Presentation on theme: "ANALYSIS OF THE MOTOR BODY REPAIRERS INDUSTRY"— Presentation transcript:
1ANALYSIS OF THE MOTOR BODY REPAIRERS INDUSTRY DRAFT REPORT10/07/2012
2Outline Introduction Stakeholders consulted Drivers of growth in industryFindingsObservations and conclusionsRecommendationsQuestions and inputs
3Study Objectivesprofile of the sub-sector - its categories, their sizes, dynamics, and capacity;total annual revenues in the sub-sector;skills gap and skills development initiatives in the sub-sector;key challenges prohibiting industry growth;logistics and infrastructure requirements;proposed interventions by the sub-sector industry to empower Previously Disadvantaged Individual (PDI) – owned SMMEs
4Study Objectivesinfluence of the short term motor vehicle insurance industry:the number of panel beaters - other than the insurance industry (self-insured/ state-owned enterprise and large fleets);the ‘total spend’ with these panel beaters, both insured and non-insured clients;turnover from short-term insurance as a percentage of total turnover of individual enterprises;the insured spend with these panel beaters – procurement from short-term insurance companies;Grading qualification used by the short term vehicle insurance industry;Short term insurance total spend on repairs, and spend on black-owned SMMEs in the industry; and% spend and turnover from servicing and repairing Government (all spheres) and State-owned enterprises (SOE) fleets
5Methodology Investigate the threat of new entrants to the MBR Sector Impact of technological innovation in and on the MBR SectorSupplier leverage in the value system of the MBR SectorBuyer leverage in the value system of the MBR SectorBarriers to entry and exit in the MBR SectorInvestigate the threat of new entrants to the MBR SectorInvestigate the bargaining power of buyers in the MBR SectorInvestigate the threat of subsitute products/ services in the MBR SectorInvestigate the bargaining power of suppliers in the MBR Sector
6Data Collection Process Interviews conducted on 17 relevant stakeholders to the industry- MBR Forum members (& their membership) and other stakeholders such as critical group service/ product suppliers to the MBR industryPrimary data collection- face to face interviews, telephonic interviewsSecondary data collection- trade statistics and publications
7Strategic fit of methodology with research objectives Methodological ComponentProfile of the MBR industry- the categories, size, dynamics, and capacity of the motor body repair industryPorter’s Five Forces Model:Barriers to entryBargaining power of buyersBargaining power of suppliersThreat of substitutesDegree of competition in the industrySkills gap and skills development initiatives identifiedOther key challenges prohibiting industry growth;Logistics and infrastructure requirements;Industry proposed intervention to empower PDI – owned SMMEs
8Strategic fit of methodology with research objectives Overview of the short term vehicle insurance (only motor body repairers excluding towing sub-sector)the number of panel beaters which are being used by those other than the insurance industry (self-insured/ state-owned enterprise and large fleets);the ‘total spend’ with these panel beaters, both insured and non-insured clients;turnover from short-term insurance as a percentage of Total turnover of individual enterprises;the insured spend with these panel beaters – procurement from short-term insurance companies;the percentage spend from state owned enterprises;Total annual sales in the industry.Bargaining power of buyers- SAIA (Short term insurance)Grading qualification used by the short term vehicle insurance industry;Barriers to entryShort term insurance total spendTotal spend per on repairs;On black-owned SMMEs in the industryTurnover from servicing and repairing Government (all spheres) and State owned enterprises fleet.Bargaining power of Buyers- National Treasury
9Drivers of growth in the industry Increased number of registered vehiclesIncreased road congestion that cause higher frequency of accidents (incidence & magnitude of accidents)Inflation pressures that increase the cost of repair per vehicle
10Barriers to Entry and Exit into the motor body repair industry- Economies of Scale Economies of scale - highly volume critical - sustain the heavy fixed costs (investment in facilities and equipment) - variable costs (direct material and direct labour costs)Economies of learningHeavy impact of technology into the industry e.g. motor body materials, micro dottingHigh level skills e.g. competence shiftsCost structures have seen the industry be replacement part driven e.g. the motor insurance industry spent R16 billion on component parts inEconomies of scopeInvestment into the tow truck business, motor dealerships
11Barriers to Entry and Exit into the motor body repair industry- Capital/ Investment Requirements Facilities and equipment required to meet the grading/ standardsSkills required in the industry e.g. artisans/ panel beatersAccess to formal business networks is difficultCapital investedScale of investment relative to the Industry< R1,000,000.00Small enterpriseR1,000,001- R5,000,000Medium enterpriseR5,000,001- R30,000,000Large enterprise (fully approved OEM workshop)Turnover by Motor Body Repairer/ MonthClassification relative to industry< R800,000Micro-enterpriseR800,000- R1,000,000Small enterpriseR1,000,001- R2,000,000Medium enterpriseR2,000,001- R5,000,000Large enterprise
12Barriers to Entry and Exit into the motor body repair industry- Access to distribution channels target markets for motor body repairers:Insured motor vehicle market that constitutes 30-35% of the South African car parc.Uninsured motor vehicle market that constitutes 65-70% of the South African car parcBusiness networks that need to be infiltrated are:Insurance industry comprising the motor insurers - panel lists - insurance estimators and assessors - insurance brokers (undertake claim management processes)Motor vehicle dealers - small touch ups or cosmetic repairs on used or premium select used vehiclesFleet managers both in the public and private sectors
