The B.C. Collision Repair Industry Is in Trouble

The current situation of B.C.'s collision repair industry is dangerously similar to the trend that transpired in the U.K. in the 2000s when profitability was depleted and one-third of body shops disappeared from the market.

The current situation of B.C.’s collision repair industry is dangerously similar to the trend that transpired in the U.K. in the 2000s when profitability was depleted and one-third of body shops disappeared from the market.

Studying history helps us understand and grapple with complex questions and dilemmas by examining how the past has shaped (and continues to shape) global, national, and local relationships. In today’s context, the role that the Insurance Corporation of British Columbia (ICBC) plays in B.C. in relation to the profitability and transference of work draws a similar parallel to the experience of Europe in the late 1990s and early 2000s.

We need to examine and use this history to educate and prepare our industry so that what transpired in the United Kingdom is not repeated in B.C. In the article titled The European Collison Market: Trends and Tribulations, published by Bodyshop Business on January 1, 2003, the authors examine the state of the collision repair network in Europe. In essence, when Europe started the preferred networks, it inadvertently eliminated shops and then paid the price for no access to repairs or technicians in the 2000s. This sounds ominously like the environment in B.C. today. Note the following:

“Insurance companies pay for 80 percent of all collision repairs in the UK and have a strong hold over the collision repair market through extensive DRP [direct repair program] networks. This means that approximately 50 percent of all repairs are carried out at body shops nominated by insurance companies. The collision repair market in the UK is probably the least profitable repair market in Europe for body shops because of high levels of service demanded by insurance companies. Free courtesy cars, free collection and delivery of customers cars, discounts on labour, discounts on parts and discounts on paint are all now well-established in the UK. This has depleted body shop profitability in the UK and the number of body shops has fallen 30 percent in the last 10 years.”

“For body shops, higher service levels are resulting in an escalation of overhead costs. As higher service levels and lower labour rates spread throughout Europe, profitability is being squeezed – both by an increase in operating costs and by a reduction in hourly labour charge-out rates. The situation has become so bad in the UK that body shops are now unable to meet their prime operating costs from their labour sales. Most UK body shops are now solely dependent on the profit margins from the sale of paint and parts used in repairs for their overall profitability.”

“In Europe, the development of DRPs means that a higher proportion of repairs is being concentrated within a smaller number of body shops. In the longer term, the concentration of repairs among a smaller number of larger body shops and a decline in the number of body shop outlets will potentially become a threat. This is because the number of body shops will decline to a level where repair capacity is in equilibrium with demand. When this happens, body shops will increase their labour rates as demand levels with or exceeds repair capacity.” 1

The Automotive Retailers Association (ARA) has voiced its concerns to ICBC. We have warned the corporation that industry is in trouble, and if industry is in trouble, it is only a matter of time before ICBC is in trouble. This should set off alarm bells, and although we have seen some movement of late to try to assist industry, is it still too little, too late? Industry is desperate for skilled workers, which is partially reflected in shops’ continued reluctance to complete time-consuming and underpaid claims. This sounds increasingly like we are in line to repeat the U.K. experience.

ICBC recently announced a second increase resulting from increased ARA/industry pressure, as we have gone directly to government to outline our members’ concerns around industry viability. ICBC unilaterally dictates rates. As a result, industry rates have been held back over decades, which has accumulated to approximately a 30% loss against inflation growth alone. Rates must reflect the actual cost of operations and the need to invest in training, labour attraction and retention, and tooling. Electric vehicles (EVs) are not simply an electric engine in what was a gas-powered car. They are a completely new technology requiring a total overhaul of the automotive service industry.

ICBC has given industry 19% over three years, 3% in July 2022, and 10% at the end of 2022 (6.6% rate/3.4% billable operations), followed by a further 3% in 2023 and 2024. We estimate that the new rate will be an equivalent of $85.32 at some point in the future, and in three years, we will see the equivalent of $90.64. Despite this increase, B.C.’s collision repair industry remains the lowest paid of the three crown-insurance provinces in Canada. Not to mention that B.C. is a province with some of the highest cost of living and operating expenses. Is this enough?

More frequently, I hear from members that if they could, they would get out of the business. However, the reality is that business values have diminished, as there is no return on investment—businesses are worthless. This leaves owners with little choice but to hang on as long as they can or bail out now. Some have already been forced to close. There are areas of the province which will soon have no local service provider.

Volumes of claims and parts procurement have resulted in very lengthy delays for customers to get into shops.  Shops are forced to turn away non-drive claims due to pressures to carry unreasonable costs. Individual shop owners have made it clear: “We don’t work for free, and we’re entitled to fair compensation.”

ICBC has been working to resolve ongoing concerns, but as with any large organization, the change is slow and typically falls to its own self-interest. A prime example is the billable operations; it has been assigned dollar values rather than time increments so that future door-rate increases will not be directly linked to these operations. Industry has yet to see what the operations even include.

So, what does history tell us? It is clear that our insurance partner has been developing the same scenario as transpired in Europe. The result will be a failure of the insurance and automotive industry to service consumers. We hope they heed the warning signs and make significant change to support industry viability. Time will tell.