Simon Tennyson, managing director of AA Warranty, said: “4x4s haven taken a hammering. RVs are dropping across the board but especially for 4x4s.”

Tennyson said dealers should encourage customers to protect the invoice price of their vehicle rather than settle for the value at the time of a claim in the event of a write-off.

“Customers need to be looking at Gap,” said Tennyson.

He said dealers should strive to sell more add-ons in the current economic climate with both new and used sales coming under pressure and customers keen to avoid any unexpected financial outlays that could result from lack of cover.

“Now’s the time to get this right, customers need more protection,” he said.

“If the product is explained correctly, dealers should be able to sell more warranties now.”

But despite fears of an impending recession, which Tennyson believes have been whipped up by the media, he claimed AA Warranty had not experienced a downturn.

“We’re holding our position in terms of profitability,” he said.

However, Tennyson said AA Warranty had seen an increase in the number of claims in recent months – possibly because customers are less willing to fork out on minor repairs to protect no claims bonuses.

He said it was possible the pricing of products could be put under pressure if more claims continued to be paid out.

Tennyson suggested AA Warranty could benefit from car buyers opting for older vehicles.

“If they buy older cars we can sell products on them,” he said.

The average age of cars covered by AA Warranty is five years and the average length of cover is 14 months.

AA Warranty has a client base of 1,000 dealers – mostly comprised of larger independent businesses. Tennyson said the company’s biggest client sells 3,600 used cars a month. Since the onset of the credit crunch, he claimed only two of its clients had fallen into administration, which could be attributed to the rigorous credit checks AA Warranty subjects its clients to.

In particular, two products that are seeing greater uptake are CPI (credit protection insurance) and GAP (guaranteed asset protection) insurance.
These help ease the financial burdens, should the consumer find themself out of work and unable to afford the finance repayments or if the car is written off and its insurance value is considerably less than the finance owed on it.
Research conducted by Close Consumer Finance – part of the Close Brothers Group, one of the leading independent merchant banks in the UK – is a provider of finance and supporting insurance services to motor dealers throughout the UK.
Close's own research supports the opinion that a personal service and regular customer contact are vital to help dealers develop their business. The promotion and sale of supplementary products, like CPI and GAP insurance, can prove very lucrative to the dealers – something The Spot Group based in Staffordshire has directly benefited from.
“It was evident from our first review that the Spot Group could significantly increase their income if they were more focused on selling insurance,” recalls, Reg Colclough, senior account manager at Close. “We are in a position to be able to offer our dealers help with specialised training, so this seemed like an ideal opportunity for The Spot Group.”
The results of this advice and training are that in ten months of selling additional insurance packages, the group has sold almost £28,000 in supplementary insurance premiums. The group's Chasetown dealership has taken the sale of GAP insurance from zero to an impressive 35 per cent penetration level.
Sales manager Rob Goodenough explains: “Our customers want products that are good value for money and follow the one-stop-shop ethos. Today people do not want lots of separate extras – they have a very poor perception of add-ons, so they want everything combined in one package.
“This equals ease of use for them and for us it is far quicker and more convenient to sell products that put everything at the customers' fingertips.”
However it has been the turmoil in the insurance industry in general which has recently dominated dealers' thoughts on these extra products. Under the Insurance Brokers Registration Act 1977 and the Association of British Insurers Code of Practice, which is to be repealed, there is no compulsory regulation of the selling of insurance products affecting the retail motor industry.
The General Insurance Standards Council (GISC) has created a new set of rules governing the sale of insurance products although dealers were faced with a set of regulations and potential re-training procedures of which they had no experience. However the overturning of the rules, by the Royal Courts of Justice after involvement of the Competition Commission Appeal Tribunal has left some retailers relieved, but others simply confused.
Warranty Holdings director of marketing Lee Eubank says: “Dealers are not forced to comply with a regulation they are not necessarily familiar with. Dealers conducting their business in the right way have nothing to worry about. The whole purpose of GISC is to make sure the customer is being better informed, and that can only be a good thing.”
Eubank also assures dealers that Warranty Holdings will be assisting in any training matters relating to voluntary code already in place; yet with the whole issue of regulation under the spotlight dealers need to take advice from their insurance product supplier as to their status as agents or sub-agents of the product.
This includes products such as GAP insurance as well as more traditional dealer supplied services including mechanical warranties and manufacturer-based general insurance schemes.
The feeling that the GISC's position is a sound one, is shared by Rob Chamberlain, national sales and marketing manager for ASA Insurance. “It's not clear yet what the outcome will be but the basis of GISC is a good one. It is intended to give the customer a clear view of the contract and pricing that they are entering into. Dealers should work to its proposed guidelines in any case,” says Chamberlain.
“As a company we hosted a forum on the proposals, not only for dealers, but also for our insurance industry competitors, to give open discussion on the rules and to help to promote best practices,” he adds.
“If you have professionalism, the profits look after themselves,” Chamberlain asserts.
However he also feels that insurance products could be seen with increasing importance in the light of the changes to block exemption. Chamberlain says: “Assuming the worst case, where manufacturers have no control over the retail network, the system of registration bonuses for targets will all but disappear. If a dealer has £50 left in a small hatchback to make the target he will sell the car with that much profit, just to make the target and get the registration bonus.
“He might make £150 just on a GAP policy. If the registration bonus disappears, can he really sell the car with a £50 margin in it? These incremental profits must be looked at carefully.”
However there is no fixed time scale for a counter-appeal by GISC against the Competition Appeal Tribunal. It could easily come about that any implementation of the GISC rules could hit dealers at the same time as the changes to, or even the unlikely cessation of, block exemption. Unfortunately that's something nobody will sell you a policy to guard against.

A second, lower level of cover is offered by Car Care GAP Standard which makes up the shortfall between insurance payout and any outstanding finance on a stolen vehicle.

