Las Vegas -- A scan of the major speakers and forums at NACE is always suggestive of the major trends in the industry, and 2006 was no different. A panel discussion on OEM parts and service information and another on the growing rate of total-loss vehicles demonstrated the embattled tone of many repairers.
Frank discussions of increasingly complex vehicles resulting in growing numbers of total losses and how it is making it even more difficult for shops that are trying to increase efficiencies, improve cycle times, and invest in new technologies.
In every instance, the 800-pound gorilla at the back of the room was consolidation. Each new challenge for the industry to overcome seemed to suggest that fewer facilities would be able to make it to the next mark.
While this would all seem to suggest a negative purview, many of the hallway conversations were surprisingly optimistic. A fairly high percentage of the shop owners we spoke to talked, often with a glance around to see who was listening, of increasing sales and plans for the coming year.
We spoke with many equipment vendors and service providers who spoke of positive momentum and the expectations of strong sales in the coming year. Many pointed to the need for shops to ramp up for new technologies such as waterborne paint (especially in California) and aluminum repair.
Shop management system providers spoke of the need for shops to tighten up their reins on the business, meaning that more shops will be using the systems even while the market as a whole will be smaller.
Consolidation seemed to be the one thing that everybody did agree on. The consensus was that there would be significantly fewer shops but that those that survive will process more cars more quickly than ever before.
The story that emerged seemed to suggest a "Tale of Two Industries." On one side is an evolving industry with progressive operators who are studying their position and making investments in training and equipment to position themselves for a changed market. On the other side is a more traditional group operating much as they always have, taking a more reactive view of the market.
Total loss
In his opening remarks as the sponsoring company of the "Town Hall Breakfast -- The Total Loss Dilemma, It affects Us All," Guy Bargnes, BASF Corp.'s marketing director for North America, said that between 20 and 30 percent of vehicles involved in an accident are now judged a total loss.
"That figure isn't likely to decrease because automobiles are as complicated today as the Starship Enterprise," Bargnes added.
Moderated by Gene Randall, a former CNN correspondent, a panel of six experts from different segments of the industry examined the trends, causes, and some possible solutions to the large number of vehicles that are being declared total losses.
Shop Owner Roger Nagy said the highly competitive new- and used-car market is partially responsible for the high rate of totals. "Because of the lower values for used cars, we are seeing many more cars being totaled."
Changes to the mix of vehicles on the road, driven by a dramatic increase in SUVs over the past 15 years, has also had an affect, said Herb Lieberman of the recycler LKQ. When the heavier SUVs are involved in collisions it results in more damage, he said.
Bill Mayer of Insurance Auto Auction said the affect is even more pronounced when the larger vehicles come into contact with the smaller, lighter vehicles they share the road with. "(The lighter vehicles) are less expensive cars, but they still have all of the expensive safety equipment, so they total more easily," he said.
Several of the panel members disputed that airbags are the main culprit in many totals, saying that while it is often suggested by the collision industry, studies simply do not back it up.
Keith Jones of the Insurance Corporation of British Columbia partially faulted vehicle design for high repair costs and frequent totals. "I think we are all pretty happy that cars are safer, but they aren't designed to be repaired," he said.
Moore concurred, saying, "One of the problems with some of the components, such as adaptive cruise control, is that they have the sensing device and the intelligence mounted together right at the front of the vehicle where it is most vulnerable."
Nagy agreed that vehicle design is a common cause of higher repair costs in his shop. "Fuse boxes or ABS units are being mounted right behind the headlights. Electronics are driving up the cost of repairs on relatively light collisions."
"We need to get in front of the curve on this and convince the OEs that reparability is important," Jones said.
Lieberman said that while recyclable parts can assist in holding down severity, the current open market for totaled vehicles and the ease of re-registering them leads to unsafe rebuilt vehicles returning the road, fraud, and a smaller supply of available parts. He suggested that only about 30 percent of totaled vehicles are being dismantled for recyclable parts.
"In California, conservatively, 250,000 previously total-loss vehicles are re-registered every year," Lieberman said.
Nagy said that insurance company payment policies on recycled parts discourage shops from using them. "There's no doubt that recycled parts are a huge advantage in lowering the cost of the severity, but until the repairers are able to make the same amount of money for using these parts as a new part, we won't want to use them."
Nagy said that another frustration for shops is the inconsistency with valuations and inflexibility in finding an acceptable, affordable way to repair borderline vehicles, which he blames partially on total-loss software that has proliferated among insurance companies in recent years.
Susanna Gotsch of CCC Information Services said that that software is necessary because of the huge increase in the number of makes and models on the road and the fast changes in valuation that can occur because of influences such as changes in new-car incentives. "If you're not examining each vehicle individually, then you're not using that tool properly," she said.
Insurance-adjuster training and the flexibility to reassess vehicles based on what parts will be used and how it will be repaired could save a percentage of vehicles now being totaled, Lieberman said. "In 1992, vehicles were totaled 8 percent of the time, and by 2002 that number had doubled," he said. "We need to insert some common sense into that equation when the computer starts to blink 'total loss.'"
With work and cooperation between the market segments, progress can be made on the issue of total losses, Lieberman said. "With one in 10 jobs in the U.S. being auto-related, we had better take control of our industries," he said. "We're operating somewhere around 60 percent capacity, and we can no longer afford to export repairable vehicles to other countries."
Nagy concurred, urging shop owners to get involved in their industry. "Join an association and get involved -- don't just sit on the sidelines."
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