By Ryan Mandell – Report from Mitchell International
The explosion of complexity in the automotive industry has led to myriad changes for collision repairers as it relates to technology and vehicle construction. The same explosion also represents additional revenue opportunities for recyclers. The average cost of repair has increased by 3.5% per year since 2015 with the majority of additional costs being associated with parts replacement. Car parc changes, supply chain disruptions, and the increasing frequency of parts replacement all serve to benefit recyclers.
Parts Replacement Frequency
Complexity is an all-encompassing term that many use to refer to the rapid pace of change in the design, construction, and technology of new vehicles. Each of these factors contributes to the trend toward higher frequency of parts replacement. Previous articles have focused on lightweight materials and the lower rates of reparability associated with the metallurgical properties of each material type. The technology and design of modern vehicles have a tremendous impact on repair vs replace decisions. A prime example is the change in bumper design from the 2013-17 Toyota Camry to the 2018-Current Toyota Camry. The 2017 model year front bumper assembly was comprised of only 18 components with a gross OEM MSRP of under $1,000. However, the 2018 model year saw a marked change with a front bumper assembly that consists of 43 components with more than double the gross OEM MSRP (Figure 1).
The average number of parts replaced on a repairable estimate continues to rise year over year in addition to the average replacement parts cost (Figure 2). Recycled parts utilization continues to hold close to 10% of total replacement parts cost, yet the average recycled parts spend is rising only nominally (2.5% in 2021YTD compared to 2020 YTD) when compared to the increase in OEM spend (6.4% over the same time period) as well as aftermarket spend (9.8% increase)1. This trend suggests that recyclers have an opportunity to capitalize further on the trends toward greater complexity, higher rates of part replacement, and parts price inflation.
Supply Chain Disruptions
The semiconductor shortage that has crippled automakers over the course of the past year appears to be accelerating in the wrong direction with further plant shutdowns taking place throughout Asia and productions backlogs failing to be filled. There have even been reports of manufacturers in China hoarding supplies of semiconductors in an effort to artificially inflate the market price of their products2. Major OEMs like Ford and GM have announced further downward guidance to their production forecasts for the remainder of 2021 and even into the beginning of 20223. The lack of new vehicle supply has driven used vehicle prices to unprecedented levels. In many instances we are seeing specific year, make, model of used vehicles actually exceed historical prices. An analysis of both the 2014 Toyota Camry and the 2014 Ford F-150 show average used vehicle sales prices (and subsequently, average total loss market values) in August of 2021 exceeding the average sales prices from January of 2019.
The demand for used vehicles is at unprecedented levels and is resulting in more vehicles being retained and repaired. Total loss frequency declined in the first half of 2021 when compared to the same time period in the previous two years as a result of higher ACVs which means higher total loss thresholds (Figure 3). While the salvage pool may be somewhat diminished, the sales opportunities are conversely increasing at the same time.
Car Parc Changes
It should come as no surprise that North American consumers are opting more for light trucks and SUVs rather than traditional passenger vehicles. Data from the last two years shows that over 70% of new vehicles purchased fall into the light truck or SUV categories. More trucks and SUVs on the road means more parts sales opportunities due to these vehicles’ higher ACV, lower frequency of total loss, and subsequently, higher average cost of repair. In 2021, five of the most commonly estimated vehicles were light pickups or SUV’s (Toyota RAV-4, Honda CRV, Ford F1-50, Chevy Silverado, and Nissan Rogue compared to only three out of 10 in 2019 (RAV-4, Silverado, and F-150) .
It is critical for recyclers to understand the dynamics of the markets they serve and properly strategize salvage purchasing decisions that coincide with changing consumer vehicle preferences. When comparing a model year 2018-21 crossover SUV to a standard size sedan from the three major Asian import automakers, Honda, Nissan, and Toyota, we see a clear difference in both the average number of replacement parts written and the average total replacement parts cost (Figure 5). The potential exists for higher parts sales for crossover SUV’s compared to traditional sedan counterparts.
Recyclers with a solid strategy for maximizing their inventory will be afforded a marketplace ripe with opportunity. With a car parc increasing in complexity and shifting towards vehicles that are costlier to repair, there has never been a better time for recyclers to capitalize on sales to the collision industry. Especially with the supply chain still in flux, both repairers and insurers are looking for ways to insulate themselves from further disruption, ensure healthy bottom lines and cycle times, and provide the vehicle owner with the highest quality outcome. Recyclers are poised for growth as a consistent and reliable source of collision replacement parts.
Ryan Mandell is Director of Performance Consulting at Mitchell International. He engages with auto insurance carriers to analyze claims data and identify opportunities for performance improvement. He also works with claims executives to develop action plans to optimize such opportunities and see them through to fruition, and provides continuing consultation to insurance carriers on the most up-to-date trends in the automotive industry. Prior, he worked at Autowrecking.com/B&R Auto Wrecking and with Precision Collision Auto Body.