Despite mounting reported collision rates and an assumed rise in the non-reported ones, the replacement body collision aftermarket is reportedly witnessing a decline in the number of total repair jobs.
Factors that contribute to this trend are higher insurance premiums for vehicles with high claims and an escalation in the overall vehicle scrappage rate.
New analysis from Frost & Sullivan North American Replacement Body Collision Aftermarket, reveals that component revenues in 2004 totaled $1.71 billion. Revenues are estimated to reach $2.33 billion in 2011.
Rising insurance premiums restrain many people involved in accidents from making claims. Either they choose not to repair the damage or the parties concerned make private arrangements to avoid notifying the insurance company. Moreover, scrappage rates are rising, further restraining collision victims from seeking repair jobs.
“The upside to the rising rates in the aftermarket is greater revenue,” said Frost & Sullivan Senior Industry Analyst Mary-Beth Kellenberger. “Collision revenues from mechanical/electrical components, sheet metal, plastic, paint, and labor have experienced a general rise since 1993.”
Another factor likely to drive revenue in the aftermarket is the constant rise new vehicle pricing. In 1997, luxury vehicles represented 4.1 percent of the vehicle population. In 2005, luxury vehicles expect to represent more than 10.7 percent of this population.
This shift is viewed as a mixed blessing for the repair industry. Historically, higher value vehicles warranted repair, but currently, higher-end vehicles include many more safety features such as crumple zones, laminated glass, and multiple air bags that, if activated, contribute to the vehicle’s propensity to be scrapped.
Repair shops are reportedly wary about the participation of insurance companies in the overall process, since their involvement is as high as 90 percent. This is reportedly particularly detrimental to the interests of repair shops as the insurance companies usually pay lower rates for repair work through both lower-cost components and by labor rate concessions.
The insurance companies’ position of power reportedly creates a highly competitive bidding situation for each repair job, and therefore, despite the rising component costs, the repair market is witnessing reduced operating margins.
“According to industry sources, shops participating in insurance company direct repair programs (DRPs) write approximately 42 percent more estimates and perform nearly 56 percent more jobs,” noted Kellenberger. “Moreover, DRP shops have a “win” ratio of approximately 60 percent whereas non-DRP shops’ job “win” ratio is approximately 50 percent.”
DRPs also deal with the reduced availability of technicians. The collision repair industry is reportedly worse off due to the decreased value placed on collision repair skills. Skilled body collision technicians earn approximately 20 percent less than their mechanical counterparts. This differential is a major deterrent in attracting new talent to the industry.
“The high cost of equipment, declining availability of skilled workers, and the need to concentrate resources to maximize the economies of scale has resulted in the consolidation of collision repair facilities,” observed Kellenberger.
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