Are new cars driving up auto body repair and insurance costs for Tucson AZ drivers?

2015 was a banner year for new and used car sales and 2016 is so far on the same track. In fact car dealers haven’t seen banner sales years like this since 1999. With this influx of newer cars being sold and driven in the U.S. the result is a rise in costs within the automotive claims and collision repair industries.

Our car buying tastes have returned to pre-recession levels.

New car sales are projected to reach 17.6 million in 2016, and with used car sales increasing by 6.5 percent in Q1 2016. Used car sales will also exceed prior year sales. Among the publicly traded dealership groups, all seven reported their 27th consecutive quarterly increase in same-store used car sales.

Not surprisingly, light truck sales have also gained a great deal of momentum post-recession. Americans have always had a fondness for trucks and SUV’s. Sixty percent of all vehicles sold in the U.S. in April 2016 were light trucks, and so far the year-to-date sales for 2016 show that trucks account for over 58 percent of sales, pushing well ahead of car sales.

The “light trucks” segment includes traditional body-on-frame pickups, sport utility vehicles (SUVs), and the very popular crossover segment (CUVs). Nearly 60 percent of all vehicles sold in the U.S. in April 2016 were light trucks (with year-to-date CY16 trucks accounting for over 58 percent of sales), surging well ahead of car sales.

Strong new car sales mean higher auto body claims

During the recession when people drastically slowed down their new car buying, it drove up the average age of vehicles on the road in the U.S. quickly. Fast forward to now when new vehicle sales are hitting records, the auto body industry is starting to see more newer vehicles within the claims mix.

As you can imagine, repair costs began to rise post-recession. Another factor that drove auto body repair costs in 2014 and 2015 is a rise in severe winter in many parts of the U.S. that led to increases in collision and liability losses.

Newer cars are costlier to repair

The largest increases occurred for the newer model year vehicles, as indicated from a comparison across vehicle age groups.

The year-over-year increase in repair costs for vehicles aged current year has grown fastest among the individual age groups, increasing the overall gap between the repair costs for the newest and oldest vehicles.

1. Diversity in vehicle types involved in collisions- Changes in vehicle mix among the newer model year vehicles can in part explain some of this growing difference in repair costs. With an influx of the light trucks, SUV’s and CUV’s, these vehicles are traditionally more expensive to repair.

2. New cars are more complex- Other factors such as growing vehicle complexity helps explain why repair costs for the newest vehicles is outpacing that of the older model year vehicles. Compared to a typical collision repair of an older car or truck, newer car repair orders contain a higher volume of repair/replace/R&I of electronic components such as distance sensors, speed sensors, yaw sensors, impact sensors, cameras, etc. In the first quarter of 2016, these parts accounted for 1 percent of all parts included on appraisals for vehicles of current model year vehicles, versus less than ½ a percent for vehicles 4 years of age and older. The rate of increase is also faster on the newest vehicles.

3. New cars get repaired, older cars get totaled- A trend is emerging among auto body repairers, where the newer cars tend to get tagged by the insurance company to be repaired, and the older cars simply get totaled out. This shifts the mix of vehicles in any given body shop to be the newer, more technologically advanced, and also more difficult to repair cars.

4. Higher parts bills, lower labor bills. These newer vehicle repairs usually have more parts replaced, and more labor hours per repair As more newer cars start hitting body shops, auto body repairers will see a shift of their repair dollars come from parts versus labor. Auto body repairers have typically had most of their revenue from labor.

5. Most cars aged 7 years and older get totaled.- The majority of total loss vehicles are aged 7-years and older. For a while, auto body repairers were fighting a trend of more and more cars becoming total loss vehicles. This is changing in 2016where the trend is that total loss claim costs are flattening out over time or experiencing only very moderate declines.

Will our insurance premiums start to rise?

The bottom line is that we will start to see more new and more expensive to repair cars hitting body shops while most of the older fleet will start to get totaled out. This increase in costs could likely drive up insurance premiums in the future. The automotive claim and collision repair industries can expect to see further growth in newer model year vehicles over the next three to five years as new vehicle sales remain strong. Primary expense drivers like an increase in light truck sales, and higher content vehicles, this will also put added pressure to both repair costs and total loss costs.

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