Kinsey report shows true cost of vehicle repairs

Jonathan Faurie, FAnews Journalist

The motor repair sector, is where insurers are fighting a losing battle to reduce costs, as the industry has transformed itself from a panel repair industry to a panel replacement industry. This is seeing the slow death of panel beaters who prefer to put a replacement part on a vehicle as opposed to repairing damaged parts. This is having a significant impact on the insurance industry, which finds itself between a rock and a hard place in terms of achieving its objectives.

This forced the South African Insurance Association (SAIA) and various other big name insurers to look into the aspects which are influencing this movement.

Lack of skills

One of the biggest influencing factors towards this movement gaining momentum is the lack of skills the country is experiencing. According to Government’s statistics, South Africa has a shortfall of about 40 000 qualified artisans against the annual production rate of 13 000 qualified artisans. Without skilled labour in the industry, it becomes easier to fit a replacement part of a vehicle than repairing it.

Compounded to this problem is the fact that artisans who are coming through the system are emigrating to other countries that are in desperate need of skilled labour.

Operating in an unsure environment

Perhaps one of the biggest influencing factors is the ever weakening Rand which results in the costs of vehicle repairs going up significantly.

Another influencing factor is the fact that vehicle repair companies may favour replacements over repairs because of certain cost benefits. The 2013 Kinsey Report says that this has a significant impact on the industry.

First of all, the costs of replacement parts vary from region to region. The report shows that the same vehicle built in both Spain and Taiwan, has a rear bumper costing the equivalent of R17 000 from Spain and R6 000 from Taiwan.

This is influenced by distance to manufacturing markets and import duties. It is an area where South Africa is at a particular disadvantage. Like Spain, South Africa is nowhere near any manufacturing markets, and the import duties that the South African Government imposes on is close to 100%.

This significantly inflates prices if we take another aspect into account. Added to the 100% import duties imposed by Government, the Kinsey Report shows that according to the Competitions Board of South Africa, manufacturers may not set definitive prices for their goods. Retail sales prices are recommended by the Board but dealerships can still make the final decision on what they charge.

Dealerships are thus allowed to mark the product up to whatever they feel the market will bear. The report found that one vehicle brand’s parts prices in Durban was about 10% more expensive than the prices for the same parts in Johannesburg. The same parts were as much as 20% higher in Cape Town than in Johannesburg.

When buying an older vehicle, maintenance and repair costs is a significant consideration. It makes sense to shop around, ask for discounts, even check two different franchise dealerships to see if one has lower prices than the other.

Working towards change

The fact that the insurance industry is battling these challenges in its efforts to reduce costs effectively puts it in a position whereby it has its hands tied behind its back. However, there are growing efforts within the industry to help resolve this situation.

Transport group and Imperial Holdings have taken the initiative to start one of three major Technical Training Academies to address the shortage of technical expertise within the motor, electrical and auto-tronic industries.

Sean Fenn, General Manager of Development and Training at the academy, said, "The pipeline that had produced apprentices in South Africa in the past was broken. The academy is part of an engagement to repair that pipeline. According to industry reports, Imperial will train over 350 apprentices in various related automotive trades at its Belville academy this year, and another 500 apprentices at its Germiston and Wadeville academies in Gauteng province.” This will go a long way in resolving some of the industry’s issues.

A different approach also needs to be taken when purchasing a vehicle. Factors that need to be considered when buying a new vehicle is to pay attention to the crash parts prices. The Kinsey Report adds that you should not be in for any servicing or warranty costs for the first few years, but body repairs can hit you, literally, from day one.

In the event of an accident, irrespective of who is to blame, the costs will affect your pocket either in the size of the excess you have to pay or where the write-off point is reached. Write-off point is generally about 70% of the value of the vehicle, and the value is not what the customer paid for the vehicle, but rather what he would get if he sold it.

Editor’s Thoughts:
Last year, after a long standing legal battle, automotive parts supplier Grandmark won an important ruling against BMW, with the effect that after-market companies will have more freedom to supply automotive body parts, without fears of legal repercussions. The ruling has major implications for short-term insurers who now have more scope to recommend after-market replacement parts in an effort to lower the costs of vehicle repairs. Is this happening, in practice? Please comment below, interact with us on Twitter at@fanews_online or email me your thoughts jonathan@fanews.co.za.