Why Car Repairs Are Getting So Expensive
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..
