Eighteen collision repair industry projections for 2018

Dec. 20, 2017
From legal skirmishes to ‘AI’ and consolidation, here’s what to watch for this coming year.

There are always some unexpected news headlines in the industry over the course of a year. But a review of what happened in 2017, along with discussions with industry leaders and analysts, can offer a reasonable assessment of some of what likely will occur within the industry in the coming 12 months. Here are 18 things to watch for in 2018.

1. Automakers may keep a closer tab on certified body shops. Some automaker shop certification programs require little more than meeting a checklist of equipment and training. Others include some annual or biennial audits. But General Motors may raise the bar this year with the program it has said it will introduce that is expected to have some ongoing metrics for shops, not unlike many direct repair programs.

John Eck

“Our new program is being designed to measure critical behaviors and procedures that will help ensure every collision repair is done to the highest standards,” GM’s John Eck said this past summer.

2. Cycle time may not improve. If your shop’s cycle time is not as good as it once was, that may not entirely be your fault. An analysis this past year by CCC Information Services offered some evidence that rising cycle times are based more on increasing vehicle and repair complexity. CCC found that the time a vehicle spends in a shop before repairs begin and after reapirs are completed before the customer picks it up, hasn’t changed over the past three years.

But the rise in “keys-to-keys” cycle time – which averaged 9.85 days in a recent 12-month period compared to 9.26 days two years ago – appears to be accounted for by a similar rise in the time between when repairs begin and are completed. Repairs took an average of 7.9 days after commencing in the most recent 12-month period, compared to 7.2 days two years ago.

That increase, CCC concluded, could be based on repairs involving slightly more labor time (25.6 hours on average now compared to 24.9 two years ago) and more parts (12.2 parts now compared to 11.3 two years ago).

3. Legal battles between shops and insurers will continue. A federal appeals court breathed new life this past fall into several of the nearly two dozen antitrust lawsuits against insurers brought by shops in various states. Many of the suits had been dismissed by the U.S. District Court judge in Florida overseeing them, but a three-judge panel voted 2-1 to overrule that decision and rule that some of the cases – which began about four years ago – can move forward.

4. Use of CCC Information Services’ “Secure Share” will become mandatory for CCC users. Starting in April, shops using CCC’s estimating system will be able to transmit estimate information to third parties (other than insurance companies) only through CCC’s new Secure Share data-exchange system.

The change is significant because shops will no longer be able to share estimate data with just any vendors. Those vendors must be approved by CCC for Secure Share, will have had to have built a new interface to accept the data in a new format, and must pay CCC a 50-cent per estimate fee to receive the data. Whether or how that new expense will be passed on to shops and then on to insurers is unclear.

5. Consolidation of the industry will continue. Many industry observers a year ago predicted that one of the Big 4 multi-shop operations (MSOs) would merge or acquire one of the others during 2017. That didn’t happen (at least as far as press time), but some still foresee it happening this year. Regardless, consolidation of the industry is expected to continue. Several sources say, for example, they foresee more MSOs entering into some of the Northeast states that have to-date seen less consolidation activity than other parts of the country. There are now more than two dozen MSOs with 10 or more U.S. locations, accounting for as much of nearly 16 percent of the shop count in some states.

6. There will be more emphasis on checking OEM repair procedures. Last fall’s $42 million dollar judgment against a Texas dealership collision repair shop – and the subsequent related lawsuit against State Farm – will have insurers increasingly pushing this year for shops to research and follow OEM repair procedures on every job. Already last fall, one insurer notified its direct repair shops that if it found the shop didn’t have a print-out of any such procedures with the car (and then in the claims file), referrals to that shop would end. Liability concerns will likely lead to more such edicts this year.

7. Estimating could increasingly be influenced by "artificial intelligence." Mitchell International has teamed with Tractable to produce a system that promises to scan images of damaged vehicles to determine (or review) repair-vs.-replace decisions. The system "learns" over time as more photos and estimates are fed into it. CCC Information Services has announced a similar artificial intelligence system learning to make total loss determinations. Watch for use of these systems, particularly as they become more robust, to be increasingly used.

8. More states may push for two-tier shop classification. With some shops in OEM-certified Rhode Island receiving labor rates from some insurers that are $8 higher than that paid to other shops, it seems likely that shops in some other state may try to duplicate Rhode Island’s system.

Enacted in 2015, the Rhode Island regulation created “Class A” shops – the requirements include being certified by at least one automaker for aluminum repair – and “Class B” shops, with insurers required to conduct labor rate surveys for both tiers.

Some of the Rhode Island’s largest insurers still pay the same rate to all shops, but Allstate, USAA and Travelers are among those paying a premium to “Class A” shops.

9. Vehicle leasing will be a double-edged sword for the industry. Given that leased vehicles tend to be insured and repaired when damaged, the steady rise in the percentage of new cars being leased is good news for collision repairers. For much of the first decade of this century, leases accounted for about 16 to 19 percent of all new-car sales. It has risen steadily since then, reaching just shy of 32 percent in 2016, according to Edmunds.

But there’s a potential downside to the trend as well: the rising tide of off-lease return vehicles. About 2.9 million vehicle leases reached maturity in 2016, up from 2.2 million the prior year. That number was expected to hit 3.2 million in 2017, and 3.7 million this year.

That flood of used vehicles could drive down used car prices, in turn driving up total losses. That didn’t seem to happen last year – used vehicle pricing rose the first nine months of 2017 – but whether that trend will continue in 2018 is unclear.

