Market Dynamics Each year in its Crash Course publication, CCC discusses at length the market dynamics driving change in vehicle accident frequency and cost. Numerous broadbased demographic drivers have been reviewed, such as employment levels, changes in where people live, how they commute to work, aging population, etc. These market shifts have been in place for numerous years, and while some may have seen larger swings due to the latest recession, they are driving slow but steady change within the marketplace. i As a greater share of the population falls into the youngest and oldest age groups, driving habits may result in further divergence in patterns of claim frequency and severity. As the population shifts further to urban areas, increased congestion could lead to higher frequency, although increases in the use of public transportation would do the direct opposite. ii Yet there are no indications that there will be any major reversal or ramp up of these demographic shifts in the future; as such, the automotive insurance and collision repair industries should prepare and position themselves to work in a market that is slowly but surely getting smaller. But perhaps least certain is how quickly advancing vehicle technology will drive change within the automotive insurance and collision repair industries. New vehicle materials, crash avoidance technologies, alternative powertrains, autonomous vehicles, and car-sharing services all have seen rapid growth in just the last several years. How will these change these industries, and how quickly remains unknown. It Starts with the Vehicle When we look at the automobile itself, we see dramatic changes occurring. Copyright 2014 CCC Information Services Inc. Page 1
Consumer demand for safety and convenience, coupled with regulatory change for safer and more fuel-efficient vehicles, has led to significant change within vehicle design. iii Work from organizations like the Insurance Institute for Highway Safety, NHTSA and others have led to safer vehicle construction, better vehicle design for crash worthiness, and now numerous devices for crash avoidance in an environment of increasing driver distraction. Whether it s self-driving vehicles, or vehicle-to-vehicle communication, there has been a dramatic increase in headlines on the advancement of vehicle technology. While these particular technologies represent a major shift in how a consumer potentially uses an automobile, components of these are already in use today within the mainstream vehicle population. And lastly, electronic content within the vehicle has expanded immensely as well to meet consumer demand for convenience, comfort, and connectivity. Material Changes With the weight of aluminum nearly three times lower in density than steel, expanded use of aluminum is underway. According to Ducker Worldwide, extensive use of aluminum, dual phase, complex phase and press hardened steels will be required to remove 150-200 pounds out of the average auto body with closures by 2025. iv They estimate that by 2025 aluminum sheet, aluminum extrusions, and aluminum VD castings will account for 26% of all light vehicle body and closure part volume share. v Individual part component analysis reveals that hoods, front bumper impact bars, fenders, radiator support upper tie bars, absorbers and lift gates are the components which see most frequent aluminum usage (excluding the engine and wheels). vi And the vehicles which will likely see the greatest share of aluminum are pickup trucks. vii Copyright 2014 CCC Information Services Inc. Page 2
As of mid-year 2014, pickup trucks accounted for 12 percent of overall repairable appraisal volume reported by CCC. So while the vehicles that are anticipated to have the most aluminum content account for less than one-fifth of overall volume of vehicle body and closure part volume, repairers that work in states such as Texas and North Dakota, where pickup trucks sales have been strong, may see more. Additionally carriers that insure small business or government fleets might also see a faster ramp-up in their claims volume of these vehicles. A full 89.3 percent of all new vehicles sold in 2013 had one or more part components constructed of a lightweight material such as aluminum, boron, magnesium, highstrength steel, ultra high-strength steel, and sandwiched steel. viii Using information supplied by the OEs regarding the material make-up of individual OE parts, and the vehicles on which those parts appear, the growth in both the number of vehicles and the number of parts can be measured across automotive claims. In 2004, the share of overall repairable appraisals for which CCC collected data showed only 7.9 percent of the appraisals were for vehicles that included one or more lightweight material parts in its construction. By 2013, this number grew to 57.4 percent. However, not all of these appraisals actually included the lightweight material part(s).when the data is filtered further to include only those appraisals where the lightweight material part(s) were included in the parts needing repair/replacement, the share of overall repairable appraisal volume fell to 25.7 percent in 2013. Copyright 2014 CCC Information Services Inc. Page 3
