Industry Analyst for CCC Information Services Inc.
Courtesy CCC Information Services Inc.
The CCC CrashCourse Update 2010 revealed that car owners are getting fewer repairs done these days. Although the poor economy is one factor, the trend was headed that way before the recession. In addition, consumer expectations for speed and efficiency are being set by other customer service-driven industries, says Susanna Gotsch, industry analyst for CCC Information Services Inc. Repairers need to know what those expectations are and how to be ready for them. FenderBender’s Andrew Johnson sat down with Gotsch to discuss future trends in collision repair, and how high-end vehicles are leading the way.
The CCC CrashCourse Update 2010 revealed a trend toward a fewer number of repairs in the industry. What factors are causing that to happen?
These have been difficult economic times. If a consumer has a vehicle that is damaged but still drivable, she may not be interested in paying a $500 or $1,000 collision deductible to fix a $900 repair. That has been one factor.
Another factor is that total loss frequency has been rising over the decade. Some of that is due to the market values of used vehicles—vehicles today are maintaining their values better. Total loss frequency is up because the fleet is older. We know that new vehicle sales dropped off the cliff between 2008 and 2009. Six million fewer new vehicles were sold in just two calendar years alone. So that means you’ve got fewer new vehicles in the overall pipeline. But at the same time, people are retaining their vehicles at the same rate, or more, than what they have in the past.
So the economy and a rise in total loss frequency are two reasons for fewer repairs. What are some others?
It boils down to the combination of many different factors. Some of those factors include:
• People moving into safer driving years. There are more and more baby boomers moving into retirement age. Although many of them may not be retiring, people in their 40s, 50s and 60s tend to be safer drivers.
• Graduated license programs.
• Crackdown on drunken driving.
• Fewer people employed, which means fewer people driving to work, due to the recession. Data from the National Highway Traffic and Safety Administration show significant drops in the number of fatalities and injuries on the road.
• More vehicles than drivers. One person obviously can’t drive two vehicles at the same time. If there are more vehicles than drivers, then your overall exposure to a collision has dropped.
How much more will repairs decline?
If you look at historic trends from a claim frequency perspective, we have seen a moderate decline year over year. There’s been a definite trend downward.
I have yet to see one definite source for the actual number of accidents on the road. My opinion is the number of accidents is somewhere between 16 million and 17 million.
That’s down from 10 years ago when the number was around 18 million. We’ve noticed about a 1 percent decline year over year, and we’ll see it again in 2010. Not many of the factors that have been contributing to declines in claim frequency will be going away anytime soon.
However, the counterpoint to that is the inclination of drivers to text and talk on their cell phones while driving. That may counter some of the improvements we’ve seen in the number of accidents.
The average cost of repairs is on the rise. What’s causing this?
The U.S. government announced new fuel economy standards that will come into play starting in 2016. Auto manufacturers are scrambling to try and meet those standards. As a result, they are looking to reduce the weight of their vehicles wherever possible.
One of the ways they do that is by looking toward alternative metals—beyond traditional sheet metal—that have lighter weight, similar strength and weight-bearing properties. For example, a lot of the auto makers have introduced aluminum in their hoods and radiator supports. When those types of components are involved in an accident, it requires shops to use special tooling and training to repair them. Many times those high-strength steels cannot be repaired and have to be replaced.
How much is the average cost of repairs expected to increase by?
Repair costs have increased at about a 2 percent rate nearly every year over the last 15 years. Repair costs continue to show about a 2 percent increase, and we’ll see similar increases over the next five years.
Why exactly do those developments drive up the cost for repairs?
There’s been a lot of discussion around the potential impact these new materials will have on automotive repair. A lot of the concern has to do with making sure shops have the appropriate information to properly estimate, repair and understand the procedures to bring the vehicle back to original condition. We found that up to 35 percent of all vehicles sold in the U.S. include one or more components that are comprised of high-strength steel, boron or magnesium. Those vehicles account for a small amount of the overall population of vehicles on the road. But when those vehicles are in an accident, it’s not uncommon for the damage to involve those components.
How do new materials impact repairers?
