During the recent recession the cost of auto repairs fell dramatically. However, the last two years have produced different results with the average total cost of repairs on the rise. Vehicle appraisals in 2012 amounted to $2,550, up 1.7% from 2011. These numbers continue to build on the moderate increases seen year-over-year since mid-2009 when, amid the economic crisis, repair costs hit bottom. Comprehensive losses have seen the largest increase in average costs, followed by liability losses. To better understand the dynamics behind the change in average repair cost, let’s consider the contributing factors.
Repair Cost Dollar Distribution – The Parts That Have Changed
The most significant shift of repair cost dollars in the last 15 years has been the share of overall dollars spent on replacement parts. Replacement parts still make up about 40% of overall repair dollars, but the distribution of parts dollars by type has shifted towards greater non-OEM utilization, specifically for aftermarket, reconditioned, and optional OEM parts. At the close of 2012, the industry’s share of replacement part dollars was split at 63% OEM versus 37% non-OEM. In terms of replacement parts used, the average number grew from 8.0 to 8.3 between 2011 and 2012- an increase of almost 4%. Interestingly, the average cost of replacement parts varied by type, with reconditioned parts increasing 2%, aftermarket parts decreasing by 2.4%, and recycled parts increasing 0.8%.
Looking closely at what parts were replaced, we found the ten most frequently replaced parts in 2012 were consistent with prior years. These parts included front and rear bumper covers, headlamp assemblies, hoods, fenders, front and rear door shells, wheels, grilles, and radiator supports. Combined, these parts accounted for a major portion of the total dollars spent on replacement parts.
Fewer New Sales Drive Vehicle Age
During the recession new vehicle sales plummeted, resulting in an older vehicle population.
Within automotive claims data, a similar pattern of aging vehicles also appears: the average age of repairable appraised vehicles grew from 5 years in 2007 to 6.1 years in 2012, while the average age for total loss vehicles grew from 8.5 years in 2007 to 9.8 years in 2012.
Over 40 percent of all repairable appraisals were for vehicles aged seven years and older in 2012 – the highest ever recorded in the last fifteen years. Over the last three years of recovering auto sales, new vehicles’ share of the repairable appraisal volume has grown – as sales ramp up further in 2013, it will continue to grow.
The implications of a newer fleet are essentially the reverse of what we have seen in the past. Now the trends point to more replacing of parts versus repair, lower non-OEM parts utilization, and more labor hours per appraisal; all of which lead to higher repair costs.
Additionally, we’re seeing new vehicles produced with increasingly higher content and cost, not to mention added complexity. As such, the market may see a lift in repair costs – and in those instances when accident avoidance systems are not present or do not help avoid or mitigate the accident, vehicle repair may be overall more costly, and for heavily hit vehicles may even result in total losses.
Total loss frequency for insurance claims has been the topic of much discussion over the last decade because the non-repairable rate has increased while overall claim frequency rate declined. In 2000, about 9% of all vehicles for which an appraisal was written were flagged as a total loss; by 2012, this number had grown to just under 14.4%. Essentially, this equates to 5% total loss frequency increase over the last decade.
Vehicle Values Rise
The average value of a vehicle in 2012 rose 4.2% from 2011¹. In that same time period, the average age of a total loss vehicle grew from 9.6 years to 9.8 years, and the share of total losses that were seven years and older grew to 72%. The industry also saw an increase in several vehicle categories that have historically had higher values: light trucks (specifically SUVs), Asian and European vehicles, current model year vehicles, and luxury vehicles.
Many of the broader automotive industry indices that look at wholesale or retail used vehicle price data focus predominantly on vehicles that are aged seven years and younger. Total loss vehicle costs, however, are driven by a much different mix of vehicles – 72 percent of all total loss vehicles are aged seven years and older. In fact, the share of total loss valuation count for newer vehicles has dropped nearly every year since 2000, as vehicles on the road in the U.S. last longer and consumers hold onto them longer. Additionally, total loss vehicle costs are also impacted by claim frequency patterns such as catastrophes that can lead to a dramatic shift in vehicle mix and subsequently drive up average values. For example, the inclusion of the vehicles totaled from Superstorm Sandy, drives up the overall national total loss average values by another four percent year-over-year. This is largely due to the sheer volume of total losses as well as the types of vehicles totaled, which were composed of newer models, along with European and luxury vehicles.
What Does It All Mean?
We know the parts landscape is changing as evidenced by the decrease in OEM parts. And as the amount of replacement parts increase, so too will their costs. Combine this with an aging auto fleet, more complex models being manufactured and an increase in total loss frequency it’s no wonder the industry is seeing rising repair costs. As these costs increase, insurance carriers are likely to pay out higher claims going forward.
¹ Based on CCC data where a total loss valuation was provided
Note: 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.
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