13Barriers to Entry and Exit into the motor body repair industry- Customer switching costs typical customers to motor body repair companies dependent on these factors:Level of capitalisation - first economy or second economy - access to market and distribution channelsType of market targeted defined by insured motor vehicles and the uninsured vehiclesExtent of market depth of a motor vehicle brand in South Africa and the distribution of those vehicle owners across the geographic expanse of the countrySwitching costs are thus classified in three categories, namely:informal segment of the market - high volume of panel beaters clustered in the respective geographic areas e.g. Ivory Park, Bambanani - switching costs for clients low;SAMBRA graded and approved motor body repairers - motor insurance companies and fleet managers - price takers - switching costs are low for motor insurance and fleet managersOEM approved motor body repair workshops - niche operators - restricted by geography - high capital investment - harness brand equity - switching cost high - highly integrated supply chain
14Barriers to Entry and Exit into the motor body repair industry- Impact of brand equity/ loyalty Factors drivingGlobalisation- consumerism movementBrand consciousness - Brand EquityConsequencesOEM approved workshops across a spectrum of motor vehicle brands.Fully approved OEM approved motor body repair workshops exclusive only to motor vehicle brands e.g. Mercedes and BMWMulti-approved OEM approved workshops - obtain badges from motor vehicle manufacturers that identify them as licensed to conduct motor body repair on those brands e.g. Toyota, Nissan, VW, Audi
15Barriers to Entry and Exit into the motor body repair industry- Likelihood of retaliation - High increased insolvencies and liquidations in the industry - diminishing market due to the following factors:Technological improvements in the motor vehicles such as mitigating accident technologies e.g. lane assist, park distance control etc. which mitigate the risk of accidentsFacilities and equipment - using technology - enhance throughput and enable market accessTechnology that is mitigating the extent and magnitude of corruption in the industry e.g. Audatex systemPolicy and regulatory environment - enhance road safety - Arrive Alive CampaignIncreased role of OEM’s in controlling their brands - protection of their brand in the product lifecycle, - standards and approvals for certified motor body repairers
16Barriers to Entry and Exit into the motor body repair industry- Government regulations impacting on the industryGovernment regulations in the industry have been minimal except in the provision of:Company registration through Companies and Intellectual Property Commission (CIPC)Certificate of compliance to the Occupational Safety, Health Act from the National Department of LabourZoning of the premises as compliant to business use through the respective local municipality with respect to new businessesMotor Industry Bargaining Council (MIBCO) - Labour Relations ActCompliance to tax - annual tax clearance provided by the South African Revenue Services (SARS).Compliance also to the Broad Based Black Economic Empowerment Act - access the motor insurance, fleet management and OEM approved workshops
17Barriers to Entry and Exit into the motor body repair industry Conclusion:Barriers to entry/ exit in the industry are high – Formal / Informal Economy
18Bargaining power of suppliers to the motor body repair industry in South Africa- Supplier concentration in the industrySuppliers comprise:Original Equipment Manufacturers (OEM’s -7) and component manufacturers in the automotive industry - motor group holdingsApproved (by auto manufacturers) workshop equipment suppliers to the motor body repair workshops such as Cellete South Africa and Aerocure.Labour provided by various training institutions under the aegis of merSETA
19Bargaining power of suppliers to the motor body repair industry in South Africa- Branding among the supplierscommands a price premium - communicates quality, safety and reliability - integral to the brand equity of the motor manufacturerVariables considered of MBRLocationFacilities and equipmentLabour competenceFinancial positionThroughput of workshopCustomer relationship experience
20Highly integrated supply chain defined by business model of OEM Bargaining power of suppliers to the motor body repair industry in South Africa- Profitability of suppliersHighly integrated supply chain defined by business model of OEM
21Bargaining power of suppliers to the motor body repair industry in South Africa Threat of forward integrationAmong suppliers to the motor body repair industry is increasing - motor holding groupsImportance of volume to the suppliersCapital intensive nature of the industry - technological lifecycle of motor manufacturing - optimise their return on assets - panel lists of motor body repairers in the insurance industry - geographic positioning of OEM approved motor body repairers - Mercedes and BMW -importance of volume to the supplier - profitability and sustainability of supply chain partners
22Bargaining power of suppliers to the motor body repair industry in South Africa Role of quality and serviceensuring the motor vehicle brands perception as one of impeccable quality and conditionmotor manufacturers and their respective supply chain partners - vehicle brands lifecycle - ensure that the vehicles are roadworthy and restored to motor manufacturers standardsImportance of industry customer groups to the supplierscompetitive paradigm from company to company competition to supply chain against supply chainmotor body repairers becoming an important customer group in the automobile supply chain.
