Repairers can expect to continue to see older vehicles on the road, fewer collisions, rising repair costs, and more total losses, according to the autumn update of the CCC Information Services’ 2012 Crash Course Report.
Like this article? Sign up to receive our weekly news blasts here.The report evaluates several indicators that affect the insurance and collision repair markets.
The average total cost of repairs for vehicle appraisals at the mid-year was $2,536, up 2.9 percent from mid-year 2011, according to the report. Related to that, total losses have grown to nearly 14 percent in 2012, up from 9 percent in 2000. By including obvious totals that didn't receive an appraisal, that number jumps nearly 5 percent to a 19 percent total loss rate. The increasing age of vehicles on the road has been the primary factor in pushing up the number of total losses. The share of vehicles in the oldest age group has grown from 33.5 percent in 2003 to 47 percent this year.
“As we look at the first half of 2012, many of the trends and business drivers impacting the industry have remained steady,” said Susanna Gotsch, lead analyst for CCC Information Services. “One area we continue to watch closely is the affect the aging vehicle population will have on insurers and repairers. Vehicles aged seven years or older have the greatest likelihood of being totaled. At mid-year 2012, 47 percent of vehicles on the road meet that criteria, driving total loss frequency up overall, which we expect to continue into 2013.”
Click on Gotsch to see a video interview of her discussing the update.
Total loss vehicle values also rose nearly 7 percent from mid-year 2011 to mid-year 2012. Since new auto sales are still only slowly recovering, expect to see more total losses through next year as repair costs rise and older vehicles lose value.
Collision frequency dropped in the first quarter of 2012, and both collision and property damage liability quarterly claim frequency are trending at a ten-year low. Collision shops reported a weaker first quarter of 2012 as well, because of the milder winter weather.
According to CCC, the distribution of repair cost dollars among parts, labor, materials, and "other" remains much the same as it always has been. There was a slight shift of more dollars for non-paint labor, non-OE parts and paint materials. "This aligns with the change in vehicle mix towards an older population where there tends to be more repair versus replace, and greater availability of non-OE parts," the report says.
As of mid-year 2012, about 38 percent of the average vehicle repair cost was for the replacement of an average of 8.2 parts per claim. The average count is up from 7.8 parts for the same period last year, and the overall average cost per part is now $117. The percent of the total dollars spent on replacement parts that were OEM was 63.2 percent versus 63.1 percent in 2011.
Labor accounted for 43 percent of repair costs, which was almost unchanged from 2011. Average hours for labor is now 22.3 hours, an increase over 2011 and closer to the level reported in 2009.
On the customer front, drivers are shifting to higher deductible plans, with the most growth in the $500 to $749.99 range. This year, nearly 60 percent of collision losses came in with a deductible in that range. Shops and insurers also are reporting more cash-outs.
For the 12-month period ended in June 2012, miles driven were down 2.6 percent from the same period in 2007, and down 0.2 percent from the period in 2011, in part due to higher gas prices and unemployment levels. This trend has compounded the reduction in overall collisions, CCC says.
The age of vehicles on the road is still growing. Experian Automotive reports that the average age is 11 years as of Q1 2012, and that 70 percent of light duty vehicles on the road were vehicles aged seven years and older. Members of the "millennial" generation (ages 18 to 34 years old) are buying older vehicles, in part because they have higher rates of unemployment and higher amounts of debt.
With the economy still recovering very slowly and unemployment high, new vehicle sales will remain relatively low and the prices on used vehicles are expected to remain relatively high.
If those trends continue, both insurers and repairers will likely be affected. According to the report: "With the length of time for replacement vehicle purchase extended, there are fewer opportunities for auto insurance policy ‘upgrades’ where a higher premium might be appropriate due to the replacement with a newer, more expensive vehicle. As vehicles age, consumers often also opt out of the non-mandatory coverages, thereby reducing overall premium paid. There is also a higher likelihood that the vehicle may be a total loss if in an accident."
Download a copy of the report here.
