Though traffic levels are returning to pre-pandemic levels, body shops shouldn’t expect a similar recovery in repair volumes, Bart Mazurek, vice president of consulting and services at CCC Intelligent Solutions, told an audience at the MSO Symposium in Las Vegas on Monday .
“Realistically, I don’t think that repair volumes will perhaps ever return to pre-pandemic levels, and a lot of that has to do with the fact that vehicles are getting smarter and with ADAS [advanced driver assistance system] Skills are becoming the norm,” Mazurek said.
He specifically mentioned automatic emergency braking [AEB], which 20 automakers pledged to add to almost all safety systems on their new passenger cars this past September. With this technology, front-end collisions will be “less frequent, albeit more costly” to repair as additional components are added, he said.
Mazurek suggested the numbers of increased traffic included what he called “false positives,” including a larger percentage of commercial vehicle traffic and a change in driving behavior.
In June, the month when people drive the most, the figures for 2019 and 2022 were only about 1.7 percent apart, he said. Still, commercial traffic over the same period in 2022 was 8% higher than in 2019. For example, Amazon has tripled the size of its delivery fleet over the past three years, he said.
Another factor largely driven by remote work is a change in driving behavior, Mazurek said. “Traffic is very similar to 2019. But if we look at the biggest subway markets, let’s look at New York, LA, Chicago and Houston, those markets are only between 50% and 65% of the congestion, when it comes to early morning traffic. So if you have fewer traffic jams, you don’t have as many accidents either.”
Mazurek presented the CCC report on behalf of Susanna Gotsch, Senior Director, Industry Analyst at CCC Intelligent Solutions, who he says is “on the way to retirement.” He said that over the past few months, “my team and I have been working to take their information and make it our own.”
“My goal for the next 15 to 20 minutes is to give you a glimpse of what’s in store for the industry over the next year,” he said, “given all I’m reading from think tanks and economists to help you get your bearings prepare for ’23.” His presentation kicked off a full day of sessions at the Venetian Resort, a new venue for the annual event.
Mazurek predicted that the overall losses would continue to be weighed down by the lack of supply of new vehicles and the resulting price hikes for used vehicles.
“The availability of new vehicles is really the driving factor for how used vehicles perform in terms of price,” he said. While the median price of a new car has risen 22% to $49,000 over the past two years, used car prices have risen nearly 50% over the same period.
“We currently only have about the same volume of new vehicles as we had a year ago, but that’s still only half of what was available before the pandemic,” he said. He predicted it would take at least 12 to 18 months for the new car market to “catch up with the expectations of the American consumer.”
“Unfortunately, because used car prices are still high, it’s more difficult to complete a vehicle,” he said. “So I’m expecting that number of 17% and 18% [for total losses] to remain consistent 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 about $4,400 to $4,500 next year, Mazurek said. One reason is inflationary pressures; the other is the increasing number of parts required for an average repair.
“In just two years we went from 10 1/2 parts to almost 12 1/2 parts [needed in the average repair], and those two extra pieces require four extra hours of work,” he said. Because the OEMs are “really the only ones who can supply those extra two parts,” he said, with complex items like ultrasonic sensors, OEMs’ share of the parts used for repairs has increased, he said.
He also hinted that semiconductor chip shortages will continue as OEMs are a smaller and less lucrative customer for manufacturers than companies like Apple and its competitors.
The Taiwan Semiconductor Manufacturing Company [TSMC], which makes two-thirds of the world’s semiconductors, gets just 5% of its total revenue from OEMs, while Apple and its competitors account for 40% of its revenue. “By the way, Apple and its competitors buy the fastest and most expensive chips. OEMs buy most of the low-end chips, which are less profitable,” he said.
“So, given TSMC’s priorities, I wouldn’t be surprised if OEMs waited longer to get chips they expect. So we’ll keep hearing the stories… about Ford shelving 40,000 completed vehicles waiting for chips because TSMC has a huge backlog.”
The percentage of all garages participating in direct repair programs [DRPs] fell from 5.2% to 4.6% between calendar year 2021 and mid-2022, with the proportion of participating national MSOs falling from just under 12% to 10.7%.
“Whether we look at it from the perspective of the dealers, the independent dealers or the MSOs at the national and regional level, all DRP numbers are going down and I think that has to do with repair shops running the DRP programs based on the current market and re-evaluate their market goals. And they decided to reduce the number of DRP programs to better align with their goals,” Mazurek said. He did not elaborate on these goals.
Mazurek also noted a drop in scanning and calibration over the past quarter, which he says is evidence of the “significant delay in repairing vehicles.”
“Scanning and calibration are always added later in the repair process,” he said. “So it won’t be another month or another six weeks before we see the calibration numbers being scanned, either at or above previous quarters’ levels. That just tells me the lag is getting worse and worse…. I mean everyone here knows that, but it’s reflected in the data.”
Body shop backlogs are now averaging nearly five weeks, down from a historical figure of 1.7 weeks. “Unfortunately, since… labor is very close, I don’t expect that to change much,” he said. Although supply chain problems are expected to subside, “that won’t halve the backlog. They might ease off a bit… but realistically they’ll probably get worse in the meantime.” He expects the backlog to be around four weeks by mid-2023.
Average repair hours per workshop day have fallen, which Mazurek attributed to parts shortages that are forcing technicians to work on multiple cars at once. “For me, every vehicle is a puzzle made up of individual parts. Where a tech used to work on one or two puzzles, now he might be working on half a dozen because of parts pouring in and he has to move vehicles.”
Mazurek also voiced his unproven hypothesis that the backlog of orders led to a “lack of urgency” among technicians. With a more limited number of jobs, he said, technicians would compete with each other for what was available and want to stay employed to earn their weekly paycheck. “But if you have endless vehicles stacked on top of each other for five or six or seven weeks, the work is practically guaranteed forever. So there is no real rush. Because when the next car is fixed, you know another will magically show up.”
Featured Image: Photo by Bart Mazurek, provided by CCC Intelligent Solutions