Future Thinking: What Parts Trends are Impacting Estimate Costs

What’s keeping automotive industry claims professionals up at night? One topic might be, “what parts trends will impact estimate costs?”

To answer that, our data scientists have taken a look back at the industry data and market intelligence we’ve gathered from the past year in an attempt to provide some insight on what parts trends we should be on the lookout for, and to perhaps offer a jumpstart to facing the challenges that these trends will pose. Here’s a peek at some key findings:

Price Inflation

For the top 20 vehicle makes in the industry, we found that the average price of the parts identified in repair estimates has been steadily increasing, and at a pace that far outstrips the rate of inflation. As an example, to the end of Q3, 2016 part prices had risen an average of $12.45, or around 6% over Q3, 2015. This increase followed a $24.76 average increase from the prior year which, cumulatively, is an increase of more than 18%.

Price Inflation

The main drivers of this increase are OEM new and surplus parts, with 7.8% and 10.7% increases year-over-year respectively. These increases were offset to a degree by a 5.9% decline in the average price of recycled parts, and a modest 4.1% increase in the average price of aftermarket parts.

The Increasing Sophistication of Parts and the Introduction of New Part Types

Aside from price inflation, another trend that is adding to rising costs is the increasing sophistication of the parts used in repairs; notably, the growing use of new materials and electronics. The quest for greater fuel economy is driving the expanded use of lightweight materials. More aluminum, for example, is being used for hood panels, roofs, and rear deck lids.

Prices for hood panels, front bumpers, headlamps, and rear deck lids are the parts that have jumped the most, at 8.3%, 6.5%, 5.3% and 4.2% respectively. While aluminum is increasingly the weight-saving material of choice for manufacturers it is more costly to repair and replace. Composite materials are also likely to become increasingly common but pose similar challenges for the industry.

OEMs are delivering more and more vehicles with advanced driver-assistance systems (ADAS) applications such as lane departure warning and blind spot monitoring, adaptive cruise control, automatic braking, and back-up cameras. The sensors and cameras which provide the ‘eyes and ears’ for ADAS applications are often mounted in vulnerable locations, e.g., front and rear bumpers and side-view mirrors.

These components are adding to the part count for typical repairs. For example, a side-view mirror replacement with lane departure warning technology may be seven times more costly to replace than a conventional mirror. Add obstacle warning sensors, backup cameras, proximity cruise control, and a repair involving ADAS technology can be significantly more expensive due to the proliferation and sophistication of these parts. ADAS is forecast to be a USD $31B market at point of manufacture by 2020 with 98% of it being OEM and, tellingly, the average part cost is already $212.

Part Count Increase

A third trend to note is the part count increase of just about everything in today’s newer vehicles. A front end of a 2010 Jeep Grand Cherokee only consisted of 12 parts. Fast forward to 2016, and the same front end is now pushing up to 20 parts. On average, we found a 0.27 part increase from Q3, 2015 to Q3, 2016, which effectively adds an extra $60 to every estimate and threatens to further accelerate indemnity costs.

What’s Your View?

Whether it’s price inflation, the increasing sophistication of parts or a part count increase, these parts trends (especially for repairs relying on OEM parts) stand to increase costs by hundreds of dollars per estimate. While some executives have expressed that increasing premiums will be their way to combat these trends, others have turned their focus towards the cost-savings advantage of aftermarket parts. It is clear that, as with so much else in the industry, ignoring these developments is not an option.