GOVERNMENT SAYS NO STUDY DONE ON IMPACT OF REGULATIONS ON REPAIR SHOP PROFITABILITY
Government says as high as $772 million industry cost will close some shops.
April 26, 2008
Environment Canada today released their long-awaited low-VOC regulations for auto refinish paints in Canada, taking pains to not mention waterborne paints once.
Although shops are not regulated in this federal announcement, the new content rules for product, that takes effect at the beginning of 2010, means that the major coatings firms that possess more than 85% of the Canadian market will not be allowed to manufacture, offer for sale, sell, or import auto refinish coatings that do not conform with VOC content regulations announced. Exceptions apply, in aerosol spray containers, small volume applications (touch-up), OEM manufacture, lab use and export as well as a possible discussion on “exempt” solvents.
For auto refinish shops, who are regulated provincially, this means that obtaining some of the current product they use now will not be possible after the start of 2010, and current inventories need to be depleted. Although Environment Canada, in its enforcement budget, has only allocated less than a loonie per shop to deal with violators, it is expected that shops will need to at least change over to a low-VOC basecoat to be able to ensure continuing product supply. In most cases, for light vehicle painting, this is offered as a “waterborne” paint replacement, however Environment Canada says that most product in Canada now will not meet new standards.
Environment Canada admits that with 72% of the shops in Canada being in the “small category”, that there will be impacts on their profitability and staying in business, although they admit they never studied shop profitability due to a lack of data. It is expected that shops will need to spend $141 million in new equipment costs, $125 million for new paints and $55 million in training to meet the new regulations, although a government “worst case scenario” identifies costs as high as $772 million in total. Paint costs are expected to rise 5 % per year for four years (largely due to transport and storage costs) and less after that. Government again admits that there is significant uncertainly that these figures are accurate.
Some shops will close, forecasts Environment Canada but they expect technicians to be hired by other repair shops. They admit that cost-cutting by insurers means shops are not in a position to increase the repair price, while the decline in the number of repair jobs results in lower revenues and profit margins for all repair shops. The government also expects that consumer paid repair price increases will be unlikely.
It is expected that shop costs will be between 1% and 2.5 percent of gross revenues, each year for the next 25 years. Taken in dollars, it means that the average shop must now budget an extra average $6000 per year, every year for the next 25 years for these new expected costs, assuming paint cost increases are as forecast.
Environment Canada did not announce any efforts to address underground economy or illicit product use operations, which was a major concern of the industry shop trade associations. No special credit or tax incentives for shops were offered although the government has identified the ongoing Canada Small Business Financing Program (CSBFP) for possible financing applications from shops.
Voluntary actions, rather than regulatory means, were promoted by the auto refinish shop industry to address lowering VOCs in Canada, with positive voluntary effort by industry accounting for a nine kiloton reduction to date in VOC emissions. The government diminished those actions, calling them insufficient, and that new regulatory methods announced will reduce emission from shops by a further 2 kilotons a year (or a further 40% of current emission level). These reductions anticipated through regulation would mean that auto refinish industry contribution to VOC reduction in total Canadian emissions will be one tenth of one percent of all VOC emissions.
“Our association has worked for cleaner air and lower emissions for many years and welcomes further emission reductions for the industry, and we also recognize that the costs of this regulation may be tough for some shops but the regulations will change the industry face forever, towards a better operating, more compliant, environmentally friendly new image.” said HARA and www.ciia.com President and shop owner, Tony Nigro.
For more information, please call the association at 1 866 309 4272 or see www.autobodyhelp.ca