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Q1 2016 ITR Live Recap: The High Cost of High Tech

—March 14, 2016
Q1 2016 ITR Live Recap: The High Cost of High Tech

We are proud to present the current quarter’s Mitchell Industry Trends Report live, right to your computer, via a live webinar! This quarter, the focus was on “The High Cost of High Tech”. Author Greg Horn analyzed repair cost inflation rates as reflected by total loss frequency, rising insurance rates and repair order costs. Greg explores if the increased use of sophisticated technology that makes for safer vehicles comes at a price. 

What we get the most joy out of is answering your questions. Your engagement shows that you listened and you care.

From discussing average length of rental in the U.S. and Canada to the impact of manufacturers’ increasing use of exotic materials, Greg Horn provided actionable ways insurers and collision repairers can get ready for the future. You can watch the full recording below — we also included a link to a non-audio version of the presentation. And, we answered the questions we took during the presentation below. Enjoy!

You may also download the ITR Live presentation (.pdf).

ITR Live Q&A:

  1. Do you think crushed metals salvage value can hit rock bottom, and if so, will they rebound?

When we talk about the bottom and crushed metal, salvage values are at a ten year low, about $60 per ton. And that is influenced primarily because of the recession we're experiencing in China.

China was taking a lot of our scrap. That was the biggest market and that is down and it's really dried up the shipping of crushed metal overseas. If you're an insurance company, you're seeing a big decrease in the overall salvage crisis. That's because the bottom has really dropped out. When key currencies like the Chinese Yuan and Euro rebound against the U.S. Dollar, we will begin to see salvage values rise.

  1. Any idea of the percentage of SUVs that are in rental fleets?

You know the interesting thing is it is used to be about 30% of SUVs were in rental fleets and now that's almost 50 percent. What we're seeing is it was a lower percentage because folks who rent cars were very sensitive to refueling prices, and also when gas was $3 and $4 per gallon, there were a lot of people that didn’t want to take SUVs even though they were eligible for that "free upgrade" to the bigger SUV.

  1. What will Bluetooth keys and a cellphone do to salvage values?

Brilliant question. Yeah, I think what will happen is you're going to have to have some sort of a valet key in order to be fully functional. Because, again, I think what we have is a problem with the Bluetooth app. Again the phone dies or you lose your phone or what have you, there's going to have to be some sort of fully functional valet key or fully functional fob that you would have to sell with the vehicle.

  1. What's the percentage of total loss vehicles compared to all estimates written?

It is right around 16% to 16.5% in the U.S. across all estimates written. And that is increasing as we see a softening of the actual cash value of the vehicles being appraised.

  1. Any update on the Chinese vehicles coming here?

The interesting thing is if you look at the 2016 Volvo S60 Inscription, that is actually fully assembled in China now so that is really the first Volvo to come in from China. And the smaller size Buick SUV is now officially coming in the spring of this year, so those are two of the first Chinese vehicles. The Volvo is here and the Buick is coming in the next few months.

  1. Based on the salvage answer, do you see a greater availability of LKQ parts in the U.S. and more vehicle salvage is staying in the U.S?

That's a great conclusion to make because what we're seeing is, we always look at the salvors, the large ones, IAA and Copart, and I always ask them how much of your salvage is sold overseas? It's usually around 35% or 36%.

I also always ask them, let's look at a car that the highest bidder was the U.S. or a North American bidder and the second highest was the European bidder. Because that means that the U.S. buyer had to outbid that European bidder to have the vehicle stay here in the U.S. for harvesting.

So that's the influence of the foreign currency. And with the influence being around 70% of all salvages somehow influenced by foreign currency, we see that when the key currencies are weaker we're going to see more cars stay here. And they'll also stay here at a cheaper price because they're not being bid against by the foreign bidders and then have to be outbid by the U.S. bidder. So not only will more salvage stay here but it would potentially be less expensive.

  1. Do you anticipate more auto manufacturers will move to high strength steel similar to what we've seen on the Honda Civic?

Absolutely. As we are in our first year of the new CAFE standards, 2016 was the standard that passenger cars have to achieve 39 miles per gallon, or the car manufacturer has to pay fines back to the federal government. We're going to see common, high volume cars get these types of high strength steels in them that will definitely add to repair costs overall.

  1. Are Honda Civic rockers high strength steel also?

Yes. If you look at the roof and the B pillar, you can see that those are ultra-high strength steel. And then you look at where the B pillar goes into the center rocker, which they are not an ultra-high strength but high strength steel. So there are some requirements when you come to applying heat to the lower part where the B pillar meets the center rocker. So while the 1,500 MPa hot stand has to be replaced in its entirety, there are straightening and heat application limits on the 550 and 650 MPa steel as well.

So it's going to be a complicated repair. It's absolutely imperative that a collision repairer refer to Mitchell TechAdvisor to make sure that they're doing repair in accordance with the Honda technical bulletins. That is a great add on to your RepairCenter or WorkCenter Appraisal system because while you're in the estimate you don't have to leave the estimate to get out and look up the repair procedures. You can just right click and refer to the full repair procedures for that piece while you're in the estimate.

  1. How important is it to do a zero point diagnostic on the vehicles today?

It is one of the things that we're starting to see manufacturers request more and more. And it will definitely be up to the individual manufacturer to specify whether or not they believe that this is a required repair procedure.

  1. Are there any studies related to the new vehicle structures and the potential for rebuilding the vehicle subsequent to a total loss? This could cause a potential loss in salvage value.

