CIC Navigates Challenges Amid Unprecedented Inflation, Workforce Shortages & Evolving Technology
Collision repairers face challenges in today’s market unlike anything that’s ever been seen before.
This article was originally written and posted by grecopublishing.com on June 7, 2022
Unprecedented rates of inflation drive costs up, compounded by constantly advancing technology that requires ongoing investments in tools and equipment. At the same time, shops struggle to hire and retain qualified employees amid the ongoing workforce shortage. The most recent Collision Industry Conference (CIC), held in Oklahoma City, OK, addressed these challenges and more.
“The recent rise of inflation affects a growing number of businesses, but small businesses in particular are faced with the challenge of determining how to adjust and pass it along to ensure that they survive through these rising costs,” explained Aaron Schulenburg, chair of CIC’s Parts and Materials Committee and executive director of the Society for Collision Repair Specialists (SCRS). “What are the causes of inflation, and how should shops plan ahead? There’s never been a time where we’ve had to pay closer attention to what’s happening in our businesses to help guide the decisions we’re making.
“Auto body repair prices were up over eight percent in November 2021 over 2020,” he continued. “Understanding what’s actually causing those increases will help businesses communicate how they’re being affected by those changes.”
In response to the committee’s question, “Are settlement practices changing in accordance with costs?” 81 percent of repairers answered in the negative, while 63 percent of insurers took the same stance.
Rick Palmer (Computer Logic, Inc.) examined pricing information since 2017, observing that “there’s an obvious disparity between the increase in costs of paint and materials versus the compensation that is reflected on the allowance amount.”
Although reimbursements for materials have increased by 18.5 percent since 2017, repair facilities have experienced an increase of 43.9 percent during the same time period; the current rate of $34.60 should actually be $46.38 if it had maintained consistency with inflation.
As Ryan Mandell (Mitchell International) dove into an analysis of collision repair costs, he acknowledged that there were some increases in 2017-2018, but “from there, it was pretty stable until we started to raise during the COVID time period, and then we’ve seen some rather steep increases quarter over quarter.
“There are a couple of really unique factors that are at play here,” he added. “We have to look at each individual company’s supply chain, and we’re going to see a lot of variability depending on the manufacturer and what kind of strategies they have in place. They’re extremely impacted by the cost of moving cargo, and raw materials are becoming more and more expensive.”
Increases in the price of petroleum results in higher costs in particular, since it is used in manufacturing steel, plastics and paints. The conflict between Russia and Ukraine is having a major impact on the availability of parts as well, since seven percent of the world’s wiring harnesses and over 50 percent of the world’s neon gas comes from Ukraine. Neon is the only inert gas that can be used to manufacture semiconductors, so without it, semiconductors cannot be made for vehicles or for use in manufacturing processes.
“We’re in a stage right now where we’re going to continue to see inflation specific to collision parts and specific to the automotive industry that may have the potential of outpacing any other inflation that we’re seeing anywhere else in our economy because of these very specific instances of what’s going on,” Mandell said.
“We’ve seen tremendous growth in the average cost of repair – average growth severity,” Mandell continued, attributing it to “a number of different factors,” such as the increase in vehicle technology like ADAS and the need for diagnostic scans and changes in vehicle construction, such as the use of more lightweight materials which “drives further complexity in the repair process.”
He also observed that while insurers saw a 50-60 percent reduction in claims during the early stages of the pandemic, those metrics are now moving in the opposite direction with carriers facing 30-35 percent increases in overall total loss settlements year over year.
“It’s a difficult dynamic for many different sides of the industry, so it’s important that we think about that entire ecosystem,” Mandell concluded. “The more we can collaborate and work together, the more positively it will impact the end customer, the vehicle owner.”
Offering a perspective from outside the industry, economist Robert Dauffenbach (Price College of Business, University of Oklahoma; Center for Economic and Management Research) provided a high-level overview of inflation.
“What is inflation in terms of its meaning to the economy?” he asked. “First of all, we have to recognize that it’s not something that’s happening to a particular sector of the economy; it’s something general, operating overall in the entire economy. It’s permeating the economic system. It’s ingrained in the populations and in expectation. And if you let that happen, it’s very hard to take it down.”
Emphasizing how much the money supply has risen recently, Dauffenbach referred back to the beginning of the pandemic when the government unleashed $4 trillion into the economy to sustain businesses and households. “The economy essentially just shut down, and that reduced both supply and demand,” he said, also observing, “The consumer is in pretty good shape, so I’m not anticipating a recession at this point.”
As the pandemic has receded and people have started to return to normalcy, the market has experienced aggregate demands, leading to higher prices; however, “cost-push inflation is a rise in energy, labor, raw materials and other input costs that cause that aggregate supply curve to shift leftward, giving us a result that we call ‘stagflation’ where we have increases in inflation, accompanied by increases in unemployment.”
Dauffenbach noted that the Consumer Price Index has historically remained fairly consistent at four percent, while auto body technicians’ wages increase by a compounded rate of 2.2 percent each year. Employee benefits remain fairly constant, costing 31.6 percent of total employment costs. Since March 2020, paint and materials costs have increased by 24 percent.
