment used, as shops with basic equipment compete with shops that have technologically advanced repair equipment. Other technological advancements in systems and equipment include computerised measuring systems, multidirectional pulling systems, dustless sanders and welding and lifting equipment. The industry has benefited from advancements in technology in many areas, including plastic heat welding, computerised alignment systems, paintless dent removal, twopack paint, computerised paint matching, recycling and infrared paint boots, and digital imaging for internet-based quoting and assessments. Revenue Volatility Level The level of Volatility is Low The performance of the industry has been fairly stable over the past five years, as the main demand determinant for repairs is the number of motor vehicle crashes. Accidents are random, but generally follow a smooth trend from year to year. The industry is also influenced by motor vehicle activity and stock. Motor vehicle activity has been negatively affected by increasing petrol prices, while the global financial crisis has put some strain on the growth in motor vehicle stock. Increased safety features on new cars have decreased demand for the industry s services as A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment. When a firm makes poor investment decisions it may face underutilised capacity if demand suddenly falls, or capacity constraints if it rises quickly. Revenue volatility* Volatility vs Growth Hazardous 0.1 Stagnant Blue Chip Five year annualised revenue growth Rollercoaster Motor Vehicle Body, Paint and Interior Repair * Axis is in logarithmic scale

24 Motor Vehicle Body, Paint and Interior Repair in Australia March Operating Conditions Revenue Volatility continued more drivers are able to avoid accidents. These factors have caused slight volatility in industry revenue. Similar trends are expected over the next five years as car accidents will not completely dry up, causing similarly low revenue volatility. Regulation & Policy Level & Trend The level of Regulation is Light and the trend is Increasing The smash repair segment is not regulated, apart from in New South Wales and Western Australia. In New South Wales, the Motor Vehicle Repair Industry Authority is in charge of a licence program for the motor vehicle repair sector, including smash repairers. Western Australia has a similar program. In Victoria, the Victorian Automobile Chamber of Commerce (VACC) has successfully introduced an accreditation scheme. Participating members are required to satisfy minimum equipment levels and to sign an undertaking agreeing to abide by the VACC Body Repair Division s codes of business practice. Consumers benefit from the accreditation scheme by being provided with high levels of customer service, ensuring quality and price fairness. In August 2005, the Federal Government acted on recommendations by the Productivity Commission to establish a taskforce to develop a voluntary code of conduct between insurers and smash repairers. The various stakeholders agreed to the code of conduct. The code covers the way insurance companies select preferred smash repairers, the method of quoting repair costs and how disputes are handled. These initiatives have contributed to the increasing regulation in the industry, although it remains at a relatively light level. Industry Assistance Level & Trend The level of Industry Assistance is Low and the trend is Steady The industry receives minimal government assistance. There is no international trade within the industry because it is service-based and oriented towards the domestic market. Therefore, there are no benefits available in the form of import tariffs or quotas. Trade organisations such as the Victorian Automobile Chamber of Commerce and the Australian Motor Industry Federation provide advocacy and technical assistance to their members.

25 Motor Vehicle Body, Paint and Interior Repair in Australia March Key Statistics Industry Data Revenue ($m) Industry Value Added ($m) Establishments Enterprises Employment Exports Imports Wages ($m) Domestic Demand , , ,210 12,222 41, ,756.5 N/A , , ,377 12,259 41, ,785.3 N/A , , ,960 11,803 40, ,782.1 N/A , , ,841 11,604 40, ,812.6 N/A , , ,196 11,804 42, ,905.3 N/A , , ,227 11,730 42, ,925.3 N/A , , ,897 11,504 40, ,915.2 N/A , , ,812 11,348 39, ,886.9 N/A , , ,652 11,198 39, ,840.1 N/A , , ,575 11,016 39, ,802.0 N/A , , ,415 10,886 39, ,770.3 N/A , , ,445 10,739 38, ,784.9 N/A , , ,231 10,604 38, ,781.4 N/A , , ,073 10,520 38, ,792.5 N/A , , ,101 10,561 38, ,812.4 N/A Sector Rank 3/23 6/23 3/23 3/23 4/23 N/A N/A 6/23 N/A Economy Rank 160/ /775 66/776 60/775 88/775 N/A N/A 122/775 N/A Annual Change Revenue Industry Value Added Establishments Enterprises Employment Exports Imports Wages Domestic Demand N/A N/A 1.6 N/A N/A N/A -0.2 N/A N/A N/A 1.7 N/A N/A N/A 5.1 N/A N/A N/A 1.0 N/A N/A N/A -0.5 N/A N/A N/A -1.5 N/A N/A N/A -2.5 N/A N/A N/A -2.1 N/A N/A N/A -1.8 N/A N/A N/A 0.8 N/A N/A N/A -0.2 N/A N/A N/A 0.6 N/A N/A N/A 1.1 N/A Sector Rank 20/23 23/23 19/23 20/23 16/23 N/A N/A 22/23 N/A Economy Rank 648/ / / / /775 N/A N/A 670/775 N/A Key Ratios IVA/Revenue Imports/Demand Exports/Revenue Revenue per Employee ($ 000) Wages/Revenue Employees per Est. Average Wage ($) Share of the Economy N/A N/A , N/A N/A , N/A N/A , N/A N/A , N/A N/A , N/A N/A , N/A N/A , N/A N/A , N/A N/A , N/A N/A , N/A N/A , N/A N/A , N/A N/A , N/A N/A , N/A N/A , Sector Rank 20/23 N/A N/A 7/23 19/23 16/23 11/23 6/23 Economy Rank 382/775 N/A N/A 573/ / / / /775 Figures are inflation-adjusted 2015 dollars. Rank refers to 2015 data.

26 Motor Vehicle Body, Paint and Interior Repair in Australia March Jargon & Glossary Industry Jargon GENUINE PARTS Also known as original equipment, these parts are made or certified by motor vehicle manufacturers. PANEL BEATING The process of repairing vehicle bodies that have been damaged, usually in a collision. PREFERRED SMASH REPAIRER (PSR) A smash repairer that has a preferential work agreement with a vehicle insurer. These typically entail the smash repairer agreeing to minimise costs in order to receive work from insurance claimants. IBISWorld Glossary BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry. CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labour. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labour; medium is $0.125 to $0.333 of capital to $1 of labour; low is less than $0.125 of capital for every $1 of labour. CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the real growth or decline in industry metrics. The inflation adjustments in IBISWorld s reports are made using the Australian Bureau of Statistics implicit GDP price deflator. DOMESTIC DEMAND Spending on industry goods and services within Australia, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports. EMPLOYMENT The number of permanent, part-time, temporary and casual employees, working proprietors, partners, managers and executives within the industry. ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control. ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise. EXPORTS Total value of industry goods and services sold by Australian companies to customers abroad. IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in Australia. INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%. INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded. INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry s contribution to GDP, or profit plus wages and depreciation. INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%; medium is 5% to 20%; and high is more than 20%. Imports/domestic demand: low is less than 5%; medium is 5% to 35%; and high is more than 35%. LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services. NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals. PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company s profitability. It is calculated as revenue minus expenses, excluding interest and tax. VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%. WAGES The gross total wages and salaries of all employees in the industry. Benefits and on-costs are included in this figure.

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