It is expected that the cost of an average repair to a car in western Europe will rise to about 1,290 Euros from 1,180 Euros this year. For a large fleet that has to repair 100 cars in a year the total increase will come to 11,000 Euros.
The figures are revealed in a new report showing that the average percentage increase for car body repairs year-on-year is slowing. However, since 1996, average repair costs have soared by 20% from 984 Euros to 1,180 Euros.
The research was carried out by independent automotive analysts MFBI and published in its The Car Body Repair Market in West Europe report.
The report said: 'Insurance companies finance 75% of all accident repairs in west Europe amounting to 24.3 million repairs. The rise in repair costs is forecast to slow as insurance companies direct a higher proportion of repairs to networks of approved bodyshops.'
The report suggest that in some of the relatively large and mature accident repair markets, such as Germany, Italy and the Netherlands, demand for accident repair will decline between 2002 and 2007.
But it adds: 'This will be offset by a significant increase in repair demand in Spain and Portugal, which will result in Spain becoming the largest repair market in western Europe in 2007 with 7.73 million repairs.
'Average repair costs in Spain, however, are the lowest in west Europe at 530 Euros compared with 1,600 Euros in Germany, and consequently total expenditure on accident repairs in Spain will rise to only 4.71billion Euros in 2007 compared with 10.39 billion Euros in Germany.'
The report says other factors that will contribute to a slowdown in accident repair cost inflation in western Europe include a reduction in repair times on modern cars.
The increasing use of computerised repair cost estimating systems based on car manufacturer repair times by insurance companies and bodyshops is another factor.
The report added: 'By offering a higher quantity of repairs to a streamlined network of insurer-approved bodyshops, insurance companies believe they can significantly reduce repair costs by obtaining discounts on bodyshop labour charges.
'Bodyshop labour rates for accident repairs range from an average 65 Euros per hour in Germany and the Netherlands, to an average 25 Euros per hour in Portugal.
'By negotiating discounts on hourly labour rates with individual bodyshops in return for supplying a higher quantity of repairs, insurance companies believe they can reduce average repair costs.'
The UK and the Netherlands have the most developed insurer approved networks, the report adds, pointing out that in the UK insurance companies have been able to exploit excess repair capacity among bodyshops to force labour rates for insurance work down to 35 Euros per hour.
The report said: 'Despite low labour rates of 35 Euros per hour in the UK compared with 65 Euros per hour in Germany and the Netherlands, the United Kingdom experienced the highest increase in average repair costs in west Europe at 43% between 1996 and 2002, compared with an increase of 15% in Germany where labour rates are twice as high.
'The reason for the significantly higher increase in repair costs in the UK compared with the rest of Europe, is that bodyshops in the UK have been required to adopt stringent environmental protection measures under the Environmental Protection Act, while also being required by insurance companies to provide free courtesy cars to every repair customer.
'This has resulted in a dramatic increase in overhead costs for UK bodyshops and as labour rates have fallen, these overheads have had to be absorbed into the rising costs of paint, materials and especially replacement parts, the cost of which in the UK are some of the highest in Europe.'
Original parts fitting boosts viability for car manufacturers
MFBI's survey of bodyshops in western Europe shows that 87% of parts replaced in accident repairs by bodyshops are original manufacturer equipment (OEM), while 13% are sourced from independent suppliers.
The report said: 'For car manufacturers and their franchised dealer networks, OEM replacement parts are an important source of profitability and any reduction in their usage for accident repairs by bodyshops would seriously erode the profitability and future viability of car manufacturers and their dealer networks.'
MFBI believes that the reforms to the car distribution Block Exemption potentially increases competition to original equipment parts from suppliers of independent parts 'of equivalent OE quality'.
'Most insurance companies believe that the new regulation will lead to a reduction in replacement part prices of 20% to 30% in the repair market across Europe, as competition to OEM parts increases from independent parts suppliers,' it said.
'While this has already occurred and may continue to occur for some of the more common mechanical and electrical parts where OEM part manufacturers supply the same parts under an independent brand at a lower price, this is unlikely to occur for car body parts,' MFBI added.
In conclusion, the MFBI predicts the number of bodyshops operating in western Europe could fall due to changes in the market.
It said: 'The net effect of these trends is that bodyshop profitability is falling across Europe and MFBI forecasts that the number of bodyshops operating in west Europe will decline by 6% by 2007.'