23Bargaining power of suppliers to the motor body repair industry in South Africa - Switching costs Cost of suppliers getting new customers is very high - enhance brand equity of motor brands - increased shorter ownership lifecycles (5-7 years) among motor vehicle buyersharnessing brand equity among customers and customer groups mainly for the following reasons:Acquisition costs for new customers are highHarness brand loyalty among existing clientsReferrals from existing clients to new/ potential customers on the worthiness of the motor vehicle brandBack end sales and lifetime value created for the motor brandEnhances the market value of the motor manufacturer brand through its clientele.
24Bargaining power of suppliers to the motor body repair industry in South Africa ConclusionBargaining power of suppliers to the MBR’s is very high – Control their Brands- Brand Equity- Brand Loyalty
25Bargaining power of buyers to the motor body repair industry in South Africa Classified as institutional and non-institutional buyersInstitutional buyers being:Motor Insurance market comprising of vehicles under warranty and those withoutFleet managers in the public and private sectorsMotor DealershipsNon-institutional buyers comprising:Uninsured motor vehicles.
26Bargaining power of buyers to the motor body repair industry in South Africa - Buyer concentration - Institutional BuyersMotor Insurance Marketshort term insurance - insured vehicles on South African roads average 30-35% of the registered motor vehiclesvariables considered to be on the panel system include:car parc of motor policy holders by vehicle brandGeographic positioning of these vehicle brand car parc of policy holders by their residencesMotor body repair technical checklist within the geographic areas identified by vehicle brand catering for the following perspectives:Type, brand and age of equipmentType of premises and safety of the premises with aspects such as zoning of the areaStaff complementGood business practices - good administrative systems and procedures
27Bargaining power of buyers to the motor body repair industry in South Africa - Buyer concentration - Fleet Managerssegmented by public and private sectorsPrivate sector fleet managers include motor group holdingsPublic sector fleet management through the following methodologies:Outsourced service provider - public private partnership contract with National Treasury - contract RT46/ 2009CV - Wesbank First Auto - three quote system of panel members graded and compliant to OEM global standards of motor body repairSubsidised government fleet - 70% work, and 30% private - transfer 4 years or 160,000 km - maintenance through RT 62 and insurance through RT 58 - Mmela Financial Services that utilise the warranty and therefore the OEM approved motor body repair workshops - approximately 15, 000 vehicles - Toyota, Nissan, and General Motors.Government owned fleet that is purchased through RT 57 either through ownership by the National Department of Transport (complies with trading account) or a respective Department owning the vehicle (complies with Budget system)
28Bargaining power of buyers to the motor body repair industry in South Africa - Buyer concentration - Motor Dealershipsoffer opportunities for cosmetic motor body repair - classified into two market segments:Conglomerate/ corporatisation motor holding groups - have their own motor body repair businesses to service their dealershipsIndependent Motor Dealerships - utilise franchised or independent motor body repairers - networking and long established relationships with motor dealerships.