10. The PARTS Act is unlikely to move forward. Proponents of non-OEM parts have only one more year in this Congress to get action on the PARTS Act, proposed federal legislation that would slash the time that automakers can use design patents to prevent other companies from producing replacement crash parts from 14 years to just 30 months.

Similar legislation has been introduced in each Congress since 2007. With fewer than a dozen co-sponsors in the House and Senate late in 2017, the odds of the bill getting hearings and moving forward before Congress adjourns at the end of the year seem slim.

11. Insurers could move toward more collaboration with OEMs. As the automakers move toward using vehicle telematics to automatically be notified of collisions, insurers recognize the potential influence OEMs could have on getting drivers to their certified shops rather than insurers’ direct repair shops. That has led to an influx of meetings between automakers and insurers.

Russ Hoffbauer

“We’re definitely working with them and talking to them and trying to determine how this is going to work in the future,” Russ Hoffbauer of State Farm said last summer. “I do think the OEMs have the technology advantage right now, having the technology in their automobiles.”

Kyle Thompson, assistant vice president of claims for USAA, agreed that his company wants to work with automakers to “to align our direct repair networks with the offerings that they would do at the time of loss,” and to receive that “immediate notification that a vehicle has been damaged” in order to quickly start to help the driver.

12. Vehicle scanning will become even more ubiquitous. If you’re among the small minority of shops not scanning at least some vehicles, this may be the year that changes. A “Who Pays for What?” survey last summer found that only 1 in 5 shops hadn’t charged for a pre-repair vehicle scan, and only 1 in 10 hadn’t charged for a post-repair scan. A year earlier, fully one-third of shops said they hadn’t charged for any scan.

Just as significantly, of those shops performing and billing for the scans, 51 percent said they were paid “always” or “most of the time” for pre-repair scans by the eight largest auto insurers; 64 percent said they were paid regularly for post-repair scans.

As the percentage of vehicles clearly requiring a scan increases, and as insurer awareness and understanding of the need for the procedure continues to grow, scanning will become a standard item on most repair orders and invoices.

13. The largest auto insurers will continue to grow. No one is predicting any reversal this year to the trend of the largest auto insurers gobbling up market share. Back in 2009, the Top 5 insurers had about 50 percent market share; by 2016, they had more than 54 percent. The Top 10 rose from having just under 68 percent market share in 2009 to having nearly 72 percent in 2016. The big, most analysts agree, will continue to get bigger.

14. Digital claims processing will expand. Laws prohibiting estimates via photos fell in several states this past year, and Allstate reduced its staff by 500 people as it expanded use of photo estimating and remote processing of supplements via cell phone app. Look for that trend to continue this coming year, analysts say, though there’s one caveat: Insurers need to get consumers to buy-in. Just 9 percent of consumers reported a claim digitally, J.D. Power reported this past fall as part of the results of its surveys of nearly 12,000 consumers who’d settled a claim within the past six months. Those customers’ overall satisfaction was 16 points lower (on a 1,000-point scale) than those who reported a loss by phone.

“There are still certain areas of the claims process where the human touch is proving difficult to replace," J.D. Power’s David Pieffer said.

15. More states will consider proposals to loosen restrictions on use of non-OEM parts. Bills in West Virginia, Arkansas and several other states in 2017 would have made eased limits on the use of non-OEM parts. Though the bills failed, LKQ Corporation and other proponents worked to keep the issue alive by calling for state regulators to conduct studies into how many complaints were attributable to the use of such parts.

Ray Colas

“We know there aren’t any, as it applies to accident, injury or death,” Ray Colas of LKQ’s government affairs department said last spring. The study results are to be reported to the state lawmakers, he said, “so that a decision can be made…as to whether or not these parts should continue to be restricted.”

That may well result in new attempts this year to scale back state limits on the use of non-OEM parts.

16. The population of “potentially repairable vehicles” will grow. Since most vehicles being repaired in collision repair shops are 10 years old or newer, the number of such vehicles on the road has some impact on the amount of potential work the industry has. That number took a beating during the recession as new-car sales tanked. But as car sales rebounded in recent years, the population of “potentially repairable vehicles” has grown.

There were about 164 million light vehicles 10 years old or newer on U.S. roads at the end of 2016. Based on projections of new-car sales by LMC Automotive, that increased by about 500,000 in 2017 and will jump by 4.1 million this year, on its way to back to pre-recession levels (186.5 million) by 2021.

17. California labor rate survey and anti-steering regulations will face challenge. California shops were buoyed in late 2016 when state Insurance Commissioner Dave Jones announced new rules as to how insurers must calculate market labor rates, and what they can and can’t do in terms of encouraging consumers to choose a direct repair shop. But insurers have proposed new legislation that California lawmakers will consider early this year that could largely scale back those reforms.

18. Post-repair inspections will likely become more common. With lawsuits like the one in Texas focusing shops, insurers, consumers – and attorneys – on repair quality, some foresee an expansion of post-repair vehicle inspections by existing collision repair shops and third-party providers.

“Post-repair inspections are a great service to consumers and very profitable, and they will ultimately be the force that cleans up the collision repair industry and eventually gets shops paid closer to what we are worth,” Bob Juniper of Three-C Body Shops, Inc., based in Columbus, Ohio, predicted a year ago.

There seems to be little to contradict a similar assessment for the year ahead.

About the Author

John Yoswick | Contributing Editor

John Yoswick is a freelance writer based in Portland, Ore., who has been writing about the automotive collision repair industry since 1988. He can be contacted by e-mail at [email protected].

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