Yeah, that's exactly it. What we're seeing is that it's going to potentially increase the total losses, and then the rebuilder environment just won't be there because what's limiting the proper repair of the car is the cost of replacing those rails. And it could lead unfortunately that if that car were sold and salvaged it could be improperly rebuilt, so I think we're going to start to see some issues around that.

  1. Have you seen any impact of collision mitigation technologies on accident frequency?

No, we really haven't. If you look at the stat we quoted on fatalities that would be the best area for collision avoidance technology, to make an impact.

And so far we're actually seeing a reverse because what I think it's masked by...first it's not ubiquitous in the population. It's a small, small percentage of true accident avoidance that's available on vehicles today. And secondly, we're seeing an overall trend of distracted driving increase at a faster rate than any impact that collision avoidance would have on it.

  1. With the increase in models by vehicle manufacturers like Maserati and Bentley, do you see in the near future where there'll be more availability of crash databases available to the industry?

Yes, what we're looking at is as these companies, again when you look at through the parent company is, there are customers that are mainline manufacturers like Fiat Chrysler for Maserati, VW for Bentley, etc. So what you're seeing is the mainline manufacturer potentially opening up more of those databases to the information providers.

  1. How long before driverless cars work flawlessly?

I don't know if they ever will because if you look at the technology today, you can see that even dirty sensors affect autonomous vehicles. So we'll see if that longer term can be resolved but I don't think it's going to be 100% perfect.

  1. Do you anticipate vehicles requiring more rear sections being replaced, having a negative impact on length of rental?

Absolutely, if you can look in the Civic example, the length of rental between the 2015 Civic being hit in the rear and the 2016 Civic being hit in the rear, you could see that that would almost double the length of rental because of the extraordinary measures you have to do to repair that car properly.

  1. With the aluminum shortages around the globe, will we see longer repair times and cost?

Yeah, aluminum is interesting because when you look at the next generation of Toyota Camry, the 2018 Camry will feature a bolt on aluminum hood. And Alcoa, the Aluminum Corporation of America is already saying that that...because that is the bestselling car in the U.S., it could potentially put a strain on the availability, and therefore the cost of automotive grade aluminum.

  1. Texting has widely developed the lane departure and auto stop features.

Yes, it has. Unfortunately, the folks that are texting the most are younger and they cannot afford those types of technology, so this will crash in a pretty high rate.

  1. Do you believe high strength steel will be more popular than aluminum in coming years?

The reason I wouldn't say so is because it is actually harder and more expensive to manufacture a car with high strength steel. The costs of manufacturing that part because it is a hot stamped steel, is more expensive. And then also the actual “wear and tear” on the stamping of that piece because it's a harder metal, it wears out the stamps quicker. Aluminum is softer, more malleable. It's also cheaper to get automotive grade aluminum even though it's going to go up in price. It's cheaper overall to manufacture with aluminum than with high strength steel.

  1. Can you attribute the higher fatality rates to the increase of miles driven with lower fuel cost?

Yeah, that's a big part of it. It's distracted driving but it is also because we're hitting a record of miles driven because of low fuel cost.

  1. Is the Takata air bag recall having adverse effects on rental trends?

That's an interesting one because although the primary impact of the Takata airbag is in the service drive, if you're responding, there's a shortage because of a collision repair availability of Takata. I can see that impacting the overall length of rental. It's really hard to look at the true impact of a Takata air bag because you can have some suppliers that are trying to fill the Takata piece. And when we dig down it's hard to figure out if Takata is truly responsible for the overall length of rental increasing but I think that's probably a factor.

  1. Anyone done a study on the repair cost of new F-150 compared to the steel version?

Yeah, a couple of scientific and a couple of not so scientific studies have been done. So far what we're saying is that parts-wise, dollar-per-dollar, it's fairly equal. There was a story recently that State Farm had done a study to determine whether or not they would change the assembling of the vehicle, meaning that would they charge a premium for the aluminum or the steel based on repair and cost of ownership.

And they elected not to change the assembling, so it is the same cost to insure the F-150 whether it's steel or aluminum, so that's probably the biggest indicator. We're not seeing a significant impact as of yet, and we're doing some cost reporting. You may have seen the Insurance Institute for Highway Safety do their report but that was more on severity of accident and repair costs than true apples-to-apples repair cost.

  1. When we have Bluetooth car keys, will NHTSA mandate the manufacturer to prevent texting while the car is running?

Interestingly enough, you can actually buy a couple of apps that sense that the vehicle is in motion based on the gyroscope in the phone, and will eliminate the ability to send and receive text while the vehicle is in motion. There's an aftermarket company, they're doing that. So that is something that if we got major backing from the insurance carriers, we could see that in the aftermarket.


Want to read more? Check out what we featured in this quarter’s ITR:


The High Cost of High Tech
In our feature article, Greg Horn analyzes repair cost inflation rates as reflected by total loss frequency, rising insurance rates and repair order costs. Greg explains how the increased use of sophisticated technology makes for safer vehicles, but at a price.

U.S. Length of Rental (LOR) Trend Continues for Q4 2015
Enterprise Rent-A-Car examines the impact of dropping fuel prices and El Niño weather patterns, on LOR trends across 50 states. Will the effects on volume continue in 2016?

Collision Claims, Frequency and Losses Grow During 1st Half of 2015
These major auto physical damage indicators continue to see increases this year after a strong 2014. In fact, collision claims are up significantly by 3.5%. Reprinted from CollisionWeek.


Also in this issue:

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