29Bargaining power of buyers to the motor body repair industry in South Africa - Buyer concentration - Non-Institutional Buyersdrive in customers who seek to repair accident damages in both the formal and informal economy motor body repair playerschoice of motor body repairer is heavily dependent more on price than qualityinformal economy of the industry constitutes mainly emerging players in the industryChallenges experiencedLack of resources to buy or rent facilities/ premisesLack of financial resources to buy new equipment( ageing infrastructure)Lack of support from RMI (institutional leverage)Unable to obtain the required technical qualification (i.e. trade test) due to financial barriers, approximately costing R12, 000 per headDo not meet required grading standardsPolicy and regulatory issues from business zoning, grading and accreditation, to waste management
30Bargaining power of buyers to the motor body repair industry in South Africa - Buyer concentration Extent of product/ service differentiationMass market - insured and uninsured vehicles out of warranty - extent of facilities and equipment, skills to cater for the 70% of the highly fragmented marketNiche market - OEM brand equity and loyalty - insured vehicles that have warrantiesProfitability of these buyerssensitivity of the motor insurance industry to the magnitude of motor body repair done - affordability, profitability and sustainability of motor insuranceAutomatic number plate recognition project - mitigate vehicle theftLobbying for third party compulsory motor insurance to mitigate third party motor accident lossesCost of parts project aimed at mitigating the cost of OEM parts in the repair process
31Bargaining power of buyers to the motor body repair industry in South Africa - Role of price, quality and service to the buyer decisionQuality:Adherence to the global standards set by OEMs - vehicle brands with warranty agreements - guarantees certain standards of safetyFacilities and equipment that have to adhere to OEM global standards or SAMBRA standards (vehicles out of warranty)Service:turnaround times in the repair of the vehicles has to adhere to global OEM standardsCustomer relationship management is critical as the customer experience -brand equity and loyaltyPrice:Formal economy motor insurance segment is sensitive to price of motor body repair as this impact on the affordability of motor insurance and depth of the industry in any given countryinformal economy price is also sensitive - negotiate pricing with informal economy motor body repairers, sometimes to the detriment of quality and service
32Bargaining power of buyers to the motor body repair industry in South Africa Threat of backward integrationPotential backward integration emanates from:Motor dealerships which due to evolving business models of the OEM’sMotor insurance companies - high incidences of corruption and fraud within the industry – cost of repairSwitching costs to buyersThe depth of motor vehicle brands and their pricing impacts on the switching costs of buyers - price is a discriminator as to the brand of vehicle purchased - entry level cars (or starter packs) to niche premium brands such as Mercedes or BMW
33Bargaining power of buyers to the motor body repair industry in South Africa Effect of buyer volumecritical to the profitability and sustainability of motor body repair industry players – desire for motor insurance businesscarrying capacity of the industry relative to the car parc of brand in the country and by geography (provinces)Price sensitivityPrice sensitivity is high among the insured and uninsured market segmentsInsured segment - formal economy, motor accident claims are the major cost centre of a motor insurance firm - to control and manage the risk so as to enable affordability, profitability and sustainability of motor insuranceUninsured segment - clients have less disposable incomes to take on motor insurance – motor body repair added cost
34Bargaining power of buyers to the motor body repair industry in South Africa ConclusionBargaining power of buyers to the motor body repair industry in South Africa – high – second to the power of suppliers – MBR’s Price Takers
35Threat of substitute products and services to the motor body repair industry in South Africa - Impact of technological innovation on the operations of the industryTechnological innovation in the industry - redefined the players and competitive forces in the industryEvolving technological life cycles - incorporated in the motor vehicle brands e.g. growing use of vehicle obstacle detection systemsEvolving product lifecycles through the immense number of motor variants per brand - requires constant training at the cost of the motor bodyEvolving operational efficiencies - enhance efficiencies in the motor claim processes and mitigate avenues and cases of corruption and fraud.
36Threat of substitute products and services to the motor body repair industry in South Africa - Relative price performance or price performance trade offprice performance trade off in the industry is very lowTwo perspectives notedUninsured market segment, good quality motor body repair serves as a client referral system especially for informal economy playersInsured market segment good quality work and fair pricing that does not compromise road safety is the driving force among motor insurers
37Structure of competition in the motor body repair industry in South Africa Competition in the motor body repair industry is categorised within the dual economy of South AfricaSecond economy or informal economy - highly fragmented comprising many panel beaters who lack critical mass to influence the industry - structural factorsLow barriers to entry as they require low capital requirements -absence of physical facilities, grading and policy and regulatory requirements;Lack industry defining standards to comply - perspective of how much the customer is willing to payGiven the nature of their customers high levels of trust are required due to payment methodologies adoptedFirst economy or formal economy that can be classified as:Insurance approved motor body repairers utilising SAMBRA standards of accreditation who - highly fragmented lack large market share to influence the industry’s trajectory in the futureOEM approved motor body repairers utilising the OEM global standards that allows them access also to the insured segment of the market - moderately fragmented market segment - increased corporatisation - most lucrative segment of the motor body repair industry.market structure of the motor body repair industry in South Africa is oligopsonic - has many motor body repairers who interface with a small group or cluster of buyers (institutional and non-institutional).
