To see Automotive Fleet's 2013 Accident Management Survey article, click here.
Accident management costs have once again increased. New vehicles, additional in-vehicle technology, advanced materials, and the rise in parts, fuel, and labor rates all have had an impact.
“Drivers of the cost increases include collision avoidance systems, the complexity of supplemental restraint systems, and increased use of exotic metals,” noted Stuart Braun, adjuster and maintenance supervisor at Fleet Response.
One example of a change in materials is the use of advanced high-strength steel (AHSS). “Vehicles are being manufactured with AHSS, which is very strong and lightweight, but has limited repairability and often requires replacement, consequently increasing repair costs on certain repairs,” Braun said.
PHH Arval also witnessed increased accident management rates, due in part to the rise of parts, fuel for shipping, and labor rates increases, according to Eliot Bensel, director, vehicle accident services and risk safey at PHH Arval.
Corporate Claims Management (CCM) has also seen costs rise slightly.
“I attribute the increase to a variety of sources: a slight uptick in labor costs as well as material costs and the price of fuel and petroleum products also contributed in many ways,” said Bob Martines, president and CEO of CCM. “EPA requirements are coming more in focus as well. Shop owners are much more focused in their efforts to write more complete estimates, which I believe is a direct result of the very flat economy making shop owners more conscientious of their bottom lines. In years past, shop owners did not worry about very minor costs for miscellaneous items. Now, they watch everything as each item factors in their profit margin.”
The increase in the average cost of repairing a fleet vehicle was driven, to a great extent, by a higher-than-average influx of new vehicles in commercial fleets.
Overall repair costs fluctuated greatly in 2011, increasing for some fleets and decreasing for others, depending on the fleet’s specific operating conditions.
Much of the repair cost increases were due to a higher percentage of newer fleet vehicles as a result of their replacement schedule. Newer vehicles lend themselves to more OEM parts usage, and, if the model has significant changes, alternative parts availability is lessened.
Increases in parts and labor prices were moderate, rising about 2 percent, while paint costs rose a little more quickly, at about 3 percent in 2011 because of higher oil prices.
Another factor is the continuing addition of expensive parts, such as computers, safety equipment, and plastics to reduce vehicle weight and fuel economy. As a result, the collision industry as a whole has increased the average number of parts that have to be replaced instead of being repaired.
There was a virtual “explosion” in the incidents of parts that need to be replaced versus repaired three or four years ago, as the number of hard-to-repair parts become more commonplace every year. At the same time, it’s becoming increasingly necessary to get electronic sensor codes reset after replacing electronic equipment, and this adds more to the cost of repairs.
It seems inevitable — accident repair costs will continue to rise due to vehicle content, materials, and rising parts costs. However, education and training are also a concern.
“Equipment and training costs more, therefore it is only natural that expenses incurred to stay current will creep into repair costs,” Martines of CCM said. “Labor and materials costs will increase, estimating programming fees will increase, and insurance is more important than ever to shop owners, so the cost will continue to play a role in the repair costs we all pay today and into the future.”
The Recovering Economy
While the economy is starting to recover, most agree it is a slow process, further impacting accident management costs.
The slow economy is continuing to put downward pressure on parts and labor prices, and continuing to make aftermarket parts more attractive. At the same time, it is forcing fleets to continue to find ways to minimize fleet expenses, which includes what they spend on repairs.
The credit squeeze is also showing up in signs of increased financial stress at repair shops. There has been a tremendous increase in requests from shops for earlier payment for repair jobs of $5,000 or more. These repairs involve big parts orders from suppliers, who are asking for faster payments from shops. It’s a sign of stress in the automotive industry at large.
The slow recovery is also causing an increased number of shop consolidations, decreasing the total number of shops in North America. “Increases in the cost of parts and service and associated fees, such as appraiser assignment due to increased fuel costs, have contributed to the rise in overall accident costs,” noted Bensel of PHH.
The national economy has caused some fleet managers to be very selective of what they are willing to repair. “But, as a whole, most fleet managers are repairing vehicle within their set accident management parameters,” Braun of Fleet Response said.
