AMA Group rejects profitless repair work as costs rise

Collision repairer AMA Group says insurer partners have mostly recognised the need to improve pricing, amid shortages of labour and rising costs for vehicle parts and other products, while it has exited some contracts that have remained inadequate as it rejects “profitless work”.

Inflationary pressures drove the company to approach insurers from late May over the need to improve pricing across its networks, excluding the Capital Smart arrangement.

“There was broad recognition by our insurer partners of the need to realign pricing to reflect the current environment which is characterised by labour force constraints and significant inflationary pressures,” CEO Carl Bizon told an annual financial results briefing today.

“We chose to exit some contracts which represent less than 10% of revenues where insurer partners were not willing to adjust pricing adequately.”

Mr Bizon says the group will continue to have regular discussions with insurers, with shorter formal review cycles, and is also “assessing the ongoing viability of average pricing models”, where a fixed amount is paid for repair jobs up to a certain level.

The company says it’s no longer prepared to accept “profitless repair volume and revenue at any cost to build scale”. This year was described as a year of transition, while it expects margins will improve as it rationalises sites, redeploys labour and pursues other improvement measures.

“Ongoing pricing increases will be required in order to maintain profitability in the face of inflation,” Mr Bizon said.

The company says it’s “committed to early engagement” on the July 1 2023 repricing of the Capital Smart contract, with benefits to be realised in fiscal 2024. AMA Group has a 90% stake in Capital Smart, which it purchased from Suncorp in 2019.

AMA revenue for the year ended June 30 fell 8.1% to $845 million. The group posted a net loss of $148 million compared to a loss of $99.1 million the previous corresponding period.

Normalised post-AASB16 earnings before interest, tax, depreciation and amortisation was $21.8 million, compared to guidance of $12-17 million provided at the May investor day.

The group says the most challenging conditions since the start of the covid pandemic were experienced during the first half of the fiscal year, while the second half was particularly affected by labour issues as illnesses and covid close-contact rules exacerbated shortages.