AUTOMATRIX

February 2020

Jakkie Olivier

CEO Retail Motor Industry Organisation

The Atlantis Factor

The legendRMI SAMBRA: custodian Atlantis, Plato’s infamous myth, has captivated audiences for more than 2,300 years.The founders of Atlantis were half god and half human. The legend of Atlantis is a story about a moral, spiritual people who lived in a highly advanced, utopian civilization. But they became greedy, petty and “morally bankrupt”, and the gods “became angry because the people had lost their way and turned to immoral pursuits”.As punishment the gods sent “one terrible night of fire and earthquakes” that caused Atlantis to sink into the sea never to be found again.

The Motor Body Repair Sector

The Motor Body Repair Landscape

RMI SAMBRA: custodian of industry standards & sustainability.

Represents over a 1 000 motor body repairers.

Responsible for repairing over 80% of all insured repair claims.

Interfaces with all key players in the formal MBR sector incl: Short term motor insurers Insurer intermediaries OEM approval programmes OEM and alternative part suppliers Paint and equipment suppliers and MBRs servicing that

market

The Motor Body Repair Landscape

Significant changes in the MBR sector

Not business as usual

Growth forecast in the SA job market (first quarter of 2020) 5-year low (ManpowerGroup SA’s latest employment outlook)

The Motor Body Repair Landscape

Small businesses:

Struggling to stay afloat Most probable sector to take on unskilled labour Concerns about the challenges facing the MBR

sector Something has got to give. Something must be done about the issues

eroding our industry

ISSUES IMPACTING THE INDUSTRY

Insufficient training & access to information

Lack of profitability = slow / no upskilling Creates heightened sensitivity Training interventions cost money & remove productive staff from

the business They are subsequently rejected, even if required to keep pace

with developments – not ideal

Continuing technological transformation Significant impact on the automotive industry,

specifically the MBR sector Mismatch between labour available &

skills required

The cost of compliance

Compliance costs = huge impact on commercial sustainability

RMI-initiated research (IQ business) Initial results: 23% of the SAMBRA business

respondents have, at some point, considered closing their business because of compliance costs

12

13%        

14%        

19%        

16%        

41%        

54%        

27%        

16%        

TOTAL

SAMBRA

Relevance of statutory regulation within my industry

Largely irrelevant Somewhat irrelevant

Somewhat relevant Very relevant

15%        

12%        

21%        

18%        

39%        

46%        

25%        

24%        

TOTAL

SAMBRA

Relevance of statutory regulation given South Africa’s socio-economic context

Largely irrelevant Somewhat irrelevant

Somewhat relevant Very relevant

SAMBRA n=50

Total Sample n=335

Only 16% of SAMBRA business representatives believe that the statutory regulation pertaining to their industry is very relevant, compared to 27% across all the RMI associations. Do we need to revisit statutory regulation in the industry?

Encouragingly, a large proportion (70%) of SAMBRA

business owners believe that the regulation that pertains

makes sense given the country’s socio-economic context.

13

23%         23%        

77%         77%        

SAMBRA TOTAL

Considered closing business because of complaian costs

Yes No

10%        

8%        

33%        

30%        

37%        

34%        

20%        

28%        

TOTAL

SAMBRA

Worried about the impact of compliance costs on the commercial sustainability of the busines

Never Sometimes Often Very often

Compared to the total sample, a slightly higher proportion of SAMBRA business owners find themselves worried about the cost of compliance on commercial sustainability. However, at 23%, the proportion of business owners that have considered closing their business because of compliance costs is in line with the total RMI sample.

