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Letter to the Editor

Features in Review

From industry trends and state legislation to repair standards, here is an update on some of the topics we have covered in recent months.

One of the things INSIGHT strives to offer its readers is ongoing review and updates on the topics we cover. Little stays static in this industry, and at times it makes sense to delve back into the issues we have researched and featured in recent months to provide additional news and perspectives on them.

State legislation

As legislatures approach adjournment in many states, there has been activity on a number of the pending bills we reviewed just last month.

Wisconsin Governor Scott Walker, for example, has signed a law cutting the minimum property damage coverage that drivers in that state must carry from $15,000 to $10,000.

By a vote of 38-1, the California Senate in May approved the bill (SB 869) that would increase the monetary fines (to $5,000) and double the jail time (to one year) that may be imposed for any automotive repairer that fails to properly replace a deployed airbag. The measure now moves to the California Assembly.

Another bill (SB 631) introduced in California that would give the Insurance Commis-sioner authority to order restitution to consumers by an insurance company has been turned into a two-year bill, essentially delaying further action on the proposal until next year.

The Automotive Service Association claimed victory in its opposition to proposed legislation we discussed in two states. Hawaii Governor Neil Abercrombie has vetoed legislation that would have exempted vehicles three years old or newer from the state's Motor Vehicle Safety Inspection Program. With the veto, the current exemption only for vehicles two years old or newer remains in place.

And in Florida, ASA opposed a bill that included repeal of that state's registration and other regulation of vehicle repair shops. That language has been omitted in a budget conference report.

ASA credited shops in both states for contacting their legislators to oppose the changes.

In Montana, Governor Brian Schweitzer signed into law a bill (HB 265), sponsored by the Montana Collision Repair Specialists, that, effective immediately, prohibits a insurer from "unilaterally disregard(ing) a repair operation or cost identified by an estimating system" that the insurer and shop have agreed to use to determine the cost of repair.

And following the lead of one of its committees (as we reported last month), the Texas Senate as a whole approved a bill (SB 1300) that requires insurance companies to provide written notice to both shops and consumers explaining how their payment policies and claims procedures differ between direct repair facilities and non-direct repair facilities. The bill, supported by the Houston Auto Body Associ-ation, also requires insurers to provide to shops, upon request, a written explanation of the requirements to become a DRP facility with that insurer.

An uneasy move toward standards

Last fall we looked into the effort to develop formalized industry repair standards. That effort, being led by the Collision Industry Conference (CIC) Repair Standards Advisory Committee, took another key step forward in May with the hiring of Condon Consulting, LLC, to assist the group in building a business case statement for a new organization to oversee the development and implementation of such standards.

The committee has obtained commitments for $15,000 of the $60,000 it needs for the consulting company’s work.

But that consultant and committee may still find a skeptical audience for its output, at least among some collision repairers and associations. In a recent interview, Aaron Schulenburg, Executive Director of the Society of Collision Repair Specialists, said OEM repair recommendations should be the standard, and that shops continue to find insurer resistance to acknowledging that. He cited an example of an insurer calling for a shop to section in a frame on a 2010 pick-up truck when the OEM, given the degree of damage, clearly calls for a new frame. The insurer told the shop, according to Schulenburg, that if it didn’t section the frame, the insurer had “two other shops that will.”

“A voluntary standard has shops nervous,” Schulenburg said. “If I’m a shop investing and doing what’s necessary to meet that standard, but I have carriers pushing work away from my business because the standard costs more, that’s not beneficial for the repair industry, and it’s certainly not beneficial for the consumer.”

Industry stats and trends

Last December, we shared a compendium of statistics and trends within the industry, several of which warrant updating.

We reported that the percentage of vehicles declared total losses, after three years of increases, appeared to be moving downward through the first half of last year, and, indeed, that trend held. CCC Information Services reports that 13.9 percent of vehicles were totals last year, compared to 14.2 percent in 2010.

