A recent article from Audatex focused on the growing number of accident claims from deer collisions — roughly 100,000 accidents each month. It’s interesting because for most of the year, this segment of our coverage group has underperformed relative to some other aftermarket areas. Keep in mind that the year-over-year sales comparisons and operating environment have been more difficult for companies such as Copart, Solera and LKQ Corp. In our opinion, there could be some tailwinds developing for this segment of the aftermarket that will provide very solid growth for 2010.
Last year when the economy was beginning to accelerate downward, cash-strapped consumers chose to delay most high-priced items. With fewer miles being driven, many insurance companies experienced a decline in claims frequency. For collision shops, it was even worse as reduced volumes were magnified with customer cash-outs — essentially taking a check from the insurer and declining to have the repair work done.
As we close out 2009, the following should serve as catalysts for growth in the collision segment: 1) continuing year-over-year improvement in miles driven, 2) stabilizing claims volumes, 3) rising wholesale vehicle prices, and 4) potential disruptions across the OE supplier base. With gas prices hovering in the $2.50 range, we think that the improvement in miles driven is likely to continue.
Although macro pressures remain, it appears the collision environment is stabilizing overall. Consolidation is likely to continue. Recently, it appears the cash business is up as consumers are taking checks and trying to fix their vehicles cheaper or paying out of pocket to avoid deductibles. This uptick in the cash business is likely exerting a positive impact on the utilization rate of alternative parts. What will be interesting to watch is how the mix of alternative parts changes in the coming years. There has been a relatively steady share gain for alternative parts usage over the past few years. We think with the combination of dealership closings and lower new vehicle sales there could be an even greater shift in 2010.
At the end of the day, the insurance company is obligated to make the policyholder whole, whether through the repair of the damaged vehicle or by cutting a check for the amount of the vehicle’s ACV. The limited availability of OE parts should drive up the average cost of repair in that OE list prices will likely move significantly higher, in addition to increased rental car expense as the policyholder may be without their own means of transportation for a substantially longer period of time. We believe that many insurers are concerned about the potential impacts of stresses within the OE channel.
We expect 2010 to be a very good year for the collision repair segment. However, even without any major supply chain disruptions, we would expect to see alternative parts continue to play a more prominent role in the collision repair process. Increased CAPA certifications and overall improvements in part quality, in addition to efforts to improve consumer perception and acceptance, should be the largest potential drivers of aftermarket parts usage with enhanced cataloging and technological advancements likely to play the largest role in spurring recycled parts usage.