According to CCM, shop owners do not have the back log of work they used to enjoy. “In years past, booking a job two or three weeks out was something shops felt good about as the work would keep them busy at all times,” said Martines of CCM. “Now, some shop owners are either just filling the current week, or, in good situations, booking a week ahead.”
This unpredictability is causing some problems with staffing shops. “Most affected are the mid-size shops with eight to 12 employees. The smaller shops just tighten up by reducing overtime or hours, where mid-size shops actually cut employees,” according to Martines. “The larger shops are feeling the pinch as well, but still have enough financial strength to weather the storm a bit longer.”
Repairs & Technology
Fleets are definitely still foregoing cosmetic (or minor) repairs. “Certain clients are still forgoing cosmetic repairs due to the soft economy, while other clients are asking if they can recover such costs when remarketing their vehicles,” according to Braun of Fleet Response.
PHH Arval also continues to see fleets decline minor or cosmetic repairs. “Fleets are declining minor repairs to reduce their physical damage spend. The increase in work trucks versus sales fleets also drives this trend,” according to Bensel of PHH.
CCM noted a definite correlation to budget restraints, the economy, and actual dollars spent. “Service provider fleets, delivery companies, and behind-the-scenes support personnel that do not have to worry about image have severely cut back on repairs, some to about 50 percent of all activity,” Martines said.
On the other hand, CCM has seen some “cash rich” companies asking more questions than before, “which tells me they, too, are watching,” Martines said.
Technology is a great ally in the auto industry, helping achieve better performance via fuel efficiency, improved vehicle handling, and safer vehicles for the occupants. “However, when an accident occurs, more fragile — and expensive — parts become damaged and require replacement, thus driving up repair costs,” according to Martines. “Seat cushion sensors and side curtain air bags, not required just a few short years ago, drive the cost of repairs up dramatically.”
Bensel of PHH Arval also noted the increased usage of air bags in medium- and heavy-duty trucks, in addition to other supplemental restraint systems installed from the factory, which increase repair costs. “Also, as fuel economy becomes more of a focus, we are seeing a wide array of hybrid and alternative-fuel vehicles in the car and truck fleets. Repairing these vehicles is complicated and drives costs up,” he said.
To Deduct, or Not to Deduct
Accident deductibles have been, and will continue to be, a controversial subject.
“An accident is just that — an accident,” Martines said. “I do not believe any driver deliberately causes an accident unless, in the rare instances, there is a true death wish. Therefore, I do not believe in a charge-back for the first offense, unless the driver was guilty of being a on a cell phone, texting, or under the influence of a foreign substance.”
Martines does support charging drivers a deductible for a second offense involving parking lot damage, hit while parked, hit while unattended, or damage while the vehicle is being used by a significant other.
“Fleet managers must be firm with their policy and enforce it, no matter who is involved,” Martines said.
According to Jodie Varner, manager of business development for Fleet Response, the argument favoring charging an accident deductible includes creating more cautious drivers, providing an understanding that driving is a privilege, not a right, of being an employee. The company also gets some reimbursement for costs it puts into a vehicle. The cons, according to Varner, include incomplete accident reporting for fear of being penalized and the creation of a more negative attitude toward company policies.
Bensel of PHH Arval agreed with Varner that deductibles help drivers become aware that they share in the financial responsibility for preventable accidents. “Fleets, however, must be mindful that imposing penalties could produce unfavorable behavior and inaccurate accident reporting,” Bensel noted. “Another behavior these programs can drive is an increase of reports where ‘damaged while parked’ is claimed as the reason for the accident.”
The Bottom Line
Martines of CCM summed up the state of accident management costs. “In all my years in fleet, I cannot recall an environment as stressful as this period for so many people in all industries.
The uncertainty of business in general is just too difficult for many professionals trying to steer their companies into safe areas,” he noted.
“Many of the individuals I speak with at the fleet and risk levels, as well as outside our industry, are being conservative and not willing to ‘lead the pack’ for fear of the unknown. Business owners cannot get clients and prospects to react as quickly as they did in the past. All cite the economy as the reason for the indecision.”