Collision Industry: A Year in Review

2020 by all accounts has been a challenging and difficult year. As the year has drawn to an end, we look to see what trends in the collision industry to watch to help guide our businesses as we start a new year. The major indicators that influence the collision and insurance business can be anything from Vehicles Miles Traveled or New Vehicle Sales and include used vehicle auction and salvage vehicle pricing. Let’s take a few minutes to explore what each of these indicators mean and how they could potentially change.

Leading Indicators:

Vehicle Miles Traveled (VMT) is a measure used extensively in transportation planning for a variety of purposes. It measures the amount of travel for all vehicles in a geographic region over a given period of time, typically a one-year period. It is calculated as the sum of the number of miles traveled by each vehicle. In 2020, as states began to lock down, vehicle miles traveled dove sharply and fuel prices fell due to the lack of demand. As vehicle miles traveled was reduced, the frequency and the overall volume of collision and comprehensive claims fell dramatically. Interestingly, the severity of the accidents when they did happen was higher, meaning the amount of damage, the number of parts replaced, and therefore the overall cost of the average claim increased. Total losses, because of the higher amount of damage to the vehicles involved in accidents, also rose during the lockdown phase in the spring.

Near term indicators:

In October, VMT and fuel purchases returned to near normal levels and indicated return to a higher accident frequency. Of the two industry measures, monthly fuel purchase volume is the indicator that is usually available the soonest after the end of the month, and should be looked at as the first directional indicator of collision claim and repair volume. If COVID measures impact fuel purchase volume, we can use that as a barometer of the impact on collision claim and repair volume in the following month.

Longer term impacts:

New vehicle sales are a major indicator of many areas of the insurance, collision repair, and salvage market, so we will look at only a few primary influences. Lower new car sales contribute to the stagnation of the average repairable vehicle model year. This in turn creates more total losses as the average year stays the same and the actual cash value (ACV) of the vehicles decreases. As that ACV decreases, so does the buy price for that salvage and the ‘repair or total’ decision becomes more complex. Additionally, new cars have more standard accident avoidance equipment. When fewer of those components are produced for new vehicle assembly, the cost of those new OEM replacement parts can increase to offset the lower assembly line demand.

What to watch in the collision industry:

As we head into 2021, keeping an eye on fuel consumption volume and validating the consumption with Vehicle Miles Traveled changes will give a good indication of the nearer term (90 days or so) impact on your business. Longer term trends of lower vehicle sales are more subtle, but equally worth monitoring and evaluating the impact on your business.