REVIEWS - AUTOMOTIVE AFTERMARKET
GLOBAL COLLISION REPAIR MARKET TRENDS
The best prospects for collision repair business are in the emerging automotive markets, such as Brazil, India and China. In the more mature markets, such as the USA and Europe, demand is shrinking. Collision repair is becoming more difficult and costly.
Low Demand Markets
Demand in mature markets is stagnant as parts' replacement rather than repair is becoming the norm. An increasing number of complex electronic, electrical and computerised components cannot be repaired. Further high labour charges often make parts' replacement cheaper than repairs. However, in Australia road side and call out repairs sustain profitablity in outlets offering this service. Collision repair outperforms other business.
High Demand Markets
Demand for collision repair is high in the emerging markets. In countries such as Brazil, India and China repairs can account for up to 50% of business in service outlets. Strong demand in these markets is due to sub-standard roads, bad driving, and low quality parts.
Climatic conditions (rain, snow) help to maintain demand for collision repair. There are more accidents during the snowy winters in Hong Kong and during the rainy season in India. The high accident rates will not fall in the short term due to increasing car ownership which will make roads, particularly in cities, even more congested. This will maintain demand for minor (for example, dents to fenders) and major repairs.
The high percentage of commercial vehicles, along with the many old cars in a bad condition, in the vehicle park maintains demand for collision repair. In some emerging markets public transport Ð buses, taxis Ð and haulage vehicles can account for up to 25% of business in service outlets. Intensive usage and long distance driving on substandard (often unpaved) roads makes these vehicles more likely to be involved in accidents.
Leading Repairs
The leading repairs in the emerging markets are to the chassis, steering and suspension which are damaged by substandard roads. This business will fall somewhat as road are improved, particularly in cities.
Profitability
Collision repair is among the most profitable business in service outlets in the emerging markets. In India repairs can be 25% more profitable than maintenance and parts' replacement because labour charges are at the outlet's discretion, whereas other service prices are regulated.
Regulatory Environment
The regulatory environment impacts on the repair market. More stringent mandatory car inspection, safety and environmental tests drive up demand for the maintenance and repair of listed parts. However, any relaxation of regulations reduces demand. In Japan the removal of some parts from the 'critical parts' list (i.e. the parts inspected for the Shaken and Tenken tests) saw business fall. As in many countries car owners will only pay for the repair of parts covered by regulations.
Other Issues
The increasing complexity of cars helps to sustain demand for professional repair services and makes DIY (Do-It-Yourself) work more difficult. Further, in some countries, such as South Korea and Taiwan, there is little scope for DIY to grow due to lack of space in densely populated cities.
Looking Ahead
In many automotive markets the pool of outlets able to carry out collision repair is shrinking due to the complexity of cars, a shortage of skilled labour, training and equipment. Most small outlets cannot afford the expensive equipment needed to repair complex parts and components. In Hong Kong and the USA service managers complained that car and part's manufacturers use 'protective measures' (e.g. not selling tools and software to all outlets) to monopolise the market. The shrinkage of the collision repair market will increase competition in a saturated service aftermarket. In South Korea up to 75% of the almost 20,000-strong service sector may close or amalgamate.
Vol. 2.No. 13. MCMXCIX Copyright © 1999 Diagonal Reports Ltd.
