Perhaps more this year than in recent history, Americans seem intent on contemplating what change lies ahead in the coming year. ABRN asked industry participants from a variety of perspectives – collision repairers, insurers, vendors and consultants – to take a shot at what they foresee happening in our segment of U.S. economy. Here are their 17 predictions for 2017 (Some responses were edited for length or clarity).
Aaron Lofrano, F. Lofrano and Son, Inc., a third-generation collision repair company with five locations in the San Francisco Bay Area: One of the larger MSOs will agree to purchase one of the other large MSOs. More automakers will be added to the list of those with position statements on pre- and post-repair vehicle scanning of diagnostic trouble codes, and severity and the percentage of vehicles declared total losses will increase as a result. Here in California, the Bureau of Automotive Repair may talk about certifying technicians or estimators as they change or add additional guidelines as a result of vehicle scanning.
Jeff Peevy, president of the Automotive Management Institute: In 2017 (and beyond), we will see the OEMs influencing the industry more and more as they perfect their network programs. Included in this will be a growing focus on learning – not just training as a series of required events, but a more comprehensive educational requirement. These requirements also will include proving knowledge and skills in areas where occupant safety and vehicle reliability are concerned.
Repairers also will begin to look for new ways to increase their competitive advantage over their well-trained competitors. In 2017, there will be an increased awareness on the need to train customer-facing employees, whose knowledge and skills development have been traditionally ignored or assumed.
Darrell Amberson, president of operations for Minnesota-based LaMettry's Collision: Accident frequency will continue to increase in 2017, thanks to cost-effective fuel, a younger fleet of vehicles, distracted driving, etc. Pre- and post-repair scans and new electronic technologies will continue to be the hot topic in the industry in 2017. And the auto manufacturers will continue to gain influence in our industry, often at the expense of insurers. But we will see more evidence of insurers and OEMs talking in 2017, perhaps leading to some formal agreements.
Roger Wright of Vector Squared, an industry consultant and a former chairman of the Collision Industry Conference: I am not sure what action will be taken but insurers cannot absorb the increase in severity that will be necessary to repair the vehicles. I suspect huge rate increases (which usually take 6- to 10-months to get approved), plus increased pressure on shops to control rental costs, and improve hours-per-day of touch time.
For the big MSOs, those items will likely be tied to their service level agreements with insurers. Economic disincentives will become the norm for those MSOs, and they will start to shift their allegiance.
I also foresee certification losing its luster because it’s expensive and has not proven to provide any increase in volume.
Mike Cranfill, vice president of global collision and new business development for Vehicle Service Group (parent company of Chief Automotive): Just as shop consolidation will continue at a steady pace, supplier consolidations will follow the national MSOs’ demand to deal with one source solution provider. Continued use of “exotic” vehicle materials, along with greater use of rivets and adhesives in repairs, will increase the reliance on using OEM repair procedures. There will be more requirements for "before and after" repair print-outs confirming OEM specifications have been restored after vehicles are repaired, and efforts to improve cycle time will lead more shops to perform their own alignments rather than subletting to a third-party.
Charles Bryant, executive director of the Alliance of Automotive Service Providers (AASP) of New Jersey: I predict that more and more consolidators will be coming to the Northeastern part of the United States by the later part of 2017 buying existing fairly large auto body shops. OEM involvement will result in a steering situation to dealer or certified shops that will likely as bad, if not worse, than the steering situation we currently see with insurers. I predict that we will see more and more litigation against the insurance industry for the abuse they have and continue to inflict on insureds and the collision industry.
Shop owner Tony Ferraiolo of A&R Body Specialty in Wallingford, Connecticut: Independent shops will finally realize they are the professional. The investments made in equipment, training and education, along with repairing vehicles according to OEM standards and requirements, are going to make shops charge accordingly. The short-pays by the insurers will have to be passed on to the customers. This will show a pattern in the lower courts that the states’ insurance regulators can no longer not address.
Fred Iantorno, executive director of CIECA, which develops standards for the electronic communications within the industry: Certifications at the shop level will be a single focal point of survival for independents. Consolidation will slow slightly but will still be a trending topic. Consolidators will be the best-positioned to deliver on certifications, and possibly [dominate] the majority of the collision business that requires specific repair processes and equipment due to new vehicle construction technology.
Second-generation shop owner Bob Juniper of Three-C Body Shops, Inc., based in Columbus, Ohio: Post-repair inspections will become a big opportunity. The quality of work in the industry is at an all-time low for several reasons, including that most shops simply do not know how to fix the higher-tech cars. 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.
John Walcher of Veritas Advisors, a consulting firm involved in mergers and acquisitions in the collision repair industry: Four will become three: Two of the “consolidators” will consolidate in 2017 (unless it happens in the last days of 2016). The consolidators will continue to grow through acquisitions in 2017, but overall deal volume and multiples will decline. The consolidators (with longer-term views) will continue to add capacity by brownfielding. Regional MSOs will continue to grow (primarily via brownfielding) as they position themselves for either a sale to a consolidator or to be the primary competitor to a consolidator. Dealer MSOs will look to grow through acquisitions and brownfielding as the competitive advantage from telematics evolves. And smaller, single-location operations will continue to shut down or sell at a record pace.
In other words, I don’t expect a lot of change in 2017. However, my wild card is if we see consolidation within the insurance industry; if that occurs, the pace of collision-industry consolidation will quicken.
