AMA Group predicts car parts inflation to stay high next year – The Australian Financial Review

May 31, 2022 by No Comments

At an investor day presentation on Tuesday, AMA estimated it would have $50 million in cash available in June.

It predicted cash flows would be positive in 2023, although that was before lease costs that were running at $7.4 million last quarter. AMA has been closing unprofitable sites to reduce spending.

The company is also considering reducing costs partly by using its scale to boost purchasing practices.

AMA said repairing collision damage involved spending annually about $350 million on parts, $50 million on paint and $20 million on consumables, such as sandpaper or masking tape.

Parts prices had risen more than 20 per cent since 2019, it said.

Hourly average rates for panelbeaters and spray painters had risen steadily between 10 per cent and 15 per cent since 2018, it said. Consumables were largely imported and prices boosted “by a four-fold increase in international shipping costs”.

Parts and labour inflation would “remain high” for the next financial year before stabilising in 2024, it predicted.

AMA also detailed how changes to insurance purchases are eating margins. People are now selecting a higher excess – the amount they pay to repair a damaged vehicle before insurance kicks in.

But that affects AMA’s insurance fixed-price model because the higher excess means fewer low-cost repairs are coming into repair shops. In the theoretical model, repair work for insurers under a certain price cap is invoiced at a fixed-price in a batch and AMA argues more than half of jobs should be profitable in this case.

Yet the model’s bell curve, it complained, had shifted to more expensive jobs thanks to factors including higher input costs and that a “trend toward high excess reduces low-cost repairs claimed under insurance”.

AMA repairs crashes for insurers including IAG, RACQ and Budget Direct, while its main deal is with Suncorp. The smash repairer said “all insurers” had been approached regarding repricing contracts.

It has been in discussions with Suncorp, as Street Talk revealed last week. Suncorp sold to AMA its Capital Smart repair network for $420 million in 2019, only for the smash repairer to massively impair the acquisition.

AMA said it was undertaking a plan for its Capital Smart facilities that involved it being “approximately break-even with current pricing and volumes”. It had cut some Capital Smart facilities, but the contract with Suncorp was “constrained” as fixed-price until June next year.

“Normalised” earnings before interest, tax, depreciation and amortisation for this financial year should be between $12 million and $17 million, AMA said. The normalised half-year result was $4.2 million.

Source: https://www.afr.com/companies/transport/car-parts-inflation-seen-staying-high-next-year-20220531-p5apxl

Tags:

Leave a Comment

Your email address will not be published. Required fields are marked *