Repairers say increase in totals creates problems

Jan. 1, 2020
Falling vehicle cash values and rising repair costs have caused an increase in total losses over the past few years, and many repair shops are starting to feel the pinch.

Falling vehicle cash values and rising repair costs have caused an increase in total losses over the past few years, and many repair shops are starting to feel the pinch.

"Our total losses have gone up 26 percent," says Ron Reichen, owner of Precision Body & Paint in Beaverton, Ore., adding that more than 60 percent of tow-ins now are totaled, along with nearly 20 percent of drive-in vehicles.

The percentage of total loss vehicles doubled between 2000 and 2005, and that figure is on the rise again according to data from Audatex. A decline in used vehicle prices, increasing raw materials costs, higher salvage values and an aging vehicle population are contributing to the increase. Click on total losses to see related articles.

"This has really forced us to look hard at the vehicles that are coming through the door," says Barry Dorn of Dorn's Body & Paint in Mechanicsville, Va., the vice chairman of the Society of Collision Repair Specialists. "Vehicles we once looked at and thought were repairable, we now have to look at those more carefully."

With repair cost and complexity rising, and salvage values high, insurance carriers are more likely to total a vehicle. At the same time, tightening credit markets and a significant drop in actual cash values (ACVs) for many vehicles have made it more difficult for consumers to purchase a new car if their older vehicle is declared a total loss.

"What I find insurers are doing is, if a vehicle is worth $20,000 and you have $16,000 worth of damage, they figure they're going to have a 20 percent supplement before it's all over, so they total it anyway," says Tony Lombardozzi, president of the Coalition for Collision Repair Excellence and owner of Automotive Collision Repair services in Hudson, N.H. "By the time they're done with the rental and everything else, they are just trying to protect themselves."

The increase in totals and the lengthy and painful recession are pummeling repair shops in some regions. Reichen, for example, says he has laid off more than half of his work force, going from 80 employees in October of 2007 to just 27 now at his 38,000-square-foot facility.

A total isn't a complete wash for a body shop, of course. Depending on the shop and the carrier, the repairer can generate some revenue from storage and processing fees. But many shops are increasingly anxious about the drop in the number of cars they are repairing.

"There are fees that go along with those vehicles that we charge, but the repair benefits the shop and, the majority of the time it benefits the consumer as well, especially in today's economy," Dorn says.

Customers have been hit hard, in many cases, by the decline in ACVs. According to Audatex, ACVs declined by 7.3 percent from September to November 2008, with the biggest declines in luxury vehicles, large SUVs and pick-up trucks.

Some shops are seeing more customers buy back their totaled cars and pay to have them repaired because they are unable to afford a new car. Other cash-strapped customers have blanched at paying their deductibles.

"Customers will cash out and get them road safe," says Diane Rodenhouse owner of Rodenhouse Body Shop in Grand Rapids, Mich., a region that's been hit hard by the economic downturn and the decline in new auto sales. "They are unable to get any money from the bank to buy a new vehicle."

"We see a lot of people buying back the car and repairing it just because of their economic position, even though they get a branded title," Reichen says. "They've done a good job of maintaining their car and they don't want to lose it and wind up buying a used vehicle."

But others are just taking the money, Reichen adds. "People are taking their insurance checks on repairable cars and just cashing out," he says. "And carriers are taking advantage of those opportunities to write less-than-complete estimates."

"When a consumer cashes out the consumer gets hurt," Lombardozzi says. "They are cashing out at the lowest end of the payout from the insurer. They are not writing actual cash value and taking advantage of the economic downturn."

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Insurance carriers will typically total a car if the repair cost reaches or exceeds some percentage of ACV, usually between 70 percent and 90 percent. But a number of factors influence that decision, and some repairers have seen insurers total cars at even lower percentages.

"They figure if they are going to have a diminished value claim on a car, why not total it up front at 45 percent or 50 percent of cash value?" Reichen says. "They don't have to pay the diminished value claim, they wont' have the rental car expenses, and they won't have supplements on the hidden damage."

While auto values have dropped, the cost to repair them has steadily increased as OEMs add advanced safety features, exotic high-strength steels and expensive computer components to vehicles. Airbag replacement, which can cost thousands of dollars, is seen by many in the industry as a primary reason for the increase in totals. Click on airbag issues to see related articles.

But in states where airbag costs have been taken out of the total loss equation, shops have not necessarily seen a decline in totals.

Minnesota requires cars to be totaled once repair costs reach 70 percent of cash value, and airbags are excluded from those calculations by law. But that move has had very little impact on the number of totals.

"I was one of the people who would have thought that would make a difference, but it hasn't," says Jerry Kottschade, owner of Jerry's Body Shop in Mankato, Minn. "I can count on one hand the number of cars we've fixed as a result of the change in the law."

New Hampshire also excludes airbags from the total loss calculation, and Lombardozzi says he hasn't seen any change, either. "The airbag exclusion hasn't done anything for us," he says.

Other states have proposed raising the total loss threshold. The Nevada legislature is considering a bill (AB 447), introduced in March, that would limit total losses to vehicles for which the cost of repair reaches 100 percent or more of the fair market value. That bill has been referred to the legislature's committee on transportation

Kottschade has turned to used parts and aftermarket parts to help bring down repair costs, which has helped save some potential totals.

"If we have to use all OE parts, we're going to have to total a lot of cars," he says. "We do quality repair work without jeopardizing safety, but we will use used front ends or quarters, and sometimes use CAPA-certified sheet metal to save a vehicle."

"Sometimes you have to think out of the box," he adds. "Can that part be repaired versus replaced?"

Although Reichen thinks many insurance carriers are being inflexible, he does understand the economics of the problem. "When you run the numbers out, if you can buy a car for $10,000 less than you could a year ago, why would you pay more to repair a car than to replace it?" he says.

"Total losses are part of our business," Lombardozzi says. "As cars get more complex, that's going to have an affect on us. But we will have to adapt in this industry just like we always have. We can adapt to the fact that there will be more totals."

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