“I don’t believe we’re going to end there, and certainly in terms of paint and coatings, we’re looking at huge increases,” Dauffenbach extrapolated. “The path ahead is likely to get a little bit worse but [not] a whole lot worse than our core inflation rate. We’ve got a lot of scary things happening, but my hope is that we may find ourselves back around that four percent level of inflation overall at the end of the year.”
Rising wages contribute to the increasing costs that collision facilities must contend with as workers command higher wages in unskilled positions than many shops can afford to pay their technicians, exacerbating the already dire technician shortage. CIC’s Governmental Committee tackled the topic of using apprenticeships to attract more workers into the industry during a panel discussion featuring John Day (Oklahoma Career Tech), Virginia Oden (Oklahoma Department of Career and Technical Education), Amber Alley (Barsotti’s Body and Fender), John Helterbrand (Ranken Tech) and Darrell Amberson (LaMettry’s Collision).
“We’re working harder to get more people than ever, and we’re more inclined to pay a better introductory compensation level, simply because we have to,” Amberson admitted. “We have no choice. It’s more difficult to get people, and as collision repair becomes more challenging, we’re going to have to pay more money for them to do it.”
Panelists agreed that multiple barriers prevent students from considering a collision repair career; in addition to wages, the biggest deterrent for many young people boils down to outdated perceptions about the industry. Many parents recall the impression of shops from 10-20 years ago as “dirty and smelly,” Day said, indicating that the result is kids being discouraged from pursuing a collision career.
“It’s not that people aren’t attracted to the industry; it’s the presentation of the industry that they get once they’ve come in,” Alley stressed, suggesting that the industry need to stop “being scared to invest in people and offer them fair wages and a career path because you’re scared the shop down the street will offer them another dollar. We have to be willing to take that chance, that calculated risk of investing in someone. And we can’t have that attitude of ‘they need to prove themselves to us’ – we need to prove ourselves to them.”
“I’d like to see us work on public perception,” Amberson contributed. “In Europe, there’s a more carefully defined structural system that is treated with dignity and respect as a student joins a training program and becomes accredited.”
Apprenticeship programs offer an effective way of attracting and retaining more young people in the industry. According to Day, the need to increase the ability to host apprentices is “widespread throughout every trade, not just in collision. The intention is there, and the businesses need it, but the mechanism to do so is currently missing.”
Committee Chair Bob Redding (Automotive Service Association) shared insights on two pieces of related federal legislation: H.R. 447, the National Apprenticeships Act of 2021, and the Biden Administration’s 2023 budget proposal. Passed in the House of Representatives in February 2021, H.R. 447 is currently sitting in the US Senate Committee on Health, Education, Labor and Pensions. The legislation provides statutory authority for the registered apprenticeship program within the US Department of Labor (DOL) and for related grant programs, establishes the Office of Apprenticeship within the DOL and outlines criteria for various programs, including quality standards and requirements for apprenticeship agreements between a program sponsor and an apprentice.
President Biden’s budget proposal includes $100 million for community colleges to work with public workforce development agencies, according to Redding, as well as $303 million for registered apprenticeship programs in technology, advanced manufacturing, healthcare and transportation. It includes an investment of $200 million in Career-Connected High Schools to support competitive grants to partnerships of local education agencies, higher education institutions, community colleges and employers.
A key to improving outreach lies in exposing students to the trade at a younger age, such as through summer camps and school visits to local middle schools, making it vital for collision repairers to get involved.
“It’s all about planting seeds to make parents and counselors aware of the opportunities that are out there,” according to Oden. “At the same time, industry tends to want the fruit off the tree, but they don’t want to plant the seeds or grow the tree, so they’re not involved in those visits and recruitment efforts. If that student sees your face and becomes comfortable with you, you’re building that relationship and starting that investment.”
Not every child is meant for college, yet that’s the direction that most are guided since there’s little interaction from the trades. Industry involvement is all about providing a chance for students to explore the possibilities “so they’re exposed and educated,” Day explained. “Then, let them decide where they want to go.”
Of course, getting more technicians into shops matters little if they don’t stay there.
“We don’t have a recruiting problem; we have a retention problem,” Oden insisted. “How we treat our employees is key. If you don’t provide them with means; if you don’t provide them with opportunity, they will look elsewhere. They will tell you it’s because of the dollar. People do not leave a job that they love and where they feel happy and appreciated. They leave management, so it’s important that we treat them well when we get them in…we have to treat them with respect, and that’s not just kids today; every single person wants to be treated well and with respect.”
“We need to have a serious conversation about what wages should look like and how we as an industry are able to pay those wages, or none of this is going to matter,” Alley pointed out. “If you can’t keep your doors open or charge what the work needs to cost, what are you going to sacrifice to pay someone? How are you going to send them to this expensive OE training?”
With technology advancing in unforeseen ways, investments in training are more necessary than ever before, and several committees touched on some of the impacts of technology in the collision workspace.
