The National Body Repairers Association has published an open letter to work providers calling for increased COVID-19 terms.
In response to the concerns expressed by many repairers about the losses they are experiencing when supporting customers under Covid-19 conditions, the NBRA has considered the adequacy of the existing concessions made by some work providers to the contract terms. As a result, we are proposing a set of temporary changes to which we will be recommending repairers in order to allow them to retain a small operating margin throughout this period, accepting the losses already incurred.
Since 23rd March when Covid-19 social distancing measures were increased, motorists have used their cars less, accidents have decreased and repairers have found it increasingly difficult to stay open due to low volumes, supply chain interruptions, and employee safety.
Up to 74% of repairers have since either temporarily closed their doors or are operating a skeleton service, doing little more than accepting instructions. The remainder of repairers who decided to attempt to trade through the covid-19 lock-down are arguably providing an essential service to both work providers who need assistance for their customers and also to those “key workers” needing their vehicles fixed in order to serve the public on lock-down.
However, it is clear that in most cases for these repairers still trading, standard “contracted terms” are wholly insufficient to allow them to break-even, let alone make a profit. This should come as no surprise, as the model for repairers for many years has been high volume / low margin, which doesn’t work with less than half the normal volume of repair.
The industry has operated on sub 5% operating profits for the past 25 years and therefore it is no surprise that very weak balance sheets is the norm.
If a repairer is running below 60% capacity, they are likely to be losing money as their marginal profits are not enough to cover fixed costs (even with staff furloughed and the government paying 80% of their wages). Some repairers had been able to break even due to work in progress and accidents that happened before the lockdown was announced on the evening of 23rd March, but with the lock-down measures extended to at least 7 May, much of this work has dried up.
Repairers are left with work volumes reflecting an accident frequency that has reduced by between 70 and 90% and even then, many policyholders are struggling to release their vehicle for repair or are worried about paying the excess.
Work Provider COVID-19 support to Repairers
Work providers have offered a range of COVID-19 support solutions to assist repairers with this situation and also to protect their policyholders from infection. These range from Covid-19 cleaning charges (for customer car and courtesy car) of between £0 and £80, labour rate increases of between £0 and £7.50 per hour.
Some have recognised that the wholesale terms available on parts to repairers have reduced and have accordingly reduced the parts discount they require – this has been the most beneficial concession. This COVID-19 support, ranges from a benefit to the repairer of between £10 and £166 per job with Allianz providing the greatest support followed by Direct Line Group in our opinion. The average is £90 per job.
Adequacy of COVID-19 support to repairers
The NBRA has worked with repairers to understand the true cost of providing an essential service during Covid-19. This of course will vary from repairer to repairer based on a number of factors: –
- Proportion of work they have compared to fully efficient
- Cost of overheads
- Whether they own premises or not
- The ability to partially offset or reduce overheads
- The ability to furlough staff
- The contracts and concessions received (as mentioned above)
But if we use an example of a typical (real) repairer with 15 Technicians, running at 30% of normal volumes, who has offset his business rates overhead and furloughed a proportion of staff, He is likely to be running at a monthly loss of £16k or £326 per job (£12k or £245 per job with typical Covid-19 support concessions)
At 20% efficiency (i.e. a repairer operating with 80% less work than usual) this moves to a loss of £22k and £687 per repair (£20k or £606 per job with typical Covid-19 concessions)
Clearly these levels of loss are unsustainable especially as the lockdown extends to at least 8 May and lots of uncertainty.
How could we address this?
If we accept that repairers are providing an essential service to policyholders through this period, we also must accept that they should not be required to operate at a loss.
Contracted rates together with existing work provider concessions are falling way short of what is required for a repairer to break-even let alone make a typical margin of c. 5%. We believe that the few who are trading should be free at this stage to charge the rates necessary for them to make an operating profit. It should be in effect an “open market” with businesses setting their own rates and work providers negotiating terms with their network on an individual basis. Though, we realise this would be disruptive and generate a lot of unnecessary work and meetings at a difficult time.
A simpler approach would be for the NBRA to publish a set of additional temporary charges applicable to repairs at this time that genuinely would account for their lost margin and create a fair temporary mechanism of “exceptional charges” during the Covid-19 period and perhaps beyond. An element of this would be a labour uplift accepting that labour cannot be as efficient during Covid-19 due to distancing, but we accept this is a sensitive and emotive subject, hence it being only a proportion of the mechanism.
Alternative approaches could be:- a) A temporary change to GTA Rates b) A single “one off” Covid-19 charge of c.£400 or c) Direct cash injection (similar to Progressive in US)
NBRA has engaged with a number of repairers throughout this period to understand and calculate how their businesses have been affected. The attached table (Recommended Guide to Covid-19 Charges) provides a summary output of the differing charges that will be required to allow trading repairers to operate on a solvent basis. NBRA would encourage repairers to use these.
