Although traffic volumes are returning to pre-pandemic levels, body shops should not expect repair volume to make a similar rebound, Bart Mazurek, vice president of consulting and services for CCC Intelligent Solutions, told an audience at the MSO Symposium in Las Vegas on Monday.
“Realistically speaking, I don’t anticipate repair volume to come back to pre-pandemic levels, maybe ever, and a lot of that has to do with the fact that vehicles are getting smarter, and with ADAS [advanced driver assistance system] capabilities becoming standard,” Mazurek said.
He specifically mentioned automatic emergency braking [AEB], which 20 automakers pledged to add to nearly all of their new passenger vehicles’ safety systems beginning this past September. With that technology, front end collisions “are going to become less frequent, although more costly” to repair because of added components, he said.
Mazurek suggested that the increased traffic volume numbers contain what he called “false positives,” including a greater percentage of commercial vehicle traffic and a change in driving patterns.
In June, the month when people tend to drive the most, the numbers for 2019 and 2022 were only about 1.7% apart, he said. Yet commercial traffic for that same period was 8% higher in 2022 than in 2019. For example, Amazon has tripled the size of its delivery fleet in the past three years, he said.
Another factor, caused largely by remote work, is a shift in driving patterns, Mazurek said. “Traffic is very close to where it was in 2019. But looking at the largest metro markets, we look at New York, LA Chicago, Houston, those markets are only between 50% and 65% of congestion when it comes to early morning traffic. So if you don’t have as much congestion, you don’t have as many accidents.”
Mazurek presented CCC’s report in place of Susanna Gotsch, senior director, industry analyst for CCC Intelligent Solutions, who he said is “on her way to retirement.” He said that over the past few months, “my team and I have worked on absorbing her information and making it our own.”
“My goal for the next 15 to 20 minutes or so is to give you insights into what the industry will be facing next year,” he said, “given everything that I’m reading from think tanks and economists so that you can better prepare for ’23.” His presentation led off a full day of sessions at the Venetian Resort, a new venue for the annual event.
Mazurek predicted that total losses will continue to be depressed by the lack of supply of new vehicles, and the resulting increase in prices for used vehicles.
“New vehicle availability is really the driving factor for how used cars behave in terms of price,” he said. While the average price of a new vehicle has increased by 22% over the past two years, to $49,000, used vehicle prices are up nearly 50% in the same timeframe.
“We’re currently only at about the same volume of new vehicles available as a year ago, but that’s still only half of what was available pre-pandemic,” he said, He predicted that it will take at least 12 to 18 months for the new vehicle market to “catch up to the expectations of the American consumer.”
“Unfortunately, as used vehicle prices remain high, it’s more difficult to total out a vehicle,” he said. “So I expect to see this 17% and 18% number [for total losses] to remain constant through next year.”
Average repair prices, which rose from about $3,000 to a little over $4,000 between 2018 and 2022, will rise to around $4,400 or $4,500 next year, Mazurek said. One reason is inflationary pressure; the other is the rising number of parts needed to complete the average repair.
“Just in a two-year span, we’ve gone from 10 1/2 parts to almost 12 1/2 parts [needed in the average repair], and those two additional parts are driving four additional hours of labor,” he said. Because the OEMs are “really the only ones that can supply those additional two parts,” complex items like ultrasonic sensors, OEMs’ share of parts used in repairs has increased, he said.
He also suggested that the shortage of semiconductor chips will continue, because the OEMs are a smaller and less lucrative customer for producers than companies like Apple and its peers.
The Taiwan Semiconductor Manufacturing Company [TSMC], which produces two-thirds of the world’s semiconductors, gets only 5% of its overall revenue from the OEMs, while Apple and its competitors represent 40% of its revenue. “And oh, by the way, Apple and their peers are buying the fastest, most expensive chips. The OEMs are buying most basic chips that are less profitable,” he said.
“So given TSMC’s priorities, I wouldn’t be surprised if the OEMs are going to wait longer to get chips that they expect. So we’re going to continue to hear the stories … about Ford shelving 40,000 completed vehicles waiting for chips because TSMC has a huge backlog.”
The percentage of all shops participating in direct repair programs [DRPs] has fallen from 5.2% to 4.6% between calendar year 2021 and midyear 2022, with the percentage of national MSOs participating declining from just under 12% to 10.7%.
“Whether we look at it from the dealerships’ perspective or the independents or the MSOs, national and regional, all DRP numbers are going down, and I think that has to do with repair facilities reevaluating the DRP programs based on the current market and their goals. And they decided to reduce the number of DRP programs to better align with their goals,” Mazurek said. He did not elaborate on those goals.
Mazurek also noted a decrease in scanning and calibration over the past quarter, which he suggested was evidence of the “significant lag in getting vehicles repaired.”
“The scanning and the calibration are always added later in the repair process,” he said. “So it won’t be for another month or another six weeks before we see the scanning [and] the calibration numbers either at or above levels from prior quarters. That just tells me that the lag is getting worse…. I mean everyone here knows that, but it’s reflected across the data.”
Backlogs at body shops now averaging nearly five weeks, against a historic figure of 1.7 weeks. “Unfortunately, given … labor being very tight, I don’t anticipate this changing much,” he said. Although supply chain issues are expected to ease, “that’s not going to cut the backlogs in half. They might come down a little bit … but realistically, they’ll probably get worse in the interim.” He said he expects backlogs to hover around four weeks by mid-2023.
Average repair hours per shop day are down, which Mazurek attributed to parts shortages, which force technicians to work on several cars at one time. “I look at it as each vehicle is a puzzle that’s in pieces. Whereas historically a technician will be working on one or two puzzles, now they’ll be maybe working on half a dozen, because parts are trickling in, and so they’re having to move vehicles around.”
Mazurek also expressed his unproven hypothesis that the backlog of jobs has resulted in “a lack of urgency” among technicians. With a more limited number of jobs, he said, technicians would vie among themselves for what was available, wanting to stay busy to earn their weekly paycheck. “But if you have five or six or seven weeks of vehicles stacked endlessly and on top of one another, it’s effectively guaranteed work forever. So there’s no real rush. Because when the next car’s fixed, you know another one will magically show up.”
Featured image: Photo of Bart Mazurek provided by CCC Intelligent Solutions