Another Presidential election year begins, and just as U.S. voters will face another key decision, collision repairers could find themselves faced with important business decisions this year as well: What new equipment will help improve my productivity and quality? Is this a DRP or other business relationship that's right for my business? How will I compete with a larger, multi-shop operation entering my market? Should I open another shop? Should I sell to a competitor?
ABRN can't answer these questions or predict the outcome of the election. But we can provide information you need to make good decisions. That's why we start out 2012 with a look at some of what collision repairers will likely experience in the year ahead.
Stats point to stability, potential growth
Industry analysts agree that the forecast in 2012 for such things as total loss rates, repair costs and severity, and frequency of accidents and claims will be "steady as it goes."
"I don't think there's anything on the horizon that would point to trends changing much anytime in the next 12-18 months," said Susanna Gotsch, director of industry analysis for CCC Information Services.
Total loss rates are one example of where "conflicting" trends likely will result in little change to the current situation. Although new car sales improved in 2011, they are still well below pre-recession levels. That has pushed the average age of vehicles on the road up from about 10 years old in 2007 to almost 11 years old now. Older vehicles generally mean more total losses.
But collision repairers have benefited from the historically high used car values. That allows for higher repair costs before a vehicle is totaled. Used vehicle prices are expected to stay strong in 2012. One reason: The three-year slump in new car sales means there are far fewer three-year-lease vehicles being turned back in. Only 90,000 leased BMWs were returned last year, for example, compared to 138,000 in 2008.
Gotsch said the frequency of accidents and claims has remained fairly stable, with some drift downward as Americans drove less during the recession, and some upward lift as vehicle miles traveled increased. Frequency is also a factor of the shift toward higher deductibles, which reduces the number of minor-damage claims motorists file. A decade ago, more than 50 percent of claims involved a deductible under $500; today less than 40 percent do. Expect that trend to continue, Gotsch said.
Labor rates on a national level have continued to climb 1 percent to 2 percent per year, and Gotsch expects that to continue in 2012. "Severity," the insurance industry term for repair and other associated costs per claim, has been flat or even dropping slightly for several years. Gotsch said that although labor rate increases will be modest and commodity prices (related to parts production) are down thanks to the global economic slowdown, she predicts for 2012 a return to a 2 percent or 3 percent increase in average severity that occurred annually in the pre-recession years. That, she said, will be fueled mostly by the change in deductibles, eliminating more smaller claims.
Greg Horn, vice president of industry relations for Mitchell International, offered similar predictions to Gotsch for 2012, other than he thinks severity will remain relatively flat. It's been held down in part, he said, by increased use of alternative parts, a trend he expects to see continue this year.
"OEM parts use is now only 66.1 percent of the dollars spent on parts, which accounts for 44 percent of the total repair cost, down from 68 percent in 2010," Horn said.
MSOs will continue to expand
So beyond those trends, what else can the collision repair industry expect to see in 2012?
Horn is among those predicting acceleration in the growth of multi-shop operations (MSOs). Shop openings and acquisitions by MSOs have come at a rapid pace in recent months after several years of slower growth. In just one 30-day period this past fall, for example, five MSOs announced acquisitions and openings of 19 new shops.
Market share is shifting toward these MSOs, another trend likely to continue in 2012. In 2000, for example, independent shops handled 85 percent of all claims, according to CCC; dealership shops processed about 4.6 percent, and MSOs just over 10 percent. By 2010, MSOs were pulling in 18 percent of all claims.
MSOs will continue to gain ground on independents and dealerships in 2012, most analysts predict, in part because they've outpaced smaller operators in gaining insurance DRPs. MSOs average six or seven DRPs, compared to three to five for independent shops and dealerships.
Insurers broaden technology links
But one trend that bodes well for shops not on a particular insurer's DRP is the effort by some insurers to make their interactions with such shops more efficient.
Allstate, for example, last year launched a "Transactional Non-DRP" system to enable any shop to upload estimates and digital images to Allstate, and receive insurer-written estimates from Allstate electronically.
Ameriprise, which sells policies in 44 states, also launched a new "Shop of Choice" program to allow shops outside its DRP to upload estimates and photos to the insurer, and to check online for supplement status updates.
