The salvage codes is a business killer for the future of body shops. This issue features some more interesting developments on the car’s ability to continue upwards and onwards. There are some questionable developments from SA insurance companies who seem to be treating the Code 2 damaged vehicles as a hawkable commodity to be sold at any auction house to the highest bidder. These wrecks are then repaired all too often without any professional standards and often reappear some while later on local roads. These rebuilds are mostly candidates for collision failure the second time around.
Anomalies about these Code 2’s are plentiful. Re-registering these units is an E-Natis art as they often contain microdots and other parts from stolen vehicles. It is time, we say, as many other repair body shops in South Africa are saying, that we highlight the lack of profitability being endured by many shops in the industry because of this.
We seem to be at a cross roads on the drive to sustainability. Another argument is if a vehicle is not economical to repair properly by trained people with all the right equipment, then why would it be economically viable for anybody else unless certain shortcuts are taken, possibly at the trade-off of safety, or promoting the use of stolen parts.
There is now another government enquiry taking place right now which may back up the Competitions Comission cross industry forum. It looks like some of these key insurance industry salvage codes, which were introduced in 2014, will come under the microscope for fairness to the consumer.
Ironically the salvage code sets out to help consumers, while in real world terms, the reverse seems to happen. For years insurers have been claiming that they only realise a 5% overall return on profitability for car policies. The 5% profit in relation to premium income is a huge amount of money and should result in an excellent return on investment for insurers as the income is derived from a monthly premium and no physical activity needs to be performed to earn this income other than to manage the overhead costs.
It must be understood that 5% profit for a repairer reflects a percentage of a total different income base where it relates directly to actual work being performed.
So the time is ripe to review many areas of the salvage code on which the insurance industry profit. It has been foisted on the collision repair industry without any consultation with the body shop trade.
Questions should be asked such as who has decided that levels of uneconomical to repair levels should be set at 50%? Historically it used to operate at levels of over 60-70% of value. It’s all very well to introduce a code from Europe on salvage but you have to remember with only less than 30% of drivers carrying insurance cover locally, and write-off levels that could lie anywhere from as low as 40% up to over 60%, for not all insurers offer the same deal to the consumer. There is no transparency here at all.
A serious look at business parameters needs to take place to obtain a degree of transparency for the insured driver on taking out a policy of cover for their precious vehicle. For this trade, without work flow, we will never be able to deliver any type of meaningful development or any type of aspirational collision repair entrants going forward in the future – if all the nice repairs lie doomed in some scrapyard.
There are a few valid points regarding this issue; firstly the safety of repairing damaged vehicles – especially vehicles that are damaged extensively and then being declared a write-off or uneconomical to repair – is a problem for our trade.
It is common sense that these vehicles should not filter back onto the roads as code 2 vehicles or should at least go through proper scrutiny by a professional body – and by that I don’t mean the current roadworthy authorities – who are by no means experts on accident repairs.
In this instance insurance companies are certainly trading people’s safety for their own profitability and denying people with the right skills the opportunity to earn a living.
This is certainly not in line with a social responsibility for job creation in South Africa.