Greg Horn of PartsTrader sees a new potential threat to the continued improvement in parts delivery times to shops: a potential longshoreman’s strike at East Coast and Gulf coast ports.
“They cancelled scheduled talks on the renewal of the contract that expires Sept. 30 of this year,” Horn said of the unions, upset after learning of automated processing of some containers that is supposed to be done by union representatives. “To give you an idea of what an East Coast and Gulf Coast strike would be like, seven of the top 10 [U.S.] ports would potentially be impacted by a strike. It will impact not only the aftermarket [parts] coming in from Taiwan through the Panama Canal for deliveries to the East Coast, but we also get a lot of vehicle components for European [automaker] vehicles that are being manufactured in Alabama, South Carolina, etc.
"So this is a potentially the next thing to keep an eye out on to see how it'll impact the industry,” Horn said.
Parts, Vehicle Prices Affect Total Loss Rates
During the July 24 PartsTrader webinar, Horn said the average new-vehicle price has come down since the late 2022 microchip shortage and as manufacturer and dealership vehicle inventories have rebounded. Used vehicle prices have also fallen. Insurers watch those trends, he said, because of their impact on total loss numbers.
“The insurance companies actually prefer to have a vehicle repaired, even when it's a heavier repair, because the chance of [customer] defection after a total loss,” Horn said. “The chance that a policyholder shops around and potentially goes to a new insurance company is higher when there's a total loss versus a repair. Every insurance company exec I've talked to complains about very high total loss rates. Pre-pandemic, we were looking at 25% of claims resulting in a total loss. We see a lot of companies now saying it’s north of 30%.”
Also making total losses problematic: Many customers are “upside down” -- have negative equity -- on their vehicle.
“The average new car loan term is now 68.3 months,” Horn said. “And unfortunately, negative equity hit another record high, with the average negative equity being rolled into a new car loan is $6,167, up a full 18% from a year earlier. When you total out a vehicle and the customer has that kind of negative equity, all they end up doing is rolling an even higher amount into the new replacement vehicle loan. At some point, that's not sustainable.
"To give you an idea of what that means, the average [car loan] payment is over $700, with 17% of all customers having a single car payment of more than $1,000 dollars,” Horn said.
Horn said he recently wrote about the impact on claims costs on the decline of sedans and the growth in the crossovers and SUVs, which are exempt from U.S. bumper standards.
“There are about 2.2 parts more per vehicle repair for an SUV versus a sedan passenger car,” he said.
That keeps him watching which automaker models are being discontinued, he said. Kia is “pulling the plug” on the Rio and Stinger, for example, and Stellantis has or will be halting production of the Jeep Renegade, the Jeep Cherokee, the Dodge Challenger, the Chrysler 300 and the Dodge Charger.
“Now, for those keeping score at home, that means Chrysler, until they roll out their new fleet of electric vehicle offerings, is down to a one-vehicle brand,” Horn said. “The Chrysler Pacifica is the sole Chrysler product offered new in 2024. Now, Dodge doesn't fare much better with the Dodge Durango and the Dodge Hornet being the sole surviving Dodge vehicles before they make their transition to electric vehicles. A lot of Chrysler dealers and Dodge dealers are truly depending on used vehicles, parts and service to keep those dealerships healthy.”
EVs Require More OEM Parts to Repair
Horn said while the pace of growth in EV sales has slowed, they remain an increasing segment of the vehicle population.
“J.D. Power now forecasts that the EV market share will hit 12.4% of registered vehicles in the U.S. in 2024,” Horn said. “That's not going away. And that will impact how we do collision repair.”
He shared data from Mitchell showing 91% of collision parts used to repair EVs are OEM, compared to 66.5% for internal combustion engine vehicles. EVs also have fewer repairable parts because so many are lightweight aluminum or a specialized plastic that cannot be repaired. The average cost to repair an EV is still more than $900 higher.
“And EVs are 21% more likely to be drivable after a collision versus ICE vehicles,” Horn said. “If you're rear-ending somebody in an ICE vehicle, you expose the air conditioning, the radiator, a lot of potential leakages, but in an EV, it's just going to be the front trunk.”
Horn said ahead of last fall’s United Auto Workers strike, some domestic automakers scaled back their price-matching programs -- sometimes referred to as conquesting programs -- designed to stave off competition from non-OEM parts.
“Some of the manufacturers pulled back on the population of parts that were available for conquest, preserving the margin versus expanding the sale,” Horn said. “We have seen that in the aftermath of the settlement of the UAW strike, that there really hasn't been a complete restoration of those parts that had previously been on conquesting programs. So I'd love to hear from various parts departments how their sales are going versus aftermarket for those parts that may or may not have been taken off.”
John Yoswick