As cars become more complex, data access, privacy and security requires additional attention. CIC’s Data Access Committee explored how Vehicle Identification Numbers (VIN) are being used and by whom. A large number of entities may access a vehicle’s VIN, including police, insurers, repair facilities, parts procurement tools, towing companies, rental car companies and providers of parts, scan tools, equipment and information.
Jack Rosen (Mitchell International) shared some insights into how his company uses that data:
“Our users have the ability to change their outputs or to connect with a third party, but in those integrations, we have contracts that place limitations on our use of that data, limiting it to the purpose for which the agreement was made. So, if we have a purchase agreement, they can’t use that data for any reason other than procuring parts. We allow our customers control of their data as they see fit for their business. There are things that cannot happen outside of Mitchell’s control, but that’s in the control of the user, and if you as a user don’t want those integrations turned on, you just go in and turn them off.”
“What’s really salient for any stakeholder in the collision industry is to identify who needs the VIN and how the VIN is being misappropriated in the industry,” added Pete Tagliapietra (Data Touch LLC). “What’s really important is how the industry can get to the point where we control the VIN to make sure it’s protected and information is not shared that shouldn’t be shared. The reality is that shops have software under their operating systems that they’re unaware of, and when a shop exports data, that information is being aggregated by the company that has a data pump running, so they’re mining that data and selling it. Shops need to understand exactly what applications are grabbing that information, who’s grabbing it and what they’re grabbing. That’s what we’re trying to solve.”
Many of the dilemmas that repairers encounter inside the shop can be solved simply by researching OEM repair procedures and properly documenting them. Continuing the CIC Estimating Committee’s January presentation, Chair Danny Gredinberg (Database Enhancement Gateway) was joined by Mark Allen (Audi) and Michael Giarrizzo Jr. (DCR Systems).
“We want to start with telling your story in the line items,” Gredinberg stressed. “If you don’t have a story that tells why you’re doing that operation, you’re going to be asked what you’re doing and why.”
“You’ve got incredible complexity of vehicles today that goes beyond the visual inspection of the damage,” Giarrizzo added. “We’re measuring every single vehicle that we’re taking apart [and taking] these serious steps to rule out that damage, starting with the foundation of the vehicle.”
Allen suggested that being able to explain what’s happening with the vehicle is beneficial to building relationships with customers and insurance appraisers.
“A better explanation is a powerful sales tool. It builds your customer retention, but the transparency builds a better relationship with the adjusters walking in your door. Are you helping in that process by documenting and providing some of this knowledge? It’s not a negotiation; it’s a mutual understanding. It’s about relationships and sharing knowledge.”
CIC’s Emerging Technologies Committee shared some shocking knowledge on what shops should know as electric vehicles become more prevalent.
Barry Dorn (Dorn’s Body and Paint) offered some insights based on his experience:
“Shops don’t look at how much power they don’t have. I guarantee you don’t have enough, and I guarantee you’d be shocked at how much it costs. From a tooling aspect, it’s completely different because it’s a completely different vehicle and requires a different mindset.”
“There’s a lot of infrastructure change that has to happen,” noted Jason Norman (Enterprise Holdings). “When you talk about volume and you may have to charge two at a time, what is your throughput going to look like? The cost can be exceptionally large – what would be needed just to charge a regular retail business is the equivalent of power used in 1,000 homes. So, it really is a significant change in how you look at power usage. It requires a lot of research and a lot of cooperation between the shop, municipality and other stakeholders in where that power gets used.”
All that extra power creates safety concerns, and Dirk Fuchs (I-CAR) offered warnings related to following OEM repair procedures, following safety guidelines and wearing proper PPE. Before touching an EV, repairers must verify and measure bonding resistance to the chassis, check the battery charge level and much more to ensure they’re performing a safe repair.
“A mistake is not allowed when we talk about electric vehicles. I want to challenge the point of verification, verification, verification…We always need to verify the potential. Before I touch a car, even with PPE, I need to check the potential and measure. PPE is my last safety factor. If I’m not verifying anything and I take the battery out of the chassis and it has an internal insulation error, I’m taking out my bonding strip, and all of a sudden, Dirk is the bonding strip between the battery and the ground. And that’s a problem. The unknown is what kills you.”
Even if a car is drivable after an accident, it may not be safe to drive.
“We don’t know if there are any open leaks or installation failure of onboard diagnostic systems,” Fuchs cautioned. “Manufacturers design and integrate many safety loops, but after an accident, I don’t know if those safety loops are still working. So, yeah, I can maybe drive it off, but I would never feel safe in a car. When I am touching an electrical high voltage system – and I did it many times, but every time, my blood pressure goes up. I think I know what I’m doing, but I have a deep respect for those systems. If I make a mistake, I’m dead, and I like being on this planet.”
CIC’s next meeting is scheduled for July 20-21 and will be held at the Omni William Penn Hotel in Pittsburgh, PA. For more information about CIC, visit ciclink.com.