Furthermore, if you take all of the parts repaired and replaced on appraisals in CY 2013, only 4 percent were lightweight material parts, with the vast majority comprised of high strength steel, and less than 20 percent aluminum. Further analysis of all parts repaired and replaced on appraisals from CY 2013 also reveals that even among the top five parts with the largest share of those constructed from lightweight material(s), no more than 11 percent were lightweight material parts. Copyright 2014 CCC Information Services Inc. Page 4
How Fast is the Ramp-Up? Collision repairers must make the leap of faith that they will see enough of these vehicle repairs to support the significant investment in the training and special materials. With overall repair orders continuing to trend down in the U.S., additional costs come under even greater scrutiny. Given the numerous vehicle makes, models, trim levels and packages sold in the U.S. on an annual basis, and the fact that vehicles last longer today than ever before, the automotive claims and collision repair markets see a very diverse makeup of vehicles they must repair annually. In CY 2013 for example, the number one most appraised vehicle was the MY 1999 2007 CHEV/GMC Pickup. And yet this vehicle only accounted for 2 percent of the overall appraisal volume. In fact, the combined share of overall repairable appraisal count for the top 50 most appraised vehicles was only 35 percent in CY 2013. At the same time, the disruption in the pattern of 16-17 million new vehicle sales that coincided with the recession created a break in the historic sales cycle that essentially led to greater disparity within the vehicle fleet. With fewer new cars sold, the average age of vehicles increased, leading to a historically older vehicle population. At the same time, new vehicle sales have ramped up, leading to a modest surge in new vehicles on the road. Copyright 2014 CCC Information Services Inc. Page 5
Additionally, there is an inherent lag from when a new vehicle (even a high volume vehicle such as the F150 pickup) is introduced to the marketplace to when significant volumes appear among vehicle repair volume. For example, let s look at the last major redesign of the F150, which was launched for MY 2009, and remained largely unchanged through MY 2013. If you take the cumulative sales of F-series pickups in the U.S. from CY 2009 to CY 2013 results in about 3 million pickups total by year 5 of introduction. ix Analysis of CCC appraisal data reveal that in year 1 of introduction (CY 2009 for this example), the MY 2009 F150 pickups accounted for 0.1 percent of the overall appraisal count. By year 5 the cumulative MY pickups account for 1 percent of overall appraisal count. Copyright 2014 CCC Information Services Inc. Page 6
Applying these volume shares to the estimated total number of accidents annually per the National Safety Council, results in less than 15,000 repairs in Year 1, ramping up to 200,000 repairs by Year 5. Split across all months and the 350 or so metro CBSA s with population of at least 100,000 in the U.S., that s about 4 repairs per month in year one per market growing to 50 repairs per month for just this one vehicle. Driving Change in Collision Repair As the use of these lightweight materials extends, it leads to growing challenges for the collision repair industry. Ensuring shop personnel have the tools, information, and training necessary to safely repair these increasingly complex vehicles to pre-accident condition is critical, and takes time. So while the industry will not be inundated overnight, it is clear that the industry needs to prepare. The information and opinions in this publication are for general information only, are subject to change and are not intended to provide specific recommendations for any individual or entity. Although information contained herein has been obtained from sources believed to be reliable, CCC does not guarantee its accuracy and it may be incomplete or condensed. CCC is not liable for any typographical errors, incorrect data and/or any actions taken in reliance on the information and opinions contained in this publication. Note: Where CCC Information Services Inc. is cited as source, the data provided is an aggregation of industry data collected from customers that use CCC s products or services and/or that communicate electronic appraisals via CCC s electronic networks. i CCC Information Services Inc., Crash Course 2014. ii Ibid. iii Ibid. iv Ducker Worldwide 2015 North American Light Vehicle Aluminum Content Study, June 2014. v Ibid. vi Ibid. vii Ibid. viii CCC Information Services Inc. ix Sales data derived from Automotive News annual U.S. sales data. Copyright 2014 CCC Information Services Inc. Page 7