Taking a business disruption outlook over at least the short term into consideration Automotive Refinisher took some time to talk to CRA’s chief of operations to get their take and philosophy on how an average body shop operation can remain in business with the probable cash-crunch that lies ahead for all companies in the body shop business.
Q In this unprecedented business upheaval what is your opinion on the state of play in the collision repair business?
A Firstly, any conceived plan a company has made for 2020 looks like it’s going to be thrown out the window. It is an unknown as to whether a second and possibly third round of lockdown may at some stage be introduced.
Because South Africa is a unique place and not like Europe or the U.S. our workforce is largely very poor and live hand-to-mouth. Even if they have a job it is a society where the daily grind of finding enough food is ever present. This means in reality that many body shops may have contributed in some form or another through hopefully refunded allowance for their staff survival during lockdown but continuity from the assumed very low volume of work on re-opening of the economy which includes the prospect of non-availability of parts and consumables will result in restricted output thus with no visible production earning capacity or potential, and it remains unclear of how any motor body repairer can overcome job preservation at previous salary levels yet assure medium- to long term survival without funding assistance.
Q There are no clear winners or losers in this Covid-19 crisis that has reduced financial incomes to a trickle. What do you recommend must remain viable in this situation?
A I would like to say that cash will be king going forward as clients and businesses will obviously struggle to pay outstanding bills without assistance offers being provided – but this does allow future profit to be spent now through soft loans and deferment on payment of taxes, etc. If we look at insurance cancellations that are currently being seen, they are horrific as people reassess their monthly costs. We are navigating unknown territory and no company anywhere across the globe could have foreseen the pandemic coming. In real terms, in my opinion, few helping hands will come to the table in the form of financial assistance. Further to this the poor strategic decisions to not open revenue streams by removing settlement discounts, allowing a drive for recycling of parts and putting control back in the hands of the qualified professional to both make money and save cost will be the ultimate demise of many small businesses in South Africa.
So, in real terms there are no clear winners or losers going forward. It is okay getting concessions on debt repayments and tax return payments right now but eventually these ongoing debts must be met and repaid.
Q In this high-risk situation of body shop survival what are insurers doing to ease the stress on a business cash flow outlook point of view?
A The offer of parts procurement through certain Insurers where an additional mark-up on parts utilised will be introduced that normally comes into play as settlement discount when the parts supplier is paid by the body shop will assist as cash reserves will be at almost zero level. This, together with the ability to cancel invoice factoring as a working capital portal adds to income earning capacity to aid survival.
Q In the last year there have been a number of insurance companies appointing new company third party work supply companies who only add commission for their own operation and seem to add no value to the cycle of body repair. Why is this work suppliers’ trend on the increase from major insurance companies taking on similar operations?
A Short-sighted saving perception on administration cost in their eyes and with the hope that the intermediary has the ability to further drive down the actual cost of repair, is the simple answer. This is totally disingenuous and not in the interest of collaborative partnership.
Q Many of your members have a great deal of unfinished work standing in the workshops and it’s going to be a big ask to get liquidity for the spares required for the final repair. How do you see this challenge playing out?
A Firstly, restriction of operation allows only for work on essential vehicles to be completed only. Any vehicle still within the shop from before lockdown has in most instances been allowed for partial payment by most Insurers to cover the cost of parts which now need to be settled to suppliers and aid cash reserves. Due to restriction on operation of OEM dealers and sourcing from their manufacturers or importers is also contributing to the crippling effect of completing the repair scope as parts supply changes to back order status.
Q What is the overall recovery recommendation that the CRA would like to see happen in the uncertain times that lie ahead?
A The Covid-19 pandemic has an uncertain roll out in our country and expectation is that the peak will only be felt in August or September – well into the future. The extended lockdown is already having a devastating effect on survival of the SMME and the reciprocal effect of policy cancellation by a cash-strapped public means lower volume of claims and also incidents due to non-movement of vehicles as a norm will mean low turnover and unfortunately loss of jobs – or possibly – high level of short time employment. Insurers will have to ensure equitable spread of claims to keep as many repairers in business under the new economy we will surely enter.