Thoughts on the NACE Show

Jan. 1, 2020
The 2010 NACE collision industry expo provided us with numerous opportunities to catch up with the leading salvage operators, parts distributors and information service providers.

The 2010 NACE collision industry expo provided us with numerous opportunities to catch up with the leading salvage operators, parts distributors and information service providers.

A number of OEMs were in attendance, and overall the show did not disappoint us. However, while the roster of exhibitors was every bit as complete as we anticipated, we couldn’t help but notice what appeared to be relatively weak attendee traffic. The decision to split NACE from AAPEX/SEMA may ultimately prove counterproductive, but the jury is still out.

Heading into the event, we wanted to gain some insight into how market participants were thinking about 2011 and to better gauge industry sentiment towards prevailing fundamental trends. Overall, our takeaway is that traditional insurance-sourced volumes remain under pressure, driven by the combination of continued economic weakness and an elevated incidence rate of motorists driving without insurance. The Insurance Research Council reports a .75 point increase in the uninsured motorist rate for every percentage increase in the unemployment rate, with the UMR currently running at 18 percent. Some drivers have opted to trade down from collision and/or comprehensive to strictly liability coverage, while others have decided to drop all forms of coverage completely.

In addition, older vehicles simply tend to carry less coverage and in this environment we believe that owners of 10-15 year old vehicles are wondering whether it is worth carrying any insurance at all. We still think a sizable pickup in new vehicle sales remains several years away.

As such, the decline in collision and comprehensive claims has led many in the industry to tighten their belts, and it is our opinion that traditional repair work will remain at subdued levels for at least the next 12 months. Competition has been heating up among collision shops as each vies to secure the next repair order from the insurer. If macro conditions do not begin to improve at a more appreciable pace, we would anticipate further shop closings and industry consolidation. And speaking of competition, have you noticed how aggressive the insurers have become of late with respect to marketing and brand development efforts? All of these promotional activities come with a price and it should come as no surprise that the subject of aftermarket parts utilization remains on the hot plate — in speaking with Certified Automotive Parts Association representatives, we think there may be an increase in the number of certified aftermarket parts sooner rather than later.

With volume increases unlikely, the key to driving profitability (and taking share) will be a concerted focus on cost control while simultaneously looking for new and innovative ways to add additional value to one’s customer base. One such area that continues to receive attention is technology, and we believe that further streamlining the parts procurement process through enhanced systems and communication may be the single largest opportunity for further productivity gains in the broader collision repair space. Whether the part is OE, “Like Kind Quality”/salvage, or aftermarket, we believe that there are still numerous benefits to be realized.

PAGE 2

In many instances, there are already companies looking to deliver these solutions, and perhaps it is not so much the absence of technology in the marketplace but instead simply the sheer degree of systems proliferation with the larger parts distributors, big three information service providers, independent parts systems administrators, and even the OEM networks each providing a somewhat unique interface.

We would also point out that the continuation of the trend towards an increasing reliance on systems and more efficient use of information-based assets is not coming from just one segment of the collision supply chain. Given the sluggish macro environment, insurers, service providers, parts distributors and the salvage pools are all working towards strengthening their CRM practices and further differentiating their product. This was very apparent at this year’s expo, with almost every single exhibitor showcasing some variant of either their existing or to be launched e-based capabilities.

We also found AutoZone’s participation at NACE interesting. We understand the company has been active in past shows in conjunction with AAPEX, but we now sense a more focused plan from the company to gain a greater share of wallet from the collision shops. We know it has been increasing its commercial presence through its hub expansion and greater parts availability, but for a company that has historically been considered almost exclusively a DIY provider, it appears that even greater changes are underway.

The 2010 NACE collision industry expo provided us with numerous opportunities to catch up with the leading salvage operators, parts distributors and information service providers.

A number of OEMs were in attendance, and overall the show did not disappoint us. However, while the roster of exhibitors was every bit as complete as we anticipated, we couldn’t help but notice what appeared to be relatively weak attendee traffic. The decision to split NACE from AAPEX/SEMA may ultimately prove counterproductive, but the jury is still out.

Heading into the event, we wanted to gain some insight into how market participants were thinking about 2011 and to better gauge industry sentiment towards prevailing fundamental trends. Overall, our takeaway is that traditional insurance-sourced volumes remain under pressure, driven by the combination of continued economic weakness and an elevated incidence rate of motorists driving without insurance. The Insurance Research Council reports a .75 point increase in the uninsured motorist rate for every percentage increase in the unemployment rate, with the UMR currently running at 18 percent. Some drivers have opted to trade down from collision and/or comprehensive to strictly liability coverage, while others have decided to drop all forms of coverage completely.

In addition, older vehicles simply tend to carry less coverage and in this environment we believe that owners of 10-15 year old vehicles are wondering whether it is worth carrying any insurance at all. We still think a sizable pickup in new vehicle sales remains several years away.

As such, the decline in collision and comprehensive claims has led many in the industry to tighten their belts, and it is our opinion that traditional repair work will remain at subdued levels for at least the next 12 months. Competition has been heating up among collision shops as each vies to secure the next repair order from the insurer. If macro conditions do not begin to improve at a more appreciable pace, we would anticipate further shop closings and industry consolidation. And speaking of competition, have you noticed how aggressive the insurers have become of late with respect to marketing and brand development efforts? All of these promotional activities come with a price and it should come as no surprise that the subject of aftermarket parts utilization remains on the hot plate — in speaking with Certified Automotive Parts Association representatives, we think there may be an increase in the number of certified aftermarket parts sooner rather than later.

With volume increases unlikely, the key to driving profitability (and taking share) will be a concerted focus on cost control while simultaneously looking for new and innovative ways to add additional value to one’s customer base. One such area that continues to receive attention is technology, and we believe that further streamlining the parts procurement process through enhanced systems and communication may be the single largest opportunity for further productivity gains in the broader collision repair space. Whether the part is OE, “Like Kind Quality”/salvage, or aftermarket, we believe that there are still numerous benefits to be realized.

PAGE 2

In many instances, there are already companies looking to deliver these solutions, and perhaps it is not so much the absence of technology in the marketplace but instead simply the sheer degree of systems proliferation with the larger parts distributors, big three information service providers, independent parts systems administrators, and even the OEM networks each providing a somewhat unique interface.

We would also point out that the continuation of the trend towards an increasing reliance on systems and more efficient use of information-based assets is not coming from just one segment of the collision supply chain. Given the sluggish macro environment, insurers, service providers, parts distributors and the salvage pools are all working towards strengthening their CRM practices and further differentiating their product. This was very apparent at this year’s expo, with almost every single exhibitor showcasing some variant of either their existing or to be launched e-based capabilities.

We also found AutoZone’s participation at NACE interesting. We understand the company has been active in past shows in conjunction with AAPEX, but we now sense a more focused plan from the company to gain a greater share of wallet from the collision shops. We know it has been increasing its commercial presence through its hub expansion and greater parts availability, but for a company that has historically been considered almost exclusively a DIY provider, it appears that even greater changes are underway.