The technology enabling such programs is expected to lead more insurers to launch similar offerings this year.
State legislation expected
A number of states are expected to consider legislation this year that will impact collision repairers.
Ron Stamm of the Automotive Service Council of Kentucky, for example, said his group expects to make a third attempt this year to push for consumer notification legislation in that state. The association-backed bill, which narrowly missed making it through the legislative process in 2009 and 2010, would require insurers to include notification of a consumer's right to select a repair shop on the bottom of printed estimates, and to tell the consumer of that right prior to explaining any DRP.
The Washington Metropolitan Auto Body Association is working with the Virginia Department of Environmental Quality on a possible shop registration program that could prohibit the large-quantity sale of automotive paint to anyone other than registered shops.
And the Alliance of Automotive Service Providers (AASP) of Massachusetts is expected to continue its multi-year effort at getting an autobody labor rate bill enacted. As drafted, the bill would create an advisory commission to determine what the average labor rate is nationally, and adjust it for Massachusetts based on cost-of-living and other factors. Shops would then receive that rate, or a percentage of it, based on their designation as an "A" or "B" shop.
State Farm in the news
State Farm will be the focus of a number of changes and news stories throughout 2012. How shops in its DRP network receive customer referrals will likely change, for example, as the company rolls out a revamped online shop locator system.
The new system, which policyholders, agents or claims personnel use to locate a Select Service shop, is ranking those shops based on their current performance score from the insurer. In the past, shops were listed based only on proximity to the address entered for the search. But now when any user of the locator service enters an address or zip code, all Select Service shops within 15 miles (a distance the user can adjust) are listed, but higher-scoring shops will be higher on the list (the scores themselves will not be shown). A shop's score, on a scale of 1 to 1,000, is updated monthly and is established using a proprietary formula that takes into account the key performance indicators State Farm uses to track each shop's performance.
State Farm also is likely in 2012 to expand testing (and perhaps implement nationwide) "PartsTrader," its new electronic parts ordering system that the insurer expects it will eventually require its Select Service shops to use.
State Farm could also stay in the news this year because of a renewed effort, announced last fall, to get the Illinois Supreme Court to review its 2005 decision to overturn a $1 billion judgment against the insurer. Plaintiffs' attorneys in the case say one of the justices on the court who cast a deciding vote should have recused himself because of what they say is new evidence of State Farm's financial support and involvement in his 2004 election campaign for a seat on the court. (State Farm denies the allegations.) The Avery vs. State Farm case, which centered around the insurer's use of non-OEM parts and was first decided by a court in 1999, is generally cited as a primary reason State Farm has not called for the use of such parts for the past decade.
"Standards" remain on the table
The development of formalized collision repair standards has been a topic of discussion for at least five years at the Collision Industry Conference (CIC) and elsewhere. But two factors late last year may signal a significant shift or movement in the effort for 2012.
First, the CIC Repair Standards Advisory Committee is expected this spring to reveal the results of a $60,000 study, conducted by an industry consultant, into what consensus (if any) exists within the industry about standards and a possible new organization to oversee the development and implementation of them. The study is based on about four dozen interviews the consultant has conducted with repairers, insurers and industry vendors, as well as a conference call designed to solicit input from nearly 20 state and national repairer trade associations.
Some of those associations have expressed concerns at CIC about how such standards are developed or implemented, and whether they will benefit shops. The effort in 2012 will surely be shaped by a joint statement made by several national repairer organizations at the last CIC meeting of 2011. In it, the Alliance of Automotive Service Providers (AASP), the Assured Performance Network, the Automotive Service Association (ASA), and the Society of Collision Repair Specialists (SCRS) said published automaker repair procedures are the "official industry-recognized repair standards for collision repair," and as such, should "be the basis for the establishment of training, testing, repair practices and documentations."
Rather than a new organization to finalize and implement a standards program, the groups called on I-CAR to create an industry council to identify where gaps exist in existing OEM procedures, and to develop processes to close such gaps.
How that statement meshes with the results of the consultant's study will likely come to light this spring and shape the discussion and activity around the issue throughout the rest of this year.
That will keep standards, along with the other topics and issues highlighted above, at the forefront of industry news until well after the country decides this fall who will serve as its next president.
