Average Repairable Estimates Impacted By Auto Recycling
What factors influence the volume and selection of collision parts? Based on the average repairable estimate, how many parts, from what source, what has changed and what does the future look like?
The average repairable estimate has approximately 10.5 replacement parts specified. That number usually spikes in the winter by one or two replacement parts due to higher impact speed in slippery conditions and the increase of suspension parts requiring replacement. An increase in vehicle technology is often cited as a reason why the number of parts is increasing, however, the number of parts replaced on repairable estimates has not changed significantly in the past two years. Why is that?
Several factors influence this lack of increase in the volume of average repairable estimates. One major factor is that these are for repair estimates. Yet, estimating providers say total losses are on the increase. These total loss increases come from the ‘borderline’ estimates, the highest dollar amount estimates in terms of labor and parts costs. Every estimating system has a built-in adjustable total loss warning mechanism that triggers when the estimate total approaches 70-80% of the actual cash value (ACV) of the appraised vehicle. One might think that the increases in total loss frequency are due to more borderline vehicles being appraised and triggering of the total loss warning. But, what if there isn’t an increase in the number of appraisals triggering the warning, but rather a moving of the goal?
Today’s salvage market is booming, with both IAA and Copart seeing healthy returns and high bidding traffic. This healthy salvage market has opened the market for totaling out vehicles with damages well below that traditional 70-80% threshold. These companies are achieving auction returns that make it more economical to total out a vehicle with damages as lows the 50-60% of ACV. If those vehicles aren’t repaired, a high number of parts per estimate is not calculated in the average number of parts in a repairable estimate.
The salvage market also has an impact on the average repairable estimate on the number of parts harvested for resale. Recycled parts availability has rebounded since the downturn caused by low vehicle sales during the “Great Recession” of 2006-2009 when new vehicle sales fell to just over 10 million new vehicles sold per year in those down years, returning to pre-recession levels of over 16 million annual new vehicle sales. With the average vehicle age of a repairable vehicle being over 6.5 years from new, the population of vehicles salvaged and purchased for parts harvesting is robust. And many of those salvage parts are assemblies, further having an impact on the average number of repairable parts. For example, if you were to create an average repairable estimate for a replacement bumper cover, absorber and reinforcement bar with an assembly, your part count would be reduced to one recycled assembly from at least 3 individual parts.
Actions by car makers also influence parts selection on average repairable estimates. “Conquest” price matching programs, where OEM’s release reimbursement dollars to match the aftermarket part price have been around for years. But how each manufacture identifies and expands those programs has improved immensely by their use of the estimating and parts procurement systems and their wealth of data. Most car makers also provide volume or “truck load” discounts to high volume purchasers of collision parts. This allows deeper discounts to collision repairers to purchase more OEM parts. What we saw with the GM strike this year produced the opposite effect. During the month’s long strike, parts supplies had diminished and the OEM part count for GM vehicles fell and was absorbed by recycled and aftermarket parts, with aftermarket being the biggest beneficiary. Even with the strike over, new OEM parts use on GM vehicles has not fully recovered to pre-strike levels.
Many factors influence both the volume and type of parts selected on average repairable estimates. We must look holistically at external factors like total loss thresholds and the salvage market, including foreign exchange rates that impact a vehicle staying in the U.S. for harvesting or going overseas for rebuilding. At 6.5 years from new, the average age of vehicle being repaired is still slightly older than when ADAS and increased use of alternative materials to sheet metal were in most repairable vehicles. But that gap is closing fast and yet another reason to focus on the optimal parts mix at the best possible prices.