Jay Perry of Ally Business Coaching, a Canada-based consultant focused on the collision repair industry: Pricing will start to make the move upwards. Too much attention has been put on cost-containment, and this has laid the groundwork for a depressed income for the collision repair industry. The liability that [creates] for the insurance industry is now stating to be recognized, leading to a realization that if profitability is not brought back into the collision repair industry, only sub-standard and potentially unsafe repairs will be available. This is not tenable for any reputable company with a concern for public safety and its own bottom line.
To further this issue, social media provides a fantastic education for consumers who in the past have been ignorant of the consequences associated with services based only upon pricing.
If companies want best-in-class service and a sustainable workforce, upward pressure on pricing must be present as there is nothing more left to be wrung out of the costs.
Susanna Gotsch, industry analyst for CCC Information Services: Total loss frequency may continue to be elevated. In large part, much of the increase in total loss frequency is due to the remaining volume of older model year vehicles still on the road in the U.S. The percentage of total loss appraisals accounted for by vehicles 10 years or older was 50 percent in mid-2011; it reached 56 percent in mid-2016.
It’s also because vehicle values are beginning to soften as the supply of used vehicles in the marketplace has grown. Part of what’s led to that is leasing. Leases continue to grow, jumping to 31 percent of all new-vehicle transactions in Q1 2016, according to Experian. This increase guarantees the number of vehicles returning for sale as used vehicles in two, three, or six years (typical lease terms) will be significant. In fact, Tom Webb from Manheim estimates that as many as 3.6 million off-lease vehicles will return to the market in 2017 (up from 2.6 million in 2015), and nearly 4 million in 2018. With increased supply anticipated, most analysts are projecting used vehicle prices will finally begin to fall after several years of elevated prices.
Mike Anderson of Collision Advice, an industry consultant and trainer: I think two of the big MSOs will merge in 2017 (though it may be 2018). I predict another branded banner (like Fix Auto or CARSTAR) will enter the U.S. market, and that another of the large U.S.-based MSOs will enter the Canadian market. But I also see the mega-dealer groups (like AutoNation, Group One, Asbury, etc.) becoming the horses to bet on in collision repair.
I think vehicle scanning is going to become the norm. I believe that the information providers will step up and provide labor times for this work.
I also believe we will see the OEMs start to offer more roadside assistance programs through “OnStar” type technology that will allow OEM-certified shops to gain more work. More OEMs that do not have shop certification programs will add them, and those that have them will begin monitoring certified shops via a scorecard.
Rick Tuuri, who recently retired after more 35 years with an estimating system company: New-car sales will continue their current trend through most of 2017, with the OEMs aggressively introducing incentives to increase sales later in the year. Used car prices will continue to rise a few points, but not enough to have a real impact on repairables / total losses.
At least one of the Big Four consolidators will merge with (or acquire) one of the others. And at least one of the other Big Four will go public.
Oklahoma shop owner Gary Wano of G.W. & Son Autobody, Inc.: As a consolidator acquires a facility now, all the trained staff and equipment is acquired as well. But what happens after the consolidator has cut labor rates and accepted parts or bottom-line discounts and then finds they must invest tens or hundreds of thousands of dollars per facility to stay current? So my guess is consolidation will continue in 2017, but at some point vehicle technology is going to stop that growth.
Mike Quinn of Certified Collision Group, a network of independently-owned OEM-certified body shops: The OEMs will continue to grow out their certified shop networks. Those programs certainly have increased the pool of qualified shops that have the right tools, training, equipment and facility modifications to properly repair their vehicles. Now the big question is: Are these shops’ technicians using OEM repair procedures to properly repair the vehicles?
Technicians soon will be required to provide proof of compliance to OEM
procedures via a smart phone. (Several versions are under development.) Technicians will earn a score based on their compliance record. I think this will be good for all stakeholders as it will…shine a light on those technicians and shops properly repairing vehicles.
| Prediction #17: When will the auto fleet be autonomous? |
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Brian Sullivan is an insurance industry analyst and editor of Auto Insurance Report. His prediction, excerpted with his permission from a recent issue of his publication, extends beyond 2017, but given how the subject — when autonomous vehicles will make personal auto insurance obsolete — impacts the fundamental business models of collision repairers and insurers, it seemed worth of inclusion: How long will it be before we have a truly autonomous car, a car that will be able to go almost anywhere with a human driver serving only as a redundant emergency backup system? Given what we’ve seen in the market, we’re projecting that car is five years away. The next question is how long after that point does the federal government look at this technology and determine that it is so valuable a safety feature that it must be included in all cars. That has to be another decade, right? It seems wildly improbable that just five years of experience with truly autonomous cars will bring the confidence and the reduction in cost that will drive a mandate. Recall that mandatory installation of back-up cameras is coming 25 years from the first commercially available backup camera (in Japan) and 18 years after its commercial introduction in the United States. So if it is five years before we have a working autonomous car, and 10 years after that for a mandate, that means we are 15 years away from all new cars being sold with autonomous driving features. That is the year 2031. Once that happens, how long before the fleet turns over and we have a predominantly autonomous fleet? We have seen with other safety mandates that it takes 15 years or so for a mandated technology to filter into more than 90 percent of the fleet. And airbags, better bumpers, and antilock brakes did not cost nearly as much, nor entail anywhere near the risk, of autonomous driving. Add that to the 15 years it will take to reach a mandate, and we feel pretty good about a 30-year run before we reach a largely autonomous fleet. We’re talking 2046. |
