New vehicle design, regulations change face of collision repair

Jan. 1, 2020
Understanding the trends of a changing marketplace lead to incorporating new types of vehicle repair, claims handling and IT management.
Gotsch ABRN collision repair auto body repair automakers OEM training changing technology

The collision repair industry is in a period of great transformation. The recession that threw global economic growth in dramatic reverse at the end of the decade put many of the trends impacting the industry throughout the past 10 years into overdrive.

There are 7,000 (15 percent) fewer repairers than there were a decade ago. Those remaining have to extend their expertise to incorporate new types of vehicle repair, claims handling and IT management.

In addition to fewer repairers, there are fewer repairs. Repairers must figure out how to retain and grow their share during the next decade. Accident and claim frequency have declined during the past 10 years whether the economy was in a boom or bust, and factors causing frequency to decline won't alter dramatically in the next decade.

New vehicle design and environmental regulations have required shops to invest significant time and money in training and equipment. Repairers need to understand the dynamics of their markets and how they might change in the next decade in terms of customers, business partners, vehicle fleet, driving patterns and their impact on accident frequency.

Some macrotrends can help a repairer better understand how his market is changing and begin to adapt his business accordingly. Inland Empire California (see chart marked CA, Riverside-San Bernardino-Ontario-40140 CBSA), for example, has experienced remarkable growth during the past decade and the impact of many economic and demographic changes that are impacting the rest of the country.

Many demographers cite California as an example of what the U.S. will look like in the next 25 years, saying the changes in California from 1980 to 2000 will be repeated throughout the rest of the country by 2025. Immigrant populations have grown in cities and suburban areas. Immigrants come from a more diverse set of countries and have higher levels of home ownership than Californians born in the U.S.

Estimates from the U.S. Census Bureau from 2005 to 2007 indicate 43.9 percent of the residents in the market are Hispanic (almost 50 percent in Inland Empire), and 21.92 percent are foreign born. Many of the 840,000 residents new to the Inland Empire between 2000 and 2008 were immigrants buying property for the first time. Although, as home prices declined and mortgage rates settled, the number of foreclosures soared. It didn't help that the area had a higher rate of unemployment than the national average (13.7 percent for all of 2009).

Median household income in both counties was lower than California's overall median ($61,000 annually). San Bernardino County was 37 percent less, and Riverside County was 7 percent less. The median age of residents in July 2008 was 29.8 years in Riverside County and 27.6 years in San Bernardino County versus 33.3 years for the overall state. Women accounted for slightly more than half of the population in both counties.

With a younger resident population, is there an opportunity to update your shop's method of marketing and communication to customers? Would a customer prefer a text message update on his repair versus a telephone call? Is there a potential to reach customers via a social media channel such as Twitter? Even the California Department of Insurance is beginning to use Twitter to communicate news and helpful hints about insurance coverage in addition to updates about fraud arrests to any interested resident with a Twitter account.

Some relatively quick Internet searches can help you identify your market's demographic makeup and help you decide how to equip your shop in terms of languages supported, how you provide updates to your customers, etc. For example, has the economy impacted what type of insurance coverage people are buying for their vehicles? Has there been a shift in the insurance versus customer pay mix? Shops must consider each of these market factors when determining how to market themselves best.

In 2008, there were more than 20 million registered automobiles in California, and more than 5.8 million were registered in Los Angeles County. The next closest states were Texas (8.8 million), New York (8.7 million), Florida (7.2 million) and Ohio (6.4 million).

Analysis of vehicle appraisal data for the Inland Empire area reveals Toyota had the largest share of volume by vehicle make in 2009 – 19.9 percent (not including the 1.6 percent for Scion and 2.9 percent for Lexus). The next closest was Honda (12.5 percent), Ford (10.4 percent), Chevrolet (9.4 percent) and Nissan (7.8 percent). The market has seen the shift of automotive sales from the Big Three to the Medium Six – something the rest of the U.S. is seeing develop recently. Of the Medium Six, Toyota models took eight of the top 25 most frequently appraised vehicle models, followed by Honda (six), GM (three), Ford (three) and Nissan (two).

The high concentration of Toyota and Honda vehicles necessitates repairers in this market have good relationships with one or more Toyota and Honda dealers. Repairers should work closely with those dealers to take advantage of any conquest or parts bundling programs. Focus on relationships with other suppliers of these automaker parts. OE, non-OE or specialty parts could lead to fewer delays in the repair process and better cycle times. With the recent recall crisis for Toyota, many customers will want to know your shop has a good relationship with a Toyota dealership and has access to all information needed to return the vehicle safely to pre-accident condition.

Personal auto market consolidation

In 1999, there were 258 insurance companies licensed to write private passenger auto liability and property damage insurance in California. Total premiums earned were $13.2 billion, and there was a loss ratio of 59.95 percent. By 2008, premiums earned had risen to $19.8 billion, and there were only 183 companies licensed. Marketshare for the top 10 personal auto insurance carriers in California in 2008 was 76.3 percent. The acquisition of AIG's U.S. Personal Auto Group, which includes 21st Century Insurance, makes Farmers the largest carrier in the state.

With an estimated 90 percent of all vehicle repairs covered as insurance claims, it's critical to have the brand recognition and relationship with insurers in your marketplace. Whether you participate in an insurer's direct repair program (DRP) or simply repair an insured's vehicle, having visibility to and understanding the metrics used by insurers to gauge appraisal performance facilitates good communication. A repairer should know how the shop's numbers are trending and how they compare to local market industry benchmarks.

For calendar year 2009, DRP industry statistics for the Riverside-San Bernardino-Ontario core-based statistical area showed an average repair cost of $2,562, which is almost identical to the average repair cost for Los Angeles-Long Beach. Despite more part replacements and labor hours per appraisal in Riverside-San Bernardino-Ontario CBSA, the lower average hourly labor rate resulted in similar overall average repair cost.

A comparison to results for the overall state of California show the impact of higher average labor rates in northern California, although the net result is similar average repair cost for the overall state compared to Riverside-San Bernardino-Ontario CBSA. Understanding the different components of the repair (labor costs and repair versus replace ratio and parts replacements by part type) is critical for repairers when discussing their results versus the industry benchmark with their business partners.

Repairers also should have a sound understanding of what their business partners consider exceptions and result in reinspection or request for supplements. For example, two of the most common exceptions triggered by insurers' electronic review of DRP appraisals were profile exceptions and the presence of a manual line with a large dollar amount. Having your estimators take the time to review an additional appraisal, manually or through the use of an electronic review, could reduce the number of appraisals in which additional time is spent providing more explanation or making modification, which improves cycle time.

As insurers increasingly position claims as a key brand differentiator, numerous claims-handling tasks have blended into the vehicle repair process, requiring shops to invest in processes and technology to facilitate the work. Many repairers will need to ensure their chosen solutions can meet the growing demands of their business partners, help them provide exceptional customer service, and demonstrate their ability to provide exceptional repairs on an increasingly complex vehicle population.

The closing of about 7,000 shops during the past decade means potentially less competition; however, repairers must find a way to raise their brand recognition with consumers and insurers. This means a primary focus on a business model that enhances the customer experience regardless of whether the customer came in as a DRP assignment, walk-in, fleet or other.

As the rapid pace of change throughout the past decade accelerates in the next decade, it will be critical to quickly assess and respond to greater volumes of information and clearly communicate and collaborate with business partners.

Susanna Gotsch is the lead analyst at CCC Information Services.

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