Canadian Underwriter

Insurers’ desire for fewer vendors squeezing bodyshops

March 19, 2007   by Canadian Underwriter

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Various pressures are reshaping the auto collision repair industry in 2007 including insurance demands for fewer vendors and many feel this will be the year that some bodyshop owners decide to close their doors, according to an online report by Bodyshop magazine.
The report notes that new environmental legislation, combined with rapidly evolving vehicle technology, lack of skilled workers and changing DRP relationships, are squeezing collision repair facilities throughout the country.
In Ontario, “although shop transience is normally around 8% a year, shop closure in 2007 could be as high as 15%, with half of them going underground,” according to Hamilton District Autobody Repair Association (HARA) executive director John Norris, who is quoted in the Bodyshop article posted at:

Norris said a split occurred in Ontarios collision repair industry in part because of insurers demands for fewer vendors. Insurance demands for fewer vendors but higher rebates or referral fees created a ‘them-and-us’ scenario, Bodyshop quotes Norris as saying. Many of the banner shops had the same flow of traffic as previous years but were profiting much less.
A flurry of large competent independent shops, dropped from DRP lists, raised prices significantly, doing less work for more profit. A clear gap developed between DRP shops operating at $42-$44 net labor rate and large independents shops plus shops outside of metropolitan Toronto operating at $58-$60 per hour.”
For Ontario in 2007, Norris predicts a larger gap between DRP pricing and enforced retail pricing. He also believes there will be a dramatic increase in underground and “chase” activity that will prevent vehicles from arriving at insurer’s recommended facilities and will disrupt production flow.
Bodyshop also cites Norris as speculating that auto collision centers may contemplate lawsuits against insurers. He says such lawsuits may allege insurers did not properly reimburse shops or urged customers not to use the shop of their choice.
Banner shops may also contemplate lawsuits against their corporate entities, Norris added, for the loss of an insurance contract or for forcing them to do the same insurer’s work at a lower price.