Audatex predicts that slight downward trend could continue this year as well. Part of that is likely based on increased use of alternative parts. In 2010, for example, Mitchell Internation-al reported that 68 percent of all dollars spent on parts in collision repair was spent on OEM parts, down from almost 75 percent as recently as 2007. Non-OEM parts accounted for 12.8 percent last year, up from 10.5 percent in 2007. Salvage and remanufactured parts accounted for over 19 percent of parts dollars in 2010, up from about 15 percent three years earlier.

But another key factor in reducing total losses is the significant increase in used vehicle prices since early 2009, which allows for higher repair costs before reaching the total loss threshold. Higher gas prices are pushing up values for used compact and midsize cars, and disruptions to new car production in Japan are also expected to help keep used car prices high this year.

Those higher gas prices, however, are having a less positive impact on another trend we reported last December. Americans drove about three trillion total miles in 2010, less than a one percent jump from 2009, but still the most since 2007, and the third-highest yearly total ever. And total vehicle miles traveled also continued on the upswing through the first few months of this year.

But drivers this spring are clearly putting on the breaks. MasterCard SpendingPulse, which tracks gas purchases at hundreds of U.S. locations, reported in May that the four-week average of retail gas demand dropped for the sixth consecutive time.

"So we're potentially in for a pretty significant impact as we get to early summer in the reduction of accidents and repairable cars," Mitchell’s Greg Horn said at a recent industry event.

Another research firm is reporting that drivers are cutting back on their insurance coverage as well. In 2006, 53 percent of older vehicles were not covered by collision or comprehensive insurance. By 2010, this had increased to 63 percent.

The type of auto insurance they do buy could also effect accident rates. A new study finds that pay-as-you-drive insurance, in which drivers' insurance rates are based on their actual mileage tracked by the insurer, could reduce driving and accidents. The study estimated that switching all Massachusetts drivers to a per-mile auto insurance pricing would reduce mileage, accident costs and fuel consumption by about 9.5 percent.

State Farm and the Auto Club of Southern California both launched pay-as-you-drive insurance policies in California earlier this year, and Progressive Insurance, which already offers such a plan in more than 30 states, will have it in close to 40 by early summer.

But because leased vehicles tend to be insured and repaired, a recent uptick in vehicle leasing is good news for collision repairers. Only about 13 percent of new vehicle transactions in 2009 were leased. Last year that rebounded to 19 percent. In February and March of this year, it had climbed to between 21 percent and 25 percent, the highest percentages since prior to 2005.

In other industry stats and trends INSIGHT has been tracking since our feature last December, the national average for body and paint labor rates has risen only modestly year-over-year since 2006. According to figures from CCC, the average body labor rate rose from $41.42 in 2006 to $44.67 in 2010, up an average of 2.1 percent per year. (Paint labor rates rose similarly.) The national average hourly rate for paint materials rose slightly faster, from $22.26 in 2006 to $25.37 in 2010, an average increase of 3.5 percent per year.

Overall, according to the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI) for autobody work rose an average of 3.44 percent per year for that 5-year period. By comparison, the CPI for all products rose an average of 2.2 percent per year. The CPI for auto insurance rose an average of 2.6 percent per year, and the CPI for vehicle parts and equipment (other than tires) rose an average of 3.92 percent per year.

CCC data also indicates that the average number of DRPs that shops participated in per-location grew steadily from 2001 through 2007, but multi-shop operations (MSOs) have seen more growth in DRP numbers in the last three years than have other shops.

Independent shops averaged 1.9 DRPs in 2000, and three in 2010; dealership shops went from an average of 2.4 DRPs in 2000 to just shy of five in 2010. In both cases, the 2010 numbers are about the same as they were in each of the three preceding years.

But regional and national MSOs outpaced these other collision repairers in DRP growth, particularly in the last three years. MSOs averaged 2.5 DRPs in 2000; by 2010, regional MSOs averaged 6.5 DRPs and national MSOs averaged 7.7 DRPs.   o

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