Customers definitely are getting sticker shock.
The cost of vehicle repair is rising and there are
several factors causing this heavier, more complex
vehicles. New materials and manufacturing methods,
a worsening shortage of talented technicians, and
pandemic induced supply shortages.
We're at this, you know, almost inflection point
where, you know, perfect storm may be a kind of
analogy you could use, where all of these
different variables are kind of coming together at
once to drive repair costs higher.
The newest segments, such as EVs, are reputedly
especially expensive to fix.
News reports describe new EV owners shocked by
repair bills, but some say there's reason to be
optimistic.
If cars are to be affordable, they must also
be affordable to maintain, and they must be
affordable to repair, or else we're going to have
fewer vehicle sales.
So I think the automakers are going to be motivated
to drive those costs down.
We have, you know, four technicians and two
trainees right now.
David Goldsmith has been in the car repair business
for more than 40 years.
He owns Urban Classics, a shop in Brooklyn.
He says he's seen repair costs rise, especially
over the last few years.
Customers are, you know, struggling, you know, to
pay the invoices that we give them.
I mean, I've had to cut back on our you know, our
profitability is not up.
His impressions match data repair costs are rising
relative to the overall rate of inflation from
November 2013 to November 2023.
Motor vehicle maintenance and repair increased 4.1%
per year, an overall change of 49.8%.
Meanwhile, all items in the Consumer Price Index
increased 2.8% per year, or 31.7% overall.
The increase has been especially sharp since the
pandemic. Ryan Mandel is director of claims
performance for Mitchell, a software provider
serving the automotive industry, primarily the
collision repair and auto insurance sectors.
He says the annual rate of increase in the cost of
repair was between 3.5 and 5% prior to the
pandemic, but since then it's shot up.
In 2022, the number jumped to about 10%, which
appears to have held steady since then.
For the full calendar year 2023, the average
repairable estimate was $4,721.
Mandel says that number will continue to increase
as the data matures over the next 3 to 4 months.
I'm working harder than I've ever worked and the
margins because, you know, all my expenses are
so high. Labor costs me more, insurance costs me
more. You know, health insurance, you know, all
the professional services that we get, everything
costs more.
An important distinction to make here.
Maintenance versus repair.
Maintenance usually involves checking,
replacing, or replenishing something
expected to wear down or deplete over time.
Your tires.
Wiper blades. Oil transmission fluid.
Repair is fixing something that is broken
that can be due to a product defect, a clumsy
hand, or what is often the case, a crash.
Matt Moore is a researcher for the Highway
Loss Data Institute, a division of the Insurance
Institute for Highway Safety.
It's an organization funded by the insurance
industry to crash test vehicles and do other
research around collisions and vehicle
safety. Moore says several factors could be
to blame. It could be that vehicles are more
expensive to repair, could be that crashes are
more severe. Cars are a lot heavier than they used
to be and a lot more powerful.
Between 1985 and 2022, on average vehicle weights
increased by about 33%.
Meanwhile, average horsepower increased by
over 100%.
Vehicles are heavier when they're getting into
crashes, and or they are going faster when they get
into crashes.
You're going to have more energy in the crash.
More energy in the crash means more damage to the
vehicle, more damage to the vehicle hire repair
costs.
Meanwhile, in recent years, speeding and
traffic crashes have increased.
At the same time, the proliferation of what are
collectively called active safety technology,
such as automatic emergency braking, have
reduced the number of low speed accidents.
A lot of these features don't work or don't work
as well at higher speeds.
That has led to mean shifting, where the
overall data set has become skewed toward more
severe crashes, simply because less severe lower
speed crashes are not happening as often.
Cars are also loaded with a lot more stuff, which
means a lot more can go wrong.
About 17% of the registered vehicles in the
US are turbocharged, a tweak that squeezes more
power out of an engine.
In recent years, automakers have used it to
make engines smaller and more efficient.
It adds a lot of extra parts the turbocharger,
plus additional exhaust pipes and additional
cooling system, and so on.
The number of all wheel drive vehicles has
skyrocketed. In the 1980s.
About 10% of them came equipped with it.
In 2022, 66% did.
All of these systems increase complexity and
weight on an automobile, partly to compensate for
the increased weight, but also to maximize fuel
efficiency, performance, or maneuverability.
A lot of automakers have increasingly used lighter
weight materials.
Aluminum is one.
It is more brittle than steel, so it cracks in a
crash instead of bending and deforming, that
disperses the crashes energy better.
But because cracks are harder to repair than,
say, a dent, aluminum panels usually need to be
replaced. New manufacturing methods like
mega casting or giga casting allow automakers
to dramatically reduce the number of parts on a
vehicle. A part of a car that might have been made
up of 50 or 60 sheet metal pieces can now be
made with just 2 or 3 very large ones.
But again, that means when something breaks, a
much larger piece needs to be fixed or replaced.
Change doesn't stop there.
Automobiles have entirely new types of technology in
them.
Your average regular car now is is basically a
rolling network of computers.
That's been kind of slowly developing for decades
now. But really, we saw in the last ten years the
technology and vehicles changed dramatically to
where you now had many different not just, you
know, single safety systems, but many
different safety components that were being
added to these vehicles to help protect drivers
and to reduce accident frequency.