Trade premiums start at £44, a figure that Car Care Plan head of UK operations Philip Morrison claimed provided dealers with a "significant" profit opportunity.

"Dealers are suffering in both the new and used markets and with margins under threat there is a constant need to look at new products to generate income," he said.

"Our GAP insurance is ideal for those companies with a well-developed finance and insurance culture."

Now, unfortunately, a good panel beater or sprayer is scarce with repairers all over the country reporting a lack of applicants for jobs.Across all industries, 59 per cent of executives say skills gaps are critical, according to the sixth annual survey of UK corporate employment strategies and trends from the Institute of Management & Manpower.
As the UK jobs market grows it appears the repair industry is one of the hardest hit sectors. And the cost of the accident repair claim and repair process has come into the first line of attack for cost cutting following pressure from insurance companies.
Vehicle Builders & Repairers Association managing director Ron Nicholson says: "Fierce competition between repairers has been fuelled by competition in the insurance market where premium rates and added value are the main attractions for policy holders. This in turn has had the effect of insurers looking ever harder at ways to cut costs."
Finding cost savings to maintain the profit margins leads repairers to slash wages, reduce staff to the minimum, not take on trainees, cut back or eliminate training and delay investment.
Lack of investment in a bodyshop often results in the best staff leaving, either to join a competitor who can pay higher wages or leave the industry.
Apprenticeship scheme
Motor Vehicle & Repairers Association training manager Colin Summersell says skills shortage is a problem that needs to be addressed properly. He believes a solution would be for repairers to get back into the apprenticeship scheme.
"Repairers should be encouraged to participate in modern apprenticeship schemes that attract young people willing to learn the whole trade of mechanical and body repair," he says. "What we are seeing is a backlash from about 20 years ago when trainees were taken on straight off the dole as cheap labour. These people have never learnt the business in any real depth and have therefore never had the opportunity to pass skills down the line to their successors. This has resulted in the skills shortage we are seeing now. How body repair as a career is promoted should be totally rethought."
Paul Williams, boss of franchised dealer Bristol Street, which has its own chain of bodyshops, agrees that bodyshop staff are harder to find. He says it is "largely a result of the scrappage of apprentice schemes".
A VBRA spokesman says only a "very small minority of bodyshops today can afford to take on apprentices when they are operating on such slim margins with the insurance company rates".
But the numbers of young people applying for training courses in the vehicle body repair industry are "relatively constant," says Mike Allmond, managing director of Remit, the training arm of the Retail Motor Industry Federation. He says he does not see this as changing.
The three routes of entry into the industry, which are all government funded and performed with Remit, are three or four year modern apprenticeship, NVQ level three and NVQ level two.
"There are plenty of youngsters around who want to get into the industry," says Allmond. "Whether the bodyshops can support them with a liveable salary is another matter."
The skills shortage problem may also have been aggravated by a discrepancy in salaries between mechanical and body repair technicians. Historically, the insurance companies have paid higher rates to the mechanical technicians.
However, according to the VBRA spokesman this has evened out over the last few years, because of the skills shortage, to a £19.44 charge-out rate per hour for everyone.
"It is now far more common that a repairer will be seen doing mechanical and body work as companies are finding it so hard to get the staff," he says.
John Vernon, manager of the motor trade section for recruitment specialist Maiday Recruitment in London, says recruiting for a good panel beater these days is not the easy task it once was.
"Whereas a few years ago we may have got 20 or so applicants for an advertised position, nowadays we will typically only get about three," he says. "Skills levels do seem to have come down. Franchised main dealer bodyshops often have very high throughputs with service managers that are heavily under the cosh to get the work done. This combined with the reduction in job time specifications has resulted in a general lowering of standards."
The 1997 Retail Motor Industry Pay Guide by Sewells and the RMI reported an acute shortage of departmental managers, accountants and bodyshop managers in the trade last year (Motor Trader, 3 November 1997). Pay guide research consultant Chris Oakham said at the time there was clear evidence that skilled operators were in demand since they were shown to have the highest increases in basic and total pay.
The report added support to the argument that a lack of training and improving levels of business were to blame for recruitment difficulties.
Mike Monaghan, MVRA managing director, says it is this increase in operator wages that has led to the increase in the labour rate.
"This will have a huge effect on the repairer whose profits are already under pressure," he says. "If the wage increases continue it could become too expensive for repairers to employ the good, skilled staff they require, which obviously affects the quality of their business."
Monaghan also says the situation has been intensified by many insurance companies who have set up their own bodyshops requiring 40 or 50 staff. "This has exaggerated the problem," he says, "by putting up labour costs rather than addressing the problem of the shortage. We cannot afford to let this shortage lead to wages escalating at such a high level." The MVRA is developing training programmes for all areas of the sector, he says.
Experienced managers are especially in demand, according to RMI bodyshop services senior manager Bob Hood who says despite the large number of bodyshop closures there is a dire shortage in the franchised sector.
"Every day I take calls from members who say they are struggling to keep qualified staff," he says. "Bodyshop managers seem to be at a premium as many are leaving the industry to seek less pressurised jobs. The ones left behind hop from job to job either for more money or in search of an easier lifestyle, which of course they will never find in this business."
Hood believes bodyshops should reassess their staffing problems, putting greater emphasis on the number of employees who meet and greet customers. "This will allow managers to concentrate on overseeing the repair process," he says. "The majority of our members gripes are no longer about repairing cars, they are about relationships and handling people. The industry would benefit from an injection of personnel from the general service sector in addition to retaining the traditional practical bodyshop management skills."
This is an area Allmond is keen to promote within Remit: "Customer care in the bodyshop is becoming increasingly important in this more competitive market and the RMI programmes focus heavily on this area."