SAMBRA n=50

Total Sample n=335

The cost of compliance

Many SAMBRA business owners believe that they could be more compliant with: Equipment-related matters & Environment/waste management matters

HOWEVER

Budget and skills are the key barriers to improved compliance

Business efficiency

MBRs (smaller businesses) Process flow and operational efficiency

improvements Profit from efficiencies lacking

RMI / SAMBRA focus to add value in 2020

Cash flow challenges

Pay Before Release (PBR) has become necessary

Protects the MBR sector and its cash flow from: Delayed insurer payment / poor payment

administration (especially in the intermediary space of the insurance industry)

MBR sector – the only sector not to have exercised its right of lien over vehicles we have repaired

Insurer interface

Greatest challenges to the MBR industry:

Dominant insurer practices directly impacting on the fiscal dispensation in the industry

Independent research: staggering differences between labour rates paid between MBR and OEM-appointed motor dealerso MBR average labour rate = R278/h o OEM appointed dealers = approx. R840/h

(at least 3 times higher)

Time to level the playing field

Difficult to rationalise the large labour rate differential Both MBRs & OEM-appointed dealers are in the same

industry Both are highly complex (repairing high-tech vehicles) Both require substantive investments into their

service/repair departments Both are dealing with quality and professional repairs

(mechanical, body and accident repairs) for increasingly demanding customers

Why is the MBR sector treated differently?

Situation not sustainable

MBR industry can no longer afford To pay artisans a wage that encourages entry into the

sector To upskill their current workforce to adequately prepare

them for new technologies

Insurers and OEMs expect: Excellent repair quality 95% plus CSI ratings

Not achievable in an environment which is unprofitable

In additionInsurers seek to purchase parts directly from OEMs / their appointed dealers

Impact: The part price mark-up Potential settlement discounts previously enjoyed

SLAs are one-sided and fiscally uneconomic.

Panels are controlled (directly or via 3rd party service providers)

The use of ALT parts results in revenue falling

Low % write-off values results in work volume reduction

OEM interface

Adherence to OEM approval programmes

Continued demands on costly capital investment and training

Open vs. restricted OEM programmes

A future reimagined

Everyone is facing their own challenges. The success of one can never be at the detriment of the other. We need to accept change is inevitable

Fair, unrestricted and competitive MBR business environment will:

o Grow small businesses o Stimulate employment

RMI strongly rejects any bias, no matter what form it takes

RMI robustly opposes any form of unfair business practices

A future reimagined

Conservative Business growth in the large MBR business sector

Real growth lies in the small MBR business sector

As an industry we are committed to working tirelessly with all our business partners to ensure a sustainable trading environment

A future view

We anticipate: A decline in intermediary participants in the short term

insurance sector An increase in direct motor insurance

We predict: OEM approval programmes to remain an integral part of

the industry. The form however may change dramatically Open OEM approval programmes for all qualifying

repairers without dropping standards

A future view

OEMs

If OEMs wish to maintain the current part supply levels, they will need to seek more effective and production efficient mechanisms

The cost of premium vehicle parts is currently not sustainable and alternative parts manufacturers have already made significant inroads into the genuine parts market

A future view

Additional impact – the increase in effective repair technology which allows MBRs to repair panels that were previously replaced

MBRs’ right of lien will, in our view, negate insurers’ parts purchase / payment strategy

Paint and equipment suppliers Increased local production is a necessity OEMs need to encourage competition in The sector by approving a wider range of

paints for application to their vehicles

On the issue of costs

MBRs need: Higher SLA labour rates Labour rate increases 3 months prior to annual SLA

renewals Timeous payment to small businesses Write-off values to return to more reasonable levels (75%)

thereby returning more work into MBR facilities Reduced regulatory and other compliance costs Completely independent management of the Audatex

system

We are not finished yet

Insurers need to: Honour client choice of MBR service provider Accept B-BBEE regulatory framework

Cost effective online training module development that allows in-house or own time training on critical business and technical issues

A more regulated towing and recovery sector which champions small business

The chance to build a different future

The MBR industry will need to: Regroup Regain sector independence Focus on production efficiencies Develop appropriate skills Make use of best available repair technology Improve profit margins

We owe our customers the best possible level of repair quality and serviceWe owe ourselves the correct levels of ROI

The chance to build a different future

Foster value chain relationships and collaboration

We cannot do it alone – we need your help and support

We need to start pushing harder and faster together

The chance to build a different future

“It always seems impossible until it is done.”

Nelson Mandela