After reviewing the material we collected on total losses, I couldn't help but think of a phrase one of my friend's parents would intone after he spent a typical family evening discussing a personal, business or political issue. When it was apparent the discussion was exhausted, he'd simply say, "But what does it all really mean?"
That's the question our industry is left with as we watch an ever-increasing number of vehicles totaled and sent to auction (potentially more than one in five collision-damaged vehicles) instead of being placed in the bays of revenue-starved shops who would really appreciate the work. (Also appreciative would be the vehicle owners who often receive payoff checks well below what they owe and less than they need for a down payment on something similar.) The forces driving up total numbers are well outside our control.
The two main forces are rising repair costs and sinking Actual Cash Values (ACV) of vehicles. The former, of course, has little to do with sagging labor rates shops are compensated for and everything to do with modern vehicle designs which often are engineered with little thought given to the cost of repairing them. Think about the number of times you've seen light or moderate damage to the bumper on a truck or SUV that then requires nearly $1,000 worth of parts to repair. Throw in the fact that modern vehicles are designed to give their "lives" in a collision to protect their occupants, something none of us wants to change and have to accept.
Automakers have made some strides in repairability, but they still have a ways to go. Unfortunately, by pursuing design patents that deny the aftermarket the opportunity to sell the most popular replacement parts, they're potentially helping drive repair costs up, which means more totals and fewer opportunities for anyone to sell parts and do repairs.
However, the real culprit here, I believe, has to be the ACV, that critical number insurers look at when formulating a total. ACV usually is determined by gathering data from the National Automobile Dealers Association (NADA) Guide, the Kelley Blue Book, Edmunds and other data sources. The age of the car, its mileage, options and condition are also factored into the final value.
Important here is the fact that this data is impacted by an array of other market forces including fluctuating wholesale used car prices, the average age of cars on the road and mercurial salvage values.
There's a big problem with all of this. What in the world does ACV have to with the value motorists, who make the payments and buy the insurance, place on their vehicles? When I buy a vehicle, its value is based on its ability to get me from point A to point B. Its resale or market value is just a small part of its overall, real value. It's something I don't even consider until I'm ready to trade it in. That's also something most Americans think less about, gauging from the fact they're holding onto their vehicles longer, basically until they've lost most of their resale value.
The ACV doesn't reflect the true value of the vehicle to the owner and the financial impact of its being totaled. When the owner of a 2004 Nissan Altima loses his vehicle, he typically inherits a new monthly car payment. The insurer payout for his totaled vehicle completely ignores the fact he could have driven that vehicle for another four years, as most Americans are doing, and saved four years worth of payments.
If insurers are going to accept that the value of a vehicle can rise and fall and be impacted by other "outside" economic forces, surely they can account for the true transportation value of a vehicle. The numbers they're using now are actually pretty arbitrary. Why not make them realistic?
I'm not asking that a 1998 vehicle be paid off as if it were new. I'm simply saying the ACV needs pumped up with other more relevant financial data.
That won't happen anytime soon. States are looking at ways to get motorists higher ACVs. We can help get the ball rolling by letting our customers know what's going on in the totals market. That takes time.
For now, we have to decide what it all means. To me, as always, it means getting up tomorrow and finding better ways to do business with the market we have while fighting for the industry we want.
