Breaking Down Trends in Consumers, Vehicles and Repairers
It’s no secret that the collision repair industry has seen a number of changes in recent years: The economy has stabilized and new vehicle sales are up, meaning total loss values, repair and labor costs have returned to pre-recession levels. Vehicles are also being built with lightweight materials and more complex construction techniques, as well as newer technology, including sensors and cameras. Because of that, new equipment, tools, and training are required to perform repairs. It’s a changing landscape, says Susanna Gotsch, director of industry analyst at CCC Information Services, and one that shops need to pay attention to.
“When we look at the industry landscape, we see it intersecting in a variety of ways,” Gotsch says. “A large part of that is the connections that occur between the carrier, the repairer, the consumer and the car.”
During a recent CARSTAR webinar, Gotsch broke down those key intersections, the trends occurring within those segments, and what they could mean for your business.
The Segment: Consumers
The Trends: The good news, Gotsch says, is that we’re starting to see the effects of the recovery from the recession: Unemployment rates fell and the economy grew in 2014. In addition, the U.S. population is changing, too, with an expected growth of 70 million in 30 years. And although millennials now make up the largest percentage of people in the U.S. that are working, by 2045, the average number of Americans over the age of 65 will increase by 77 percent.
However, vehicle and population growth continue to outpace growth in miles driven. Absolute miles driven have started to grow, but due to a more extreme growth in population and in registered vehicles, the average per person/per driver/per household/per vehicle miles driven is still slower.
That being said, collision claim frequency has returned to pre-recession levels. Industry claims counts are up 5 percent in 2014, which includes total losses and repairables, according to CCC.
In terms of how consumers are interacting, smartphone adoption continues to grow. The average consumer spends 5.6 hours per day with digital media, 51 percent of which is mobile.
What it means for your business: Although an increase in claims numbers, vehicles and population could spell more business for your shop, Gotsch says that the most important factor to pay attention to is who those people coming into your shop will be: millennials.
“Consumers have ready access to data, email, phone text, Internet searches, [connecting] with friends,” she says. “When you think about interacting with customers, all businesses are changing the way they present their websites, interact with customers, their Internet search engines.”
Consumers want to interact and use their phones to do so. Within the insurance industry, more customers expect that interaction with insurers will be offered on mobile devices, whether it be taking pictures with their phone and sending a mobile report claim, receiving updates on a claim through a mobile device, etc. That same level of expectation could soon be heading to the repair process, too.
The Segment: Vehicles
The Trends: Anticipated vehicle sales for 2015 are currently between 16–17 million, a 2.6 percent increase over last year. The average MSRP of those new vehicles is $33,000, a significant increase from the last decade that is largely due to the types of vehicles being purchased, Gotsch says, and the increasing number of standard features now included in mass-market vehicles that were previously only found in luxury vehicles.
And while new vehicle sales will eventually benefit the collision repair industry, the still-high number of older model-year vehicles on the road mean that total loss frequencies are anticipated to continue growing moderately. When looking at total loss claims, Gotsch reports that 70 percent are vehicles seven years old or older.
“Until we get those older vehicles off the road, we anticipate seeing similar data points moving forward,” she says.
Finally, Gotsch says that the biggest trend is the very quick transition of the automotive industry to a software-based industry: Electrical content of the vehicle now accounts for 40–50 percent of the vehicle and 90 percent of vehicles sold in the U.S. had at least one component that was of light-weight material. However, only 6.2 percent of the total number of parts being repaired and replaced in Q1 2015 were of lightweight material, Gotsch says. Many of those materials were structural parts, she says, and 71 percent and 14.2 percent were high-strength steel and aluminum parts, respectively.
In addition, collision avoidance technology and autonomous vehicles are also becoming more common.
“We’re going to see growth of that technology in the vehicle fleet,” Gotsch says. “The results of those vehicles are very positive in terms of their ability to stop accidents. It’s not going to happen overnight. We are going to slowly see more of those vehicles on the road and it is going to change our marketplace.”
In the 2013 model year, 30 percent of a sampling of vehicles had a backup camera. By 2018, that feature will become standard. Gotsch says those cameras tend to be mounted low on the vehicle and will often be damaged in an accident, causing an average $6 per claim additional cost related to the type of part.
What it means for your business: Although total losses will continue to creep up, Gotsch reiterates that there is light at the end of the tunnel. With high new vehicle sales, she anticipates a decrease in total loss frequency as the aging vehicle fleet disappears.
As for the change in vehicle materials and construction, she says that although those changes are coming, they won’t show up overnight.
“We still have a hangover from the older model-year vehicles that is going to flow the introduction of these types of materials into the marketplace,” she says.
Those changes are imminent, she says. According to data from the U.S. Energy Administration, by 2040, 78 percent of all new vehicles sold will still be conventional gasoline vehicles. That means that in order for OEMs to meet CAFE standards, they will increasingly turn to lightweighting.
Gotsch notes that the effect of collision avoidance and autonomous vehicle features could affect industry KPIs, as well.
“Many of these parts are 100 percent OE usage, which has an impact on some of the KPis the industry has historically used, such as parts utilization,” she says.
The bottom line, she says, is that it pays now to prepare, train and equip your shops for these changes.
“The material use is growing significantly by the manufacturers, we’re starting to see it introduced in more body panels, and as more of those newer model-year vehicles are sold and they make their way into the claims volume, our industry has to respond by ensuring we know how to work on those vehicles and have the training and equipment to work on these materials types,” she says.
The Segment: Repairers
The Trends: Repair costs continued to grow roughly 3 percent in 2014, returning to a historical pre-recession pattern. Labor and parts continue to be 40–45 percent of repair dollars, with paint costs making up the rest of the dollars. Replacement parts have also grown with newer vehicles. Within every single age group of vehicles, Gotsch says there has been an increase in the average number of parts replaced per claim. In 2001, the average number of parts replaced per claim on a current model year vehicle was 10.9, versus 13.2 in 2014. The share spend also increased to 46.7 percent in 2014 versus 42.3 percent in 2001.
Gotsch notes that the method of inspection in the industry is also shifting: As of 2014, 50 percent of the overall appraisal count was shop writing an appraisal on behalf of a carrier. Of those appraisals, 34.6 were written by a national or regional MSO or franchise. Gotsch says that these trends speak to the desire for both carriers and shops to streamline the repair process, with insurers more willing to provide data that streamlines the overall claims management process.
“More and more carriers and shops are looking to move to beyond just measuring performance using traditional estimatic metrics, but also incorporating things like quality metrics, reinspections results, electronic audit and customer satisfaction data,” she says. “We’ve had data available where they can benchmark themselves against the local market. But carriers are now being more receptive to providing data that shows how an individual shop is performing in the specific DRP program. There is more transparency with the business partners so they’re looking at the same sets of numbers.”
What it means for your business: Overall, Gotsch says she does an anticipate a marketplace that, over time, will see fewer, but more expensive repairs, largely due to the impact of collision avoidance systems.
However, she says that as that overall accident count goes down, vehicle complexity will grow, causing an increase of average vehicle repair costs that will counter the decline in count over the next five to 10 years.