Collision repair aftermarket to grow in top gear, Frost & Sullivan says

Aug. 4, 2014
Rising prices for electronic parts, lightweight body panels and sophisticated powertrain components, such as turbochargers/superchargers are pushing up collision repair costs, according to a recent analysis from Frost & Sullivan.

Rising prices for electronic parts, lightweight body panels and sophisticated powertrain components, such as turbochargers/superchargers are pushing up collision repair costs, according to a recent analysis from Frost & Sullivan.

The North American aftermarket for collision parts is worth approximately $8.53 billion in manufacturer-level revenue this year and is forecasted to grow at a compound annual growth rate (CAGR) of 4.7 percent, reaching $10.77 billion in 2019. However, collision rates have declined in recent years; so much of the growth comes from the replacement of higher-priced components.

Frost & Sullivan’s analysis covers glass and coatings, in addition to body panels, lighting and under-hood parts.

Modern vehicles feature expensive connected technologies such as telematics/infotainment modules, alternative powertrains, and advanced materials to make them lighter and safer, among other improvements. As more vehicles carrying these technologies are involved in accidents, customers will have to buy higher-priced components and modules to repair them.

High residual values in the used-car market provide an incentive for their owners to repair them.  However, insurance companies are writing off more vehicles as total losses, approximately 15 percent, compared to just 10 percent a decade ago. This is due to higher repair costs that exceed market value.

So while average repair bills are increasing, there are fewer jobs available for body shops to do. As a result, more and more independent collision repair shops are closing or being acquired by larger, multi-shop operators.

Despite the positive industry outlook, it remains a challenging market segment still largely controlled by the OEMs. More than 60 percent of parts revenue is captured through automobile dealerships, despite the increasing penetration of lower-priced aftermarket parts. Warehouse distributors in the independent aftermarket will see their share of collision repair revenue rise in the coming years – with parts that often cost half the price of the original component – to help the industry keep repair bills from rising too quickly and prevent more of them from being written off by insurance.

Body panels – including hoods, fenders and quarter panels – still make up the largest element of parts costs (at approximately 60 percent). Paint is responsible for about 20 percent of the costs, with underhood parts and headlights/tail lights making up the remaining 20 percent.

Competition varies considerably by industry sub-segment. LKQ Corporation, North America’s largest operator of salvage yards, captures a large percent of body parts through its Keystone subsidiary. PPG and DuPont Performance Coatings lead the paint sub-segment. Safelite Glass and Pittsburgh Glass Works capture the highest shares in windshields and sideglass. However, Chinese and Taiwanese suppliers are growing quickly.

The overall growth trends are positive, but the rewards will not be shared equally.

Frost & Sullivan expects 10 percent of independent glass and paint distributors will exit the aftermarket or be acquired by a larger competitor in response to increased vertical integration in these segments. OEMs will increase their use of selected aftermarket parts at automobile dealerships to protect them from independent shops using lower-priced products. The aftermarket must also ensure that the increased participation of foreign manufacturers does not reduce product quality and generate safety concerns about collision repair parts.

Suppliers that can service both OES and independent aftermarket demand, integrate their manufacturing operations with distributors and installers, and develop reliable, high-quality offshore supply chains are best positioned to succeed.

Mohit Shital is a research analyst for Frost & Sullivan’s Automotive & Transportation Global Aftermarket research practice. He focuses on monitoring and analyzing emerging trends, technologies, and market behavior in the global automotive aftermarket. For more information on Frost & Sullivan’s Automotive & Transportation research, contact Jeannette Garcia, Corporate Communications, at [email protected].

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