The Productivity Commission will go ahead with an inquiry into the relationship between the smash repair industry and motor insurance companies.

Launched last month by Federal Treasurer Peter Costello and Small Business Minister Joe Hockey, the inquiry will investigate the awarding of “preferred smash repairer” status, the ability of consumers to choose a repairer, and dispute resolution systems.

The inquiry is a victory for smash repair lobby groups such as the Motor Trades Association of Australia (MTAA) and the Victorian Automotive Chamber of Commerce, which claim that insurers are discriminating against smaller repairers.

Repairers say the hourly rate of $23 that insurance companies pay them has not changed for 13 years and they are slowly going broke.

Insurance Council of Australia Corporate Affairs Manager Rod Frail says part of the problem is an oversupply of repairers in Australia on a per capita basis compared with other countries.

MTAA Executive Director Michael Delaney dismisses the comparison. “Your average Brit travels 5000 kilometres a year, so the accident numbers are going to be much lower,” he says. “We travel 15,000 kilometres a year. The greater the distances travelled, the greater the frequency of accidents.

“To then argue that we will only need as many repairers as the Brits have doesn’t tell you anything.”

According to the terms of reference, the commission will have the power to issue recommendations for improving the relationships between insurance companies, smash repairers and consumers, including possible regulatory approaches that take into consideration the need to keep red tape to a minimum.

Insurers are concerned that the Federal Government will impose a code of practice, which Mr Frail says would be anti-competitive and would lead to higher costs for consumers.

A report last year by the Australian Competition and Consumer Commission found that the preferred smash repairer scheme lowers premiums and ensures that repair work is of a higher standard and is guaranteed for life.

Hearings will be held over three months, and the report will be delivered two months later.