Existing Underwriter Concessions
NBRA would be encouraging repairers to either stick with existing underwriter concessions or replace them with the temporary Covid-19 charges in (Schedule 1) below.
The Underwriter’s Challenge
NBRA understand that work providers are in no way to blame for Covid-19. We also understand that most will have incurred costs from getting employees set up as home workers and more diversified work providers will continue to sustain significant losses in other underwriting classes such as Travel and Business Interruption in addition to Property from recent floods.
NBRA also understand that underwriters will be cautious about spending extra on Motor Claims as there will inevitably be those who take benefits from the Covid-19 situation and transform claims savings into price reductions to gain future market share. On top of all this there is a small risk of government intervention diverting savings directly back to consumers.
Notwithstanding the above, Motor underwriters are expected to make a conservative £1 billion in claims savings unexpectedly through Covid-19 whilst the Repair Industry is looking at considerable losses and closures.
NBRA has realised that it is almost impossible for underwriters to step forward and offer the necessary terms repairers require at the moment without fear of the above risks and losing competitive advantage, even as we suspect, many wish to do more for their supply chain partners.
The Repairer Dilemma
Whilst many will complain, many repairers will concede that they have a good working relationship with underwriters now and that improves each year. Many repairers and repairer groups are highly dependent on the relationships and do not wish to individually create problems or damage genuinely good relationships. However, no business wishes to or should attempt to operate at a loss. Doing so over a prolonged period or remaining closed will be very damaging to an industry that was recognising under-supply, underfunding and skills shortages pre-Covid-19.
Example Repairer Model – (A real bodyshop’s numbers)
Recommended Guide to Temporary Covid-19 Charges (Schedule 1)
|Charge||Value of charge to add||Rationale|
|Reduce Invoiced Parts Discount by||10%||Currently repairers are not enjoying the discounts that they would normally pass on to underwriters. This is due to having to use suppliers that they don’t have agreed terms with and in many cases having to pay up front as they have no credit in place. This has a value of approx. £75|
|Audatex uplift||£36||At 25% of normal volume, due to software charges being based on past volume, Audatex cost per assessment has increased by £36|
|Disinfect cleaning of courtesy car||£20||Courtesy car out £10, courtesy car back again £10 (inc. materials)|
|Disinfect cleaning of customer car||£20||Customer car in £10, customer car return £10 (inc. materials)|
|Collection and delivery||£60||“Drive-ins” have reduced by 25 percentage points, plus C&D in many instances has to be done by truck due to two drivers being unable to be in the same car at once|
|Parts collection (where applicable)||£100||On ¾ of jobs. Based on cost of (man + van + insurance + fuel) on 2 cases per day. (Or courier charge + 10% if possible)|
|Labour inefficiency Cocid-19 uplift||£4 / hr||Where staff are on site, they need to social distance and clean vehicles as they hand over to other operatives, clean shared tooling. This has a value of approx.. £68 on an average job|
|Mobility||£8 / day up to max 10 days||Whilst there are fewer jobs, lease car costs cannot be escaped. This is based on £8 a day x an average K2K of 10 days (slowed due to Covid-19 challenges inc. parts). This has a value of up to £80|
|Overhead Contribution||£100||Based on 25% of volume this is the remaining gap in contribution to cover overhead costs not covered by the above individual changes|
What jobs would this apply to?
Applies to any job instructed post 21st March 2020, but not yet invoiced up until end May. At which point this will be reviewed.
NBRA propose that these temporary charges are scaled back proportionately (to be shared separately) in stages as work volumes increase based on data provided by Audatex on the percentage of claims processed vs. prior year.
How will Work Providers react?
These charges have been considered not for “profiteering” from the current situation, but simply as a guide to help repairers know what to charge in order to trade at a modest net margin.
NBRA believes that it will be difficult for underwriters and Engineers to argue with these charges which are reasonable and fair.
NBRA understands that some charges will be accepted, some will be rejected. Where accepted NBRA will be applauding the work provider and where rejected the NBRA will be challenging the work provider for an alternative.
We do not believe that any repairer should worry or be penalised in the future for asking what is essentially the minimum that any trading business should ask for.
|21 April||Work Provider Engagement||Share with work providers asking for commentary / feedback|
|22 April||Media Communication||Communicate what we aim to publish|
|23 April||Amendments||Make any amendments based on feedback|
|24 April||Publish Charges||Make charges available to repairers and recommend that they are added to repair jobs|