Vincent Romans of The Romans Group consulting firm has been monitoring the growth of multi-shop operations (MSO) in the collision repair industry for more than 15 years, and at the MSO Symposium held Nov. 1 in Las Vegas, he said even the pandemic didn’t halt consolidation within the industry.
In fact, he said, the recent growth of MSOs has been “as aggressive as almost any year that we’ve been tracking this.”
In 2020, Romans said, there were 26 MSOs---each with two or more locations---acquired by other chains; those acquired MSOs had a total of 311 locations and $801 million in combined sales.
This year is on pace to potentially match that, Romans said. Through the first 10 months of the year, 38 MSOs with 254 locations and $698 million in combined sales have been acquired.
Romans said there are currently 14 private equity firms with investments in collision repair businesses. Of those he noted, not one was involved in the industry when the first MSO Symposium was held a decade ago. Today, those MSOs have combined annual sales of $9.1 billion, a market share of about 26% of the entire collision repair market.
Looking at the industry more broadly, all the collision repair businesses that each have $10 million or more in annual sales control about 43% of the total market.
Romans predicts that will rise to nearly 49% by 2025; he also shared a more aggressive forecast showing their market share potentially exceeding 61% by that year, though he acknowledged “that could or may not happen.”
Another mainstay speaker at the MSO Symposium, Susanna Gotsch of CCC Intelligent Solutions, offered her annual look at where things stand in terms of auto insurance claims, and what may lie ahead as the nation continues to move through the pandemic.
Gotsch said through the first three quarters of this year, overall claims counts are up about 9%---but still remain down a significant 15% compared to 2019.
The rebound varies widely by state. Non-comprehensive claims are up 13.4% through the third quarter of 2021 in Illinois, 15.2% in Ohio, 15.5% in Nebraska and 16.4% in Iowa---yet only 1.1% in North Dakota, 3.6% in Minnesota and 4% in Colorado.
Gotsch noted a variety of changes in driving patterns have taken place during the pandemic. Overall miles driven are up so far this year---not surprisingly after the pandemic shutdowns of 2020---and in some months are approaching 2019 levels. But recovery in urban road systems is substantially slower than in rural road systems, and even interstate miles show substantially larger growth in truck miles versus passenger miles.
Most critically, Gotsch said, is the continued significant drop in traffic congestion during the morning and afternoon traditional commute times that disproportionately contribute to claims counts.
Looking ahead, she said, a key factor will be the degree to which the 30% to 40% of workers still working remotely return to offices. She foresees many businesses offering more flexibility, with employees across many industries allowed to continue to work from home at least one day a week.
On the other hand, she doesn’t foresee a sudden drop in the increased distracted driving and speeding that has taken root during the pandemic.
“People do not unlearn bad driving habits quickly,” Gotsch said. “They learn them quickly, but they do not unlearn them quickly.”
Overall, she said, she thinks it’s likely claim counts in 2022 will remain down from what they were in 2019.
“But we expect we will continue to see steady growth, month over month, so by 2023, we will likely be more on par with where we were in 2019,” she said.
She said overall cost of repairs has increased “way above anything I have seen historically.” One reason: the cost of parts. CCC data shows the average cost per part---across all part types---has been fairly stable over the past couple of decades, typically rising 1% or 2% a year. That’s changed in 2021, however, with the average cost per part being around $130, up 7% so far this year, the largest increase CCC has seen going back to 1997.
“With parts manufacturers paying significantly more for things like raw materials and shipping, the average cost per part has increased across the board,” CCC reports.
But Gotsch projects the rise in parts cost will not be the only factor raising overall cost of repairs.
“We haven’t seen the same inflation in labor [rates] yet, but I think we’re going to,” Gotsch said. “Repairers, just like everybody else, are having significant wage pressures: signing bonuses, paying people with the [increasingly complex] skill sets required.
"It’s not just body work. It’s mechanical work, the knowledge of electronics, understanding how telematics and the systems of the car work, how to read the manuals from the OEMs. All of that requires a higher set of training and tooling," Gotsch continued. "That cost will have to be passed on. So I think we’re going to see more inflation on labor. I think that’s going to start to find its way into appraisals as well. It just has to.”
CCC has also seen a change in one of its metrics related to cycle time for DRP claims.
In the first three months of this year, fewer days elapsed between completion of an estimate and when the vehicle was brought in for repairs when compared to the same months in 2020 and 2019.
Starting in April and continuing through July, however, the length of time between completion of an estimate and the vehicle being brought into the shop was longer this year than in the last two years. This was true for estimates for both drivable and non-drivable vehicles.
Gotsch said parts delays caused by supply chain disruption could be one factor slowing how quickly shops are getting those vehicles in for repairs. She also pointed to findings by CRASH Network showing shops’ backlog of work rose sharply in the third quarter of this year, with the national average scheduling backlog reaching an average of 2.6 weeks, a full week longer than shops reported just 90 days earlier.
John Yoswick