A possible new threat to the supply chain, stagnant interest rates through at least the summer, and increasing complexity in repairs are a few trends the collision industry needs to pay attention to in 2024, according to a presentation from the Collision Industry Electronic Commerce Association (CIECA) Thursday.
Ryan Mandell, Mitchell International director of claims performance, led the virtual presentation “Top Collision Industry Trends to Watch in 2024.”
He broke the trends into four major categories: “Used Vehicle Market Dynamics,” “Complexity Drives Greater Costs,” “Supply Chains Incur Further Stress,” and “EV Growth will Continue.”
Mandell said the industry is experiencing numerous shifts, but the four categories are the “most impactful.”
Used Vehicle Market Dynamics
Mandell warned that while there’s discussion of inflation dropping, it is still projected to increase by 2.4% in the U.S. during 2024.
“We have to remember that’s two and a half percent on top of the inflation we’ve already experienced,” Mandell said. “So, while it may look on the surface that the number is coming down, we still expect to see inflationary trends over and above what we’ve already experienced.”
Interest rates are also reported to drop this year but could be as late as the summer and possibly later, Mandell said.
“It is very likely we will go all of 2024 without any decline in interest rates,” Mandell said.
High interest rates impact automotive financing, Mandell said.
He said those in the subprime market — people with a credit score rating below 660 — are receiving 9-14% interest rates on new car loans, he said. They are receiving 13-22% on used vehicle loans.
Mandell said this is partly why the total loss value is starting to stabilize with a total loss value of 19.2% for the U.S. He said half the months in 2023 showed a decrease in loss value from the month before.
He said the industry can expect a downward trend in 2024, while total loss frequency will increase.
“As average market values were being driven up, we were seeing total loss frequency decline,” Mandell said. “What was happening is the total loss threshold was changing so dramatically and as the vehicle got more expensive, you had more room to repair that vehicle, as opposed to write it off as a total loss. That now became the most cost-effective option.”
He said market experts predict 2024 will be a less volatile year. However, he said knowing what influences could create volatility is impossible.
Complexity Drives Greater Costs
There was an increase of 6.18% for repair claims with severity from 2022 to 2023, Mandell said. He said the average body labor rate also increased by 6.19% in the U.S.
Mandell noted that not all claims from 2023 have been closed, meaning that the data remains incomplete. He said both percentages have increased sharply since pre-COVID.
Parts inflation plays a part in the increase, with aftermarket parts increasing by 17% in 2022 and OEM parts increasing by 10%.
Average severity costs are expected to be more than $5,300 higher in 2024, he said.
“This is essentially in line with the continuation of the same increases we’ve seen over the last couple of years,” Mandell said.
The average body labor hours increased from 16.55 in 2022 to 16.68 in 2023, he said. The total estimated operations increased from 36.86 in 2022 to 37.59 in 2023.
The percentage of parts repaired decreased from 17.51 in 2022 to 17.31 in 2023.
While inflation is partly the cause for the changes, complexity also plays a role, he said.
Mandell said manufacturers’ use of lightweight materials, as opposed to mild steel parts, is an example of one of the complexities.
“When we look at these parts, they do an excellent job of managing crash energy — of dispersing it away from the occupants in the vehicle,” Mandell said. “That’s one of the benefits of using this material.”
The material is much more likely to crack as opposed to being deformed, he said.
“It is not saying these parts aren’t repairable,” Mandell said. “You are just presented with less opportunities to do that repair.”
As the average age of a vehicle seen in the collision industry is six years old, the industry will continue to see more of this material, he said.
New technology also has created new procedures that need to be completed with repair jobs, he said.
In 2016, less than 10% of vehicles were getting a pre- and post-scan, he said. Now, 3 out of 4 vehicles receive a pre- and post-scan.
“In less than a decade we have added a compulsory operation to every repair,” Mandell said. “I believe that is where calibrations will be going in the future.”
