Sunday, 31 July 2005 17:00

Underground collision repairers compete for totaled vehicles

Written by John Fischl

The news is not good. Total loss rates have more than doubled since 2002 and are continuing to rise. This translates into hundreds of millions of dollars in repairs and revenues that are no longer going to the collision repair industry in this country. 

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 Fischl

The pie is shrinking. There is less work to go around and a lot of collision repairers have had a couple of tough years. On the other hand, some repairers have actually experienced growth in their business during these trying times. So what is going on here?

A large number of repairable vehicles are being totaled, and quite probably unnecessarily. What is even worse, the availability of those repairable vehicles has created an entire industry of "underground" collision repairers who are competing for those repairs with the "legitimate" repairer.

Not really total losses

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Many of these "Total Loss" vehicles are not total losses. They are being repaired, just not by or up to the standards of the recognized professional collision repair industry. These vehicles are going back onto our roads after being repaired by the cheapest means possible, with little regard to the safety, repair quality, environmental, governmental, liability and other professional concerns that the quality collision repairer must deal with.

Not only has the collision repair industry lost a huge piece of the market, the availability of those totaled but repairable vehicles has fostered the creation of their own competition. There are literally tens of thousands of black market repairers competing with the legitimate collision repairer for those vehicles!

In today's market, repairable vehicles at the salvage auctions, with internet bidding and fierce worldwide competition, are bringing unheard-of dollar amounts. This further facilitates what has become a vicious circle by mathematically forcing the insurers to total more vehicles.

The advent of internet bidding has taken a local commodity and made it available to a world-wide consumer base. These vehicles are being exported to the middle-east, far-east, eastern Europe, Central and South America, and the Caribbean in unprecedented numbers.

The increased salvage return percentages are applied to subsequent repair/total loss scenarios, and those vehicles then become fuel for this runaway train.

Most collision repairers don't really know what happens to the vehicles that get towed out of their shops. They assume that those vehicles are then sold to recyclers for parts. Unfortunately, that is not always true.

Only a fraction of those totaled vehicles are actually sold for parts and remain in this country as a supply for collision repair needs. The vast majority of them are sold and exported for repair and parts purposes by an illegitimate industry within and outside of this country.

Any assumption that recyclers would benefit from an increase in total loss rates is completely false. The auto recycling industry is hurt by that "underground" industry as well because they compete with them for vehicles they would dismantle but the "underground" will repair.

In addition, the repairs that they make create a need for donor vehicles for parts so the effect on the recycler is double jeopardy. Instead of buying one of a particular year and model, they will buy several with some being repaired and the rest being used as a source for the parts.

What's changed?

So why is this happening and what has changed since 2002? Several factors have come into play and have led to a big change in the market dynamics.

First of all, a poor economy after 9-11 has resulted in car manufacturers offering zero percent financing. This has dramatically increased the sale of new cars while suppressing the values of used cars. As the ACV of used cars has fallen, the repair vs. total loss equation has dramatically shifted towards total loss.

Secondly, repair costs have increased. Parts markups, labor rates, and the cost of electronics have all increased in recent years.

The third reason is a decrease in the availability of quality recycled parts for late model repairable vehicles. This is due to the increased competition from the "underground" at the salvage auctions which has reduced availability and further driven repair costs higher.

{mospagebreak} 

A fourth reason is diminished value. Fifth is legislation. Legislators in some states are regulating total loss threshold percentages and other repair limitations that can further inhibit the flexibility necessary when considering total loss vs. repair scenarios.

In addition to these prohibiting factors, there is also an overlying issue of the negative attitude towards recycled parts usage in the repair facility. Perhaps this is a shortsighted emphasis on line-item profits and convenience, instead of a big picture look at the entire cycle. This attitude may be a big part of what has gotten us where we are today, and is as much the fault of the recycler as it is the repairer.

As you can see, we have three industries that have been dramatically and negatively impacted by the change in an economic cycle and unless we also make a change, the future does not look bright.

Develop solutions to reverse trend

The collision repair, auto recycling and insurance industries must take a proactive approach to this situation and develop solutions to reverse this trend.

What we are suggesting is a partnership between the collision repairer, insurer and auto recycler to use every means available to not allow repairable vehicles to total. In essence a paradigm shift in thinking by all three industries will need to take place for them to become more competitive with the "underground" rebuilder of total loss vehicles.

Although the trend has been negative, we have an opportunity here, and it is apparent that some repairers have already gained an advantage with creative thinking, which has enabled them to realize growth in their business.

What have they done to capture a greater share of a shrinking market? These innovative repairers have changed their philosophies towards their claims handling.

It appears that to be successful in today's claims industry, the collision repairer needs to be more flexible and creative in seeking cost reducing solutions on every claim they process. At the same time, the auto recycler has to be more sensitive to the needs and requirements of the collision repairer.

Totaling vehicle should be last resort

We all must realize that allowing the vehicle to total should only be a last resort. Salvage parts could be the first choice of the collision repairer as opposed to the last choice.

Every dollar spent on salvage parts, carries an intrinsic benefit to the legitimate collision and recycling industries. This is our opportunity to have a positive impact, benefit all parties in this partnership, and, of course, also benefit the consumer in the form of lower insurance premiums.

By increasing demand and usage of the recycled product and reducing repair costs in order to save those total losses, the collision repairer will also be reducing the available commodity that is fueling the competitive "underground" salvage rebuilding economy.

Right now, we all have an opportunity to affect a positive change. The repairers who take this opportunity and apply a different philosophy and some flexibility to their claims processing will prosper. The recyclers who change their attitudes and processes to provide quality and customer service to the collision repairer will be the preferred vendors. The insurance industry has already demonstrated their willingness and desire to increase salvage parts usage and to turn the tide on the total-loss trend. The estimating system providers are working hard to get quality recycled part data in their estimating software. Now we all need to work together, embrace these changes and reverse this negative trend.

John Fischl has been in the automotive recycler business roughly 25 years. He started in the business as a driver, moved inside to the counter, and eventually became the owner of Riteway Auto Parts in Phoenix, Arizona. In 1998, Fischl joined United Recyclers Group and serves on the seven-man URG Governing Board of Managers. In the year 2000, Fischl helped develop Preferred Auto Recyclers (PAR) which, including Fischl's Riteway Auto Parts, has 19 facilities in 11 states.

 

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