Automotive News | Changes & Trends in the Collision Repair Industry
In recent years, the landscape of the auto repair industry has undergone a number of notable changes and cost escalations. As vehicles evolve to integrate advanced technologies and become more complex, the traditional concepts of repair and maintenance are rapidly shifting. Moreover, the industry continues to deal with other sets of factors, such as inflationary pressures, supply chain disruptions, and shifts in consumer preferences, all of which contribute to the upward trajectory of repair costs. These developments emphasize the critical need for a comprehensive examination of the recent changes and cost increases within the auto repair sector, illuminating the complex dynamics shaping its present state and future trajectory.
Financial Strain on Vehicle Owners
In the last decade, auto repair costs have surged by 49%, outpacing the 31.7% increase observed in the Consumer Price Index (CPI) during the same period. This significant rise in auto repair expenses reflects a notable trend within the automotive industry, highlighting the challenges faced by consumers in maintaining and servicing their vehicles. The gap between the growth rates of auto repair costs and the CPI index underscores the mounting financial burden experienced by vehicle owners. A few of the factors contributing to the complexities of vehicle maintenance are vehicles becoming heavier and more intricate – with this, repair procedures have become more labor-intensive and demanding of specialized skills, driving up labor costs and exacerbating shortages in skilled technicians.
Additionally, the evolving electric vehicle market has introduced new challenges and expenses associated with servicing electric and hybrid vehicles, which often require specialized training and equipment. Not to be overlooked is the impact of the high-interest-rate environment experienced over the last 12-18 months, which has further compounded the financial strain on consumers seeking automotive repairs.
With a notable surge in both new and used car prices, the auto repair industry has become a necessary business. However, amidst this surge, concerns have arisen regarding consumers’ ability to afford the essential repairs their vehicles require. As the cost of purchasing vehicles escalates, individuals may find themselves financially strained, making it increasingly challenging to allocate funds for necessary maintenance and repairs.
This challenge defines the balance between the rising costs associated with vehicle ownership and the affordability of critical automotive services. Since 2020, car insurance premiums have experienced a significant uptick, soaring by 36% in response to a spike in car prices and the repair prices discussed above. The surge in car prices has consequently heightened the demand for repairs, compelling insurance companies to adjust their premiums accordingly. With the increased frequency of repairs and rising costs associated with vehicle maintenance, insurance companies find themselves facing heightened financial pressures.
Rising Automotive Insurance Costs
Automotive insurance rates have seen a dramatic increase of 36% since 2020, with a significant surge of over 20% occurring within just the past year, according to data from the Bureau of Labor Statistics. Analysts attribute these steep hikes directly to the notable rise in vehicle prices. This escalation in car prices has led car owners to opt for repairs on their existing vehicles rather than purchasing new ones. Consequently, there has been a surge in demand for car repair services, causing their prices to escalate. These elevated repair costs have subsequently contributed to the ballooning rates of car insurance. Despite some alleviation in supply shortages, insurance rates continue to climb as repair shops contend with rising expenses such as increased wages for sought-after workers and the high costs of parts.
The average annual cost of car insurance in the U.S. now stands at approximately $2,500, as revealed by Bankrate. This marks a substantial increase compared to the average cost of around $1,700 in 2021, as per data analyzed by ABC News from Bankrate. The relentless upward trajectory of insurance rates reflects the complex interplay between factors like escalating repair costs, supply chain disruptions, and rising labor expenses. As repair shops navigate these challenges, consumers find themselves grappling with higher insurance premiums, adding to the financial burden associated with owning and maintaining a vehicle in today’s market.
Major Players in the Industry
Over the past few years, major players in the collision repair industry, such as Crash Champions, Caliber Collision, Gerber Collision & Glass, Classic Collision, and Joe Hudson’s Collision Center, have embarked on an extensive spending spree, expanding and upgrading their existing locations and real estate footprint. This trend has been amplified as local “mom and pop” tenants exit the industry, leaving room for larger brands to consolidate their presence. Typically, private equity firms have sustained an 80% run rate, with 20% of their openings facing closure after reaching growth objectives. However, amidst this expansion, concerns arise regarding the sustainability of such rapid growth, especially considering that auto repair costs have outpaced inflation by nearly double over the past decade. The connection between escalating repair expenses and aggressive expansion strategies prompts questions about the long-term viability and resilience of the collision repair industry in its current trajectory.
The good news is that the market has favored these collision centers over many other product types, with average cap rates staying near the mid-6 % range as financing rates remain much above. As an advisor who tracks the market around big brand collision tenants, I encourage you to reach out and discuss how these trends affect the value of your property(s) with rate cuts, elections, and other factors on the horizon.
