How Technology is Changing the Collision Repair Industry
“Short of the period where we moved from the horse and buggy to the internal combustion engine, few decades have brought as much change to the automotive repair industry as this one – and we’re only halfway through it.” – Henderson, 2014.
Those words were written five years ago. Today, as we navigate through the tail end of the decade, the changes that technology has wrought on the auto industry in general – and the collision repair segment in particular – seem even greater than could’ve been predicted. Yes, it’s true: this has almost certainly been the most impactful decade of all time for the industry, and emerging technologies have played large roles in the shifts.
For owners of collision repair businesses, then, the following questions are crucial: what technological factors are at play, and will change continue going forward?
Let’s take a look.
1. Technology has improved economies of scale.
The past decade has been a major period of industry consolidation among multi-location businesses, much of which has been driven by private equity investment. And investment has been appealing largely due to technological advancements.
In short, technology has made economies of scale more efficient.
There are examples of this effect up and down business functions. HR-geared technologies have made managing bigger labor forces easier via improved timesheet and resource tracking. Supply chain management software systems have enabled more efficient parts inventories. And comprehensive ERP systems have streamlined vast quantities of business data for use.
The result is that bigger players benefit, first in terms of margins, efficiency and breadth of service area, then in terms of relationships with insurance providers as those advantages are realized in the market.
2. Photo estimates are a major portion of claims.
Ten years ago, the idea of consumers filing claims purely on the basis of photos they’d taken themselves was barely conceivable. Today, photo claims represent a significant portion of claims filed (to the frustration of repairers and, often, customers).
How is this trend impacting collision repair businesses? It represents a significant challenge on a number of levels.
First, photo claims are notoriously inaccurate, putting repairers in an unfortunate spot when the actual repairs cost more than the photo-based claim. After all, it’s impossible to fully evaluate structural damage from a photo.
Second, in general, photo claims tend to further prioritize low-cost work[TL1] , since they’re most conducive to displaying minor aesthetic damage. This runs the risk of further undercutting traditional business models.
3. Repair costs are rising.
Yet, even while insurers are pushing for lower claims, repair costs, on the whole, are rising. This, trend, too, is driven by technology: vehicles are more complex.
In fact, the most impactful technological trend in the auto industry is almost certainly the amount of technology that’s present in modern vehicles. Just look at the increasing prevalence of electric and self-driving cars on the roads today; it’s not hard to imagine a future where collision repair is synonymous with computer repair.
According to CCC Information Services, repair costs are rising between two and three percent annually, on average, representing an increased rate as compared to previous decades. Components like sensors, cameras, and smaller wiring harnesses are both more expensive to replace and require new technical skills that weren’t industry standards a decade ago.
4. The number of repairs is expected to decrease.
While repair costs are rising due to new technologies, those same technologies are expected to cause the number of repairs to fall at an increasingly steep rate over the coming years as sensors for collision avoidance become more effective.
While collision rates won’t immediately fall off a cliff, there is an industry expectation that there will be far fewer collision repairs over time. In fact, CCC estimates that the number of repairs will have decreased by 10% by 2024 and by 35% by 2050.
This may spell trouble for repairers.
5. There is a technician labor shortage.
Finally, while the number of repairs is expected to decrease over time, there is currently a technician labor shortage as a result of the additional technology skills needed for the jobs.
Vince Romans notes[TL2] that “some MSOs (multi-shop operations), the larger ones… are anywhere from 100 to 150 technicians short,” thanks to the competitive labor market. As a result, technicians tend to be more highly compensated than they have been traditionally, as well. This environment raises the level of difficulty that mom-and-pop businesses, especially, have in maintaining quality talent.
What Should Collision Repair Businesses Do?
Clearly, there’s been a huge shift in the collision repair industry. And, as we’ve seen, many of the trends that have amplified this shift are poised to continue. The question for collision repair businesses is how to proceed in a way that maximizes value.
Often, the best way to maximize value is to seek an acquisition or merger.
At Kingsmoor Advisors, we help business owners sell on their terms.
We’ve completed over 100 transactions totaling over $5 billion. We understand the market factors and the real emotional considerations involved in selling a company.
The reality is that, in the collision repair industry, the status quo is no longer maintainable. To move forward, businesses need to capitalize on economies of scale through growth or risk being pinched out of existence. We help business owners to make wise decisions that take advantage of market factors and maximize asset value.
If reflecting on the state of the market is causing you to consider selling, get the expertise you need to add clarity to the decision. Let’s set up a time to talk.