Several recent stats and trends signal positive news ahead for collision repairers

It’s always challenging for collision repairers to forecast the future for their businesses. Weather, for example, can play a key role but generally can’t be forecast accurately more than a few days in advance, making it impossible to base business decisions on. But there are some broader trends and statistics that can help shops think a little bit more long term.

The amount of driving that Americans are doing can be one of the best indications of how many accidents are likely to occur — and in that department, the news for collision repairers is clearly good. Less than 18 months ago, some analysis were predicting that driving levels in the U.S. might not ever rebound to pre-recession levels, but that’s fortunately not the case.

Federal Highway Administration numbers show a record high 1.54 trillion vehicle miles traveled in the first half of 2015, slightly higher than the previous record of 1.5 trillion in the first half of 2007. June driving numbers, for example, were the highest ever recorded for that month.

 

Severity on the rise — albeit slowly

The news also initially appears good in terms of how much collisions are costing insurers – and thus generating for shops.  The average collision claim “severity” rose to $3,160 in 2014 from $3,144 in 2013, marking the fourth consecutive year of increasing severity, according to figures published this fall by the Insurance Information Institute.

Although any growth in severity is positive, shops should note that last year’s growth was a little anemic – and severity still has not rebounded to pre-recession levels. The rate of increase from 2013 to 2014 was just 0.51 percent; in the prior three years, the annual increase averaged 4.2 percent, more than eight times faster growth.

After having peaked at $3,194 in 2006, the average collision claim began a four-year descent, eventually falling $416 (13 percent) to just $2,778 in 2010. Since then, average severity has risen but is still $34 short of the all-time high recorded in 2006.

Looking back a bit further, the news is even less good. The average claim over the past 10 years from 2004 to 2014 has remained practically flat — increasing, on average, about one-quarter of 1 percent annually. That’s a rise of only about $8 a year.

Here are two more troubling trends for body shops. Many shops like parts price-matching by the auto manufacturers because it allows a shop to use OEM parts at or near the price of alternative parts. The programs are part of why it appears by some measurements that alternative parts are eating away at OEM parts use. This is because they lower the OEMs’ percentage of the total dollar amount spent on parts, according to Greg Horn of Mitchell International.

Mitchell data shows new OEM parts accounted for 65.1 percent of total dollars spent on parts in the first quarter of 2015. That has drifted downward from 68 percent in 2010 and about 74 percent in 2007.

Horn notes that some of the apparent decline is actually the result of lower OEM parts pricing. For example, if an estimate includes one $700 new OEM part and $300 in alternative parts, the OEM percentage of total dollars is 70 percent ($700/$1,000). But if the automaker discounted that part to $625 to match a competing non-OEM part price, the total parts dollars on the estimate drops to $925, of which only 67.5 percent is accounted for by the same OEM part ($625/$925)

Perhaps more important for collision repairers, such price-matching also results in fewer parts profit dollars for shops.

 

Duplication of estimating systems persists

Another recent less-than-positive statistic impacts shop expenses. Decades after standards enabled the export and sharing of electronic estimate data regardless of the estimating system used, more than a third of collision repair facilities still find themselves paying for more than one estimating system.

A recent survey conducted by Collision Advice and CRASH Network found that of nearly 700 responding shops, 35.7 percent have multiple estimating systems installed at their facility.

Although just 5.5 percent said they have three systems installed, 30.2 percent are footing the bill for two different systems.

But the survey did find some potentially positive news as well in terms of how shops can continue to afford estimating systems and other expenses. Shops were asked in the survey how regularly they get paid by different insurers for 20 “not-included” repair procedures related to frame and mechanical operations. They also were asked how often they research OEM repair procedures at the time they write the estimate.

In a nearly perfect correlation, the results showed that shops who said they “always” research OEM procedures were over 20 percent more likely to be paid for not-included repair operations most (if not all) of the time. Conversely, shops that said they “never” research OEM procedures were over 80 percent more likely to say they have “never asked” to be paid for those same “not-included” repair procedures.

“It stands to reason that shops that take the time to research the proper repair procedures also take the time to learn how they should be properly reimbursed for the extra effort it takes to do the job right,” Mike Anderson, of Collision Advice, said.

 

More newer cars coming to U.S. roads

Yet another good piece of news for collision repairers: IHS Automotive believes that the volume of vehicles on U.S. roads that are five years old or newer will increase by 24 percent over the next five years. That’s positive for collision shops because newer vehicles are less likely to be totaled and more likely to be insured and repaired.

The IHS prediction is based on the growth of new vehicle registrations in the past few years as the U.S. auto industry has rebounded.

Admittedly, IHS found that the overall age of the fleet of vehicles in the U.S. continues to rise. The average age for both passenger cars and light trucks on the road is now 11.5 years. Increased sales of new vehicles isn’t likely to reverse the aging trend, according to IHS, because cars are built to last longer and are being driven longer before they are scrapped.

But new-car sales are significantly slowing growth in the overall age of the fleet from what it was in 2008 to 2013. IHS forecasts that average age is likely to hit 11.6 years in 2016 but not reach 11.7 until 2018.

More Americans driving more miles in newer vehicles should add up to positive trends for U.S. collision shops in the next few years.

Parts & People

Parts & People is published monthly by Automotive Counseling and Publishing Company, Inc., a Colorado corporation, P.O. Box 18731 Denver, CO 80203, 303-765-4664. President-Lance Buchner. Founded by Lance Buchner and Dave Lucia.