There’s a lot of discussion around carbon fiber, boron and ultra high-strength steel, and what it’s going to mean for the industry. From a shop perspective, it causes a lot of heartburn. Shop operators have to determine, from an investment standpoint, if they should invest in all the materials, training and tools to be able to repair those vehicles. With aluminum, there’s tooling that costs around $100,000 when you take into account the training and the fact that you have to quarantine aluminum repairs separate from standard steel repairs.
People should understand that there are additional costs associated with these, but I don’t think we’ve seen the full extent of it. If you think about the cost it will take to repair these metals, combined with some of the accident avoidance technologies, you’ll understand why people are saying the industry will see fewer, but ultimately more expensive repairs.
What role do accident prevention technologies play in the trend toward fewer repairs?
Historically, vehicles were designed primarily with a focus on crash worthiness. In the more recent years, there’s been a lot of focus on crash avoidance. That’s where technologies like blind spot warning, back-up cameras, lane departure warning, and automatic cruise control warning come into play. All of those systems are designed to help reduce and mitigate accident frequency.
So accident avoidance technologies lead to fewer repairs. Those components must also be a factor that drives up repair cost when they’re damaged.
That’s right. There are cameras at both the front and rear of the new vehicles. Those cameras are likely to be damaged in a collision. Many times it’s as much as $1,000 to repair that component.
Luxury vehicles are primarily the ones that include some of those new electronic components. How realistic is it to think these features will someday be common in all vehicles?
There are multiple systems in play for accident avoidance in vehicles like Infinity, Volvo and Lexus. More and more consumers are looking for that type of technology in their cars. Frankly, auto makers are looking for ways to entice consumers and differentiate their brand.
The more technology that becomes incorporated in vehicles, the more the costs from suppliers for these technological components will decrease. Once that happens, it will be less costly for auto makers to incorporate the technology in lower-end cars. So more of that accident avoidance technology will begin to find its way into an increased number of cars.
However, it’s important to note that the market for new vehicle sales has not yet recovered. We’re still down 30 to 40 percent from 2007, which was the last year with 16 million new-vehicle sales.
The market has a ways to go before we’re at the pre-recession level. This trend won’t take place until more people start buying new cars again.
Fewer yet more expensive repairs will certainly have an impact on how body shops operate and how they boost their bottom lines. How might shop owners position themselves for a successful future in the industry?
Where people are living, the age of the drivers, and whether or not people are buying new cars are all factors pushing the industry toward change. If shop operators do not at least start the planning process for these changes, they’ll find themselves flat-footed.
This change will require some greater specialization by organizations within the industry. Shop operators will have to look a lot closer at their marketplace, and decide whether their specific marketplace warrants new training and equipment.
The companies that will do well are the ones that will address the market needs and understand how to accommodate their business.
If you’re properly prepared for it, fewer yet more expensive repairs can be a good thing.
What effect will a shift toward fewer and more expensive repairs have on the mind sets of consumers?
Consumer expectations are already changing. They want things done more quickly. Consumers want to be updated on their claim and have shops address their concerns faster than ever.
Other companies outside of our industry are creating those consumer expectations. For example, consumers base a shop’s speed in comparison to how quickly they get their cable set up at home, or how quickly they receive a pair of boots purchased from Amazon.
What is not changing is the industry’s inability to prepare customers for what happens when they have an accident, because it happens so seldom. Only six out of 100 people will have a collision claim annually. That’s a pretty small number. You can provide consumers with the materials and process of the claim, but it’s not until that customer actually goes through the repair process that they understand the full scope of the situation.
What other industry trends do you see coming down the pike that might affect the number and cost of repairs in the future?
Overcapacity in the industry used to be a big problem, but that has right-sided itself now with fewer repairs. In 2008, CCC published a paper that looked at the impacts of the changing demographics in the insurance and collision repair industries.
Both sectors were at risk of having their most knowledgeable appraisers or technicians reaching retirement age within the next five to 10 years. That would leave a dearth of qualified people.
That is something the industry still has to take into account. The industry needs to understand how to recruit people with the right skills, and provide training for current employees so people stay abreast of the changing technologies and repair requirements. This is important not only in terms of repairing cars, but in how shops interact with customers as well.
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