By John Yoswick
Vince 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 in Las Vegas during SEMA week, 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) that were acquired by other chains; those acquired MSOs had a total of 311 locations and $801 million in combined sales. Through the first 10 months of 2021, the pace was similar, with 38 MSOs with 254 locations and $698 million in combined sales being 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 percent 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 percent of the total market.
Romans predicts that will rise to nearly 49 percent by 2025; he also shared a more aggressive forecast showing their market share potentially exceeding 61 percent by that year, though he acknowledged “that could or may not happen.”
Also 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 that through the first three quarters of 2021, overall claims counts were up about 9 percent — but still remained down a significant 15 percent compared to 2019.
She noted a variety of changes in driving patterns have taken place during the pandemic. Overall miles driven were up in 2021 — not surprisingly after the pandemic shut-downs of 2020 — and in some months have approached 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 percent to 40 percent 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 that 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 6.5 percent over the 12 months ending with third quarter of 2021, “way above anything I have seen historically.” The causes include decreased vehicle congestion during the pandemic has led to more harder-hit crashes.
“Pre-pandemic, a lot of the cost increases were related to things like growing vehicle complexity,” Gotsch said. “Now many vehicles require a pre- and post-repair scan, and need things like calibrations. All the new technologies being added to vehicles to help avoid crashes will work when you’re going 25 mph. They don’t work when you’re going 50 mph. At 50 mph, that means you just have more expensive components to replace or repair or reset after repair.”
That has led to a rise of 2 to 3 percentage points compared to 2019 in the appraisals that include an airbag replacement or that are flagged as a non-drivable vehicle, she said.
“The average repair costs for non-drivable vehicles is between $5,500 and $6,000, while drivables tend to be closer to about $2,500 to $3,000,” Gotsch said. “So any increase in that non-drivable percent and airbag frequency is going to be part of the reason we’re seeing repair costs up more than what we’ve seen historically.”
She did say that if traffic patterns continue to shift back toward those of pre-pandemic, the non-drivable vehicle count should come down as a percentage of all claims, which could ease some of the upward spike in overall repair costs.
“But my guess is the norm will be minimally 5 percent increases [in overall repair costs] year over year, at least in the near-term,” she said.
Another reason for the rise in the average repair ticket: the cost of parts. CCC data shows that the average cost per part – across all part types – has been fairly stable over the past couple of decades, typically rising 1 percent or 2 percent a year. That’s changed in 2021, however, with the average cost per part being around $130, up 7 percent 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 that 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. 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 2021, 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 that shops’ backlog of work rose sharply in the third quarter of 2021, 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, a freelance writer based in Portland, Ore., who has been writing about the automotive industry since 1988, is also the editor of the weekly CRASH Network bulletin (www.CrashNetwork.com). He can be contacted by email at john@CrashNetwork.com