As the average age of a vehicle is shifting right, calibrations will increase in the industry, he said.
OEMs have also been moving to require a calibration on all vehicles involved in a collision, he said.
The collision industry has to start thinking about ways to manage the workload, Mandell said. It needs to start deciding if it will do calibrations in-house or through a third party.
Supply Chains Incur Further Stress
The keys-to-keys cycle time during a repair dropped in Q3 to 18.2 days in the U.S., Mandell said. The average days from assignment to the first estimate committed fell by 0.8 days in Q4.
However, there are still concerns that could cause strains on the supply process, he said. This includes a possible fallout from the United Auto Workers strike.
Yet, the most significant concern is Houthi attacks on cargo ships in the Red Sea, he said.
The U.S. Department of Defense says the Iran-backed Houthi group has led attacks against at least 33 commercial vessels, U.S. Military and merchant vessels since mid-November.
“I think what we are seeing right now is that these global geopolitical conflicts are going to start impacting the movement of cargo around the globe,” Mandell said.
He said about 12% of all ocean cargo moves through the Red Sea. Most companies have removed that shipping lane because of the danger. He said this will impact shipping times and costs.
Even if auto parts don’t move through the Red Sea, a shipment could be delayed waiting for a ship that does, he said.
“We are not seeing it right now, but when we start to get toward the middle of the year, that is when we will start to see the downstream effect of what is happening right now,” Mandell said.
Mandell said that the Global Container Index has spiked in the past week, similar to spikes seen during the pandemic.
Aftermarket products were more exposed to shipping issues than OEM parts during the pandemic, he said.
“These are the conversations happening not only from the auto industry but many industries,” Mandell said. “I think we need to start looking at the contingency plans we have in place. How do we start to plan around a potential likelihood for a supply chain disruption?”
This could include repairing more parts or looking to different segments of the industry for those parts, he said.
EV Growth Will Continue
Mandell said data shows electric vehicles (EVs) continue to grow in popularity throughout North America. He said this brings a challenge for the collision industry.
“These vehicles are just different and we need to continue to further examine how those differences can be quantified and what that means for not only financial forecasting but also for understanding how do we design better workflows,” Mandell said.
He said the insurance industry should be researching how to price premiums correctly and manage repair expectations for EVs.
While the collision industry needs to ensure EVs are being repaired safely for employees and the vehicle’s owner.
The U.S. saw a claim frequency of 1.97% for repairable EVs, Mandell said. He said that is expected to exceed 10% in 2024.
Mandell said this is partly because EVs are starting to cost about the same as an internal combustion engine (ICE) vehicle.
The price difference between ICE and EV vehicles shrunk to 8% in 2023 from 15% in 2022, he said.
While EVs are known to have fewer moving parts than ICE vehicles, that doesn’t mean repairs are less complicated, Mandell said.
Mitchell recently did a case study to compare the repair of an EV 2022 Ford F-150 Lighting and the ICE 2022 Ford F-150 XLT 3.5L EcoBoost V6.
The repair included:
- Replacing the bumper assembly and associated components;
- Replacing grille assembly;
- Headlamps and associated components; and
- Replacing the hood panel and blending left and right fenders.
All repairs were supposed to use the OEM repair procedures for any specific required operations.
Mitchell found that during the bumper repair, the Lightning had one additional part known as the “bumper isolator.” It also had an extra component for grille reinforcement. The grille and upper cover on the Lightning were also more expensive.
The Lightning had an additional OEM requirement to remove the battery before a bake cycle to harden the clear coat, Mandell said. This added 3.5 hours of mechanical time.
Overall, the bill was an extra $3,508 to repair the Lightning, he said.
“They [EVs] have less moving parts, but that doesn’t mean they have less crash parts,” Mandell said.
An ICE vehicle absorbs crash energy, Mandell said. He said it takes more parts on an EV to absorb the energy.
Photo courtesy of Dilok Klaisataporn/iStock