Auto body shop owners and managers must be aware of and ready to face the long-term effects of the COVID pandemic, said Sean Carey, president of SCG Management Consultants, in his Jan. 26 presentation, “The New, New Normal and the Impact to the Claims & Collision Industry,” part of CIECA’s webinar series.
“We are now in the ‘COVID tail,’ starting to see issues cropping up,” Carey said.
The full presentation is available on www.cieca.com.
Macro Market Forces
Carey said he thinks the industry is getting to a point where OEM certification programs are becoming “equally important” as the insurance companies’ DRPs. While he thinks both will have a place in the industry, “we’re witnessing the slow death of the DRP.”
“[OEM certification programs] will become the true North Star for our industry, as repairers want to do the right thing,” Carey added.
Carey said OEM repair information is currently not “terribly usable,” but he predicts new entrants in the market will find better ways to consolidate it, which the automakers will support.
Carey predicted the “big will get bigger,” as MSOs, OEMs and insurers consolidate.
Consequences of COVID 2020-2022
During the lockdown and subsequent recovery period, 2.3 million vehicles weren’t repaired, representing $7.8 billion revenue that didn’t enter the supply chain. Carey said parts suppliers took the biggest hit---$4.4 billion in lost sales.
Carey predicted about 3,500 shops will close in the next 12 to 24 months.
“The No. 1 reason: not enough people to repair cars,” he said. “Many organizations are trying to recruit, but we’re not going to fill that gap. We’ll simply run out of folks.”
Small shops will lose existing employees to larger ones, Carey said.
Within three years, he predicted, the average repair cost will be $6,500, and more than half of a repair order will be parts, as they become more expensive than labor.
Micro Challenges
The biggest near-term challenge is people, Carey said. “We have reached the point of no return; the aging tech base is far outstripping the number of young people coming in,” he said.
He advised listeners to “focus on the people you have, nurture them; they will be much harder to replace.”
Another near-term challenge continues to be parts and the supply chain. Production bottlenecks are easing, but shops are still dealing with delays. Carey suggested shops balance their vehicle intake---otherwise cycle time, work in progress (WIP) and costs will soar.
Carey said OEMs will solve the problem in the next few years of how to make seamless claims more capable, thanks to the telematic data resulting from the “onslaught of technology” OEMs are introducing in their vehicles. “Insurers’ AI and mobile models can’t compete,” he said.
Finally, shops will reach an economic breaking point. “There is no longer room for shops to absorb large expenses, repair safely and properly and stay profitable,” he said.
2023 Market Sizing
Looking ahead to 2023, Carey predicted a lower repair count, but more parts and a higher average cost, as the total market will crest $40 billion for the first time.
The average repair cost will increase to $4,750 this year, Carey said, and insurance premium increases may not be enough to cover the cost of losses.
There will be $9.5 billion of work in progress, as shops don’t have the people, parts or space to finish jobs.
Future Market Prevailing Conditions
The industry is at a capacity crunch, Carey said. “We used to try to capture every single job,” he said. “We are entering a market where you’re trying to get the right job.”
Workflow efficiency will become king and intake will be critical, as Carey predicted repairers will have to validate everything to receive fair compensation, from storage time to waiting time for parts.
“This is about repair planning based on capacity, where insurers and shops, vendors and shops are talking to each other,” Carey said.
Far Horizon Timeline
Carey said 2022 was “a very different year for most of us; let’s not think for one moment that we’re going back to 2019, because that ship has sailed.”
2023 will bring a new set of challenges, as OEMs double down on safe and proper repairs, insurers introduce new claims solutions, MSOs continue to grow and costs continue to pick up, meaning shops will need to pick vendor partners carefully.
Looking ahead to the next three years, Carey said 2024 will be when “the fallout begins,” as staffing reaches critical levels, shops begin closing and new technology speeds up first notice of loss and intake.
In 2025, a “new market emerges,” Carey said, riding a wave of new vehicles with new technologies, and finally, in 2026, vehicle data will dictate repairs and OEM-embedded insurance will lead to a change in bill payers. If certified repairs are not yet required by 2026, the industry will be solidly on the path to that, Carey said.
After the presentation, an attendee asked Carey what he would do today if he were a shop owner.
First, Carey said, he’d develop an agreement with current staff making it beneficial for them to stay and challenging to leave.
Next, he would look at how he brings in vehicles for repairs, and any “key triggers” for not accepting one.
And finally, he would be “watching like a hawk for opportunities to work closer with insurers, suppliers and OEMs.”
“Take a good step back every now and then and identify: ‘What should I be doing differently to be more efficient?’” Carey advised. “Without a question, people, capacity and innovation.”
Abby Andrews