It adds up quickly.
You know, we we had a guy in with a Dodge pickup or
a Jeep the other day and he's his lights are going
crazy on the dashboard.
And he had to decline the repair because it was it
was a radar built into, uh, a little sensor on his
grill that got cracked.
And, you know, it was $1,500 just for part.
And you potentially have to recalibrate these
systems again, even if they haven't been damaged.
So we've seen that really ramping up significantly
since 2015.
The incidence of the presence of these
different operations, you know, if you look at the
average cost of doing a just a series of scans of
the computer system on a vehicle, you're talking
about an average of about $160 per claim.
When you talk about calibrations, that's more
like $500 per claim.
Over there in the corner there, we've got scan
tools, you know, $10,000, $12,000, $9,000, you know,
and then, um, you know, the training that's
involved, of course, we've got to send send our
guys out for training.
I have guys that come to me that have been out of
the business for five years, and they go like,
whoa, where did this come from?
Finding enough talented technicians is one of
Goldsmith's biggest challenges.
The Covid 19 pandemic exacerbated a long
standing shortage.
In 2019, the average labor rate was under $50
an hour in the US.
At the end of 2023, it was close to $60.
Most of those increases came in 2022 and 2023.
Well, when the pandemic hit.
Um, you know, all hell broke loose.
A lot of a lot of people, like, in a lot of
industries, a lot of the older guys, uh, and some
gals, they just said, I'm done.
You know, I've worked, you know, 20, 30 years in
the business. I.
The pressure is too much.
The volume of miles traveled shrink
drastically during, you know, the peak Covid
months. You saw really the volume in repair
facilities dry up.
And so a lot of technicians left the
industry and went to work for industries outside of
collision repair, outside of the automotive
industry, and to attract talent to attract
technical talent, especially shops need to
pay more to be able to get that, to be the
employer of choice.
And that's really driven a lot of these labor rate
increases, along with just the overall general
economic environment.
Goldsmith pays some of his techs six figure salaries,
and he is trying to train his own techs rather than
try to attract those at the skill level he would
ideally like to have.
They deserve it.
They every penny of it.
I wish I could pay them more. Um, they're, uh, you
know, highly trained and hard to come by.
The pandemic also drove up the cost of parts.
Mitchell tracks a CPI like basket of the most
commonly replaced collision parts.
In one analysis, the prices of those parts rose
from 0 to 4% annually from 2017 to 2021.
Disruptions at ports, especially in eastern
China, spiked the cost of ocean going cargo.
The average cost of moving a 40 foot container
went from $1,200 to almost $12,000 in 2022.
Mitchell saw almost a 17% increase in the average
cost of aftermarket parts, compared with the
usual annual inflation rate of 0 to 4%.
The OEM version of those parts has increased a
little more steadily, around 10 to 12% in 2022,
or about 14 or 15 in 2023.
One of the great promises of EVs is that their
simplicity compared with gas burning cars, means
they ought to cost less to maintain and repair.
But they have come under scrutiny lately, as some
owners describe, being saddled with pricey repair
bills, some totaling half the value of the vehicle.
In spite of these horror stories, many industry
insiders say the total cost of owning a car
should fall. As EVs become more popular, they
use fewer moving parts.
There's no oil to change.
There are extremely simple transmissions.
Wildly expensive EV repair bills may have less
to do with EVs themselves, and more to do
with the fact that the ones on the market today
are one essentially luxury vehicles, and two
are made by either startups or relatively
young companies that do not have mature supply
chains and service networks.
It's very difficult to paint electric vehicles
with a broad brush.
There are Nissan Leafs, which are electric
vehicles which are relatively small and
relatively inexpensive.
And then at the other end of the spectrum, you have
the Lucid Air, which is cost in excess of
$100,000, and some versions of that vehicle
make 1111 horsepower.
Some EV models have a nearly identical Ice
counterpart. The Highway Loss Data Institute
compared the costs of repairing those, and found
that EVs were just 2% more expensive.
When you look at the total EV fleet versus the
Ice fleet, there is at first about a 35%
difference in repair costs. But when you drill
down and compare the cost of repairing, say, a Kia
Soul and Kia Soul EV, that difference almost
disappears. What is left, Mendel says, is the cost
of managing an EVs high voltage battery.
That includes ensuring it is protected, assessing it
for damage and keeping technicians safe from the
voltage. There can be several hours of
additional labor involved, including
battery removal, for example, urethane clear
coats that seal paint jobs are baked at very
high temperatures, which is hazardous to batteries.
For some EVs, battery removal could require up
to five hours of labor.
But a lot of this comes down to the fact that EVs
are marketed as the vehicle of the future, and
as such, often target higher end buyers in
addition to their still new and rapidly evolving
batteries, motors, and other unique tech, they're
also loaded with a lot of the features often found
in premium and luxury vehicles.
The EVs are really at the forefront of that
complexity revolution.
The EV industry, it's in a nascent stage, so it's
early. We're doing lots of learning.
I think once it settles down and there's lots of
learning that occurs in the dealerships, um, in
the manufacturing plants, in the design houses.
I think EVs are going to be a really terrific
proposition for people Long Terme.