38Structure of competition in the motor body repair industry in South Africa- Structure of industry costsCost ComponentProportional contribution of cost component to total costParts/ Components- OEM60%Mechanical labour20%Paint labour10%Paint
39Structure of competition in the motor body repair industry in South Africa- Degree of product/ service differentiation among industry playersglobalisation of the automobile supply chain - increased supply chain integration - motor body repair industry evolve from a commodity market to differentiated market based on the motor vehicle brand car parc in the countryOEM business model - development and reconfiguration of motor body repair business - brand equity - guarantees no compromises are made on safetytie in motor warranties have impacted on the motor repair industry and the extent and amount of motor claims paid out
40Structure of competition in the motor body repair industry in South Africa- Stage of the industry in the life cycleCost/ shake out phaseEconomies of scale/ scope and learning - high number of liquidations and insolvencies of motor body repairers, industry consolidation through acquisitionsBarriers to entry and exit into the industry have increased astronomically due to global nature of the automobile industry and its integrated supply chainMaturity phaseestablished and well capitalised OEM approved motor body repair workshops - increasing market share - increased corporatisation
41Major observations and conclusions Lack of trust/ transparency in sharing informationSkills development of artisans - scarce occupations required are:Automotive motor mechanicPanel beaterDiesel motor vehicle mechanicAutomotive spray painterAutomotive mechanistVehicle body builderAutomotive electrician
42Major observations and conclusions development of the motor body repair industry has as its core the sustainability of vehicle financing and motor insurance in the countrypanel system though controversial among some stakeholders is also a method for ensuring the motor insurers do not lack adequate motor body repairersbusiness networks in the industry have been harnessed through long term relations that mirror the supply chain collaboration of the automobile supply chainTechnology in motor vehicle production and operational processes of the motor body repair processes is heavily defining who plays in the industryMotor manufacturers have realised that to harness optimal returns on their motor vehicle brands they have to invest in the products life cycle through harnessing brand equityincreasing power of OEM brands into the product life cycle of the motor vehicle entails that relevant key stakeholder associations are incorporated into the MBR Forumglobal nature of the automobile supply chain and the strategic fit with the country’s history and stage of economic development needs to harnessed and managed well so as to realistically manage the expectations of various stakeholders to the industryTransformation in the motor body repair industry cannot be adequately addressed without looking at transformation in the financial services
43Recommendations Regulatory/ Policy Strengthen the MBR Forum including all relevant key stakeholders e.g. merSeta, OEMs, SaTecmotor body repair industry standards that serve as access to market tool - developed with input from the other representative MBR stakeholders in the Forum and segmented according to target markets and capitalisation requirements with clear stipulations on how to grow within those standards- consolidation of standardsdefinition and role of the consumer should be noted and identified so as to enable appropriate targeting and understanding among stakeholders- consumer code of conductpanel system of motor insurance companies should be open to qualifying motor body repairers and the grading and accreditation of who can be on the panel should be open for independent audit to ensure fairness and consistency of standardsGovernment look into the prospect of compulsory third party insurance to ensure the affordability and sustainability of motor insurance
44Recommendations SMME Development Development of enterprise development fund anchored within code 600- enterprise development (BBBEE scorecard elements) e.g. 50% of 1% of turnover into the fundStrategic linkage of Financial Sector Charter to MBR industry- enterprise development, procurement, skills development, employment equitySkills DevelopmentMarketing and communications campaign should be collaboratively developed by the MBR Forum members so as to adequately manage the expectations of MBR association stakeholdersAlign and synchronise initiatives on skills development by stakeholders from merSETA (FET’s), RMI, AIDCMBR Industry DevelopmentGovernment harness the Automotive Incentive Scheme within the APDP to promote OEMs (make it one of the pillars)- assist emerging motor body repairers strengthen their contribution in the industry - enterprise development, skills development within the OEM approved motor body repair workshops
45Competitive Forces- Ecosystem Sustainability of MBR’sStandards of the OEM’sStandards of the motor insurerBusiness model- parts, labour, paint- independent or franchisedSustainability of OEM’sWarrantyPartsBusiness modelforward integration into financial industry (motor financing and insuranceSustainability of financial sectorAffordability of car financeAffordability of motor insuranceSustainability of human lifeRole of the consumerRoad safetyAffordability of cars and insuranceRoad density and infrastructureAlternative transport modes e.g. public transport