Made in Canada Trends

What will drive Canadian collision claim trends? Two main factors to watch for in the future are vehicle age and vehicle mix.

The insurance industry can also expect that the Canadian claims landscape will see trends develop sooner than the larger United States claims market, in large part because of Canada’s newer vehicle mix. The average age of a vehicle involved in a repairable claim in Canada is a full two years newer than in the U.S.

Another contrast to the U.S. market is the sales mix. In passenger cars, the top-selling car in the U.S. for the last decade has been the Toyota Camry; the Canadian top seller is the Honda Civic.

Canadian passenger car buyers overwhelmingly buy cars in the compact segment compared to the U.S. market preference for mid-sized vehicles. In fact, eight of the top-selling passenger cars in Canada are compacts, with only the mid-sized Ford Fusion and Honda Accord making the last two spots of the Canadian Top 10.

DIFFERENCES HAVE IMPACT

The differences in model year and vehicle size have profound impacts on the claims cost, total loss rate and alternate parts use.

Model year, in particular, makes a significant difference because the number of vehicles equipped with side-impact airbags increased in the mid-2000s. The chart on the right side, courtesy of the Highway Loss Data Institute in the U.S., shows the percentage of vehicles in North America equipped with side airbags by model year.

With the average vehicle age in a claim at 6.5 years old, it is easy to see that the percentage of vehicles equipped with side airbags will increase rapidly in the coming years. Nearly 25% of all collisions in Canada involve side impacts in the “B” pillar area, which can potentially deploy the side airbag.

Of course, not all side impacts are severe enough to deploy the side bag, but when they are, the cost of the bag replacement, trim and bolster elements average more than $2,000 in additional costs. Canadian vehicles experiencing a claim (both repairable and total loss is 6.52 years old) have an average actual cash value of more than $13,000, which means that adding $2,000 in costs to the rest of the damage could result in a total loss.

In the next five years, as the Canadian fleet achieves almost 100% side airbags in the car fleet, total losses will, undoubtedly, rise. Currently, the industry is seeing an increase in repairable collision costs as well as total loss volume, due, in part, to the increases in side airbag deployment.

ON TREND

As mentioned, Canada’s top-selling car for decades has been the Honda Civic. Because this model sells well throughout the world, aftermarket parts makers are laser-focused on this model.

The economics are simple: the more a vehicle is produced, the more popular the replacement parts will be and the larger the aftermarket parts lots can be.

When Honda introduced the 2012 model year Civic, the company misread consumer taste trends and created a decidedly “de-contented,” more simply styled car. Many critics panned the interior as cheap, and the exterior was “de-chromed” and “cheapened,” many automotive writers reported.

So dramatic was the change that Consumer Reports removed the car from its recommended list. The car had a long history of being on the recommended list, and its removal because of the 2012 styling made headlines.

Honda took notice and, in an unprecedented move, offered a refreshed Civic styling for 2013, with a new hood and bumper. That leaves the 2012 Civic as somewhat of an orphan when it comes to styling and aftermarket replacement parts. Both insurers and collision repairers have begun to see this in the repair costs for the 2012 Civic.

Beyond Honda’s quick response with the 2013 refresh, there have also been changes in vehicle design cycles from other manufacturers, notably those in Korea. Both Kia and Hyundai have entered very competitive segments in the compact and mid-size segments.

A key to their growth has been a styling refresh that is much faster than the typical four-to-six-year Japanese styling cycle. Honda and Toyota have taken notice, and have begun emulating the Koreans’ faster product-styling cycles. The industry is beginning to see faster mid-cycle refreshes from Ford, GM and Chrysler as well.

The combined impact of these actions could be expected to cause aftermarket part makers to reduce and, in some cases, not create aftermarket part offerings for particular models and parts. Salvage parts utilization, which trails use in the U.S. because of corrosion, supply infrastructure and delivery difficulties in remote areas, will further decline.

Lastly, the trend toward smaller vehicles in the Canadian vehicle mix will probably result in more passenger car total losses as time goes on. The trick is to see when the newer year mix (an advantage to repairing rather than replacing due to the retained value of a vehicle) offsets the increasing complexity of repairs as a result of parts, such as aluminum panels, expensive Xenon headlamps and side airbags.

This will not prompt a sudden “flip of the switch” phenomenon, but, rather, a gradual increase in the total loss percentage. The industry should expect increasing part replacement rates, which traditionally hover around 50%, and a rise in the average number of parts replaced in the average estimate as well as the average cost.

The rate of use aftermarket and salvage parts will begin to plateau and eventually decline as the styling cycle shortens for cars on Canadian roads.

What can a Canadian collision repair shop do to prepare?

• educate technicians on the latest in plastics repair;

• outfit the shop with an aluminum “clean room” with dedicated tools; and

• devote training to understanding the unique repair requirements and characteristics, in addition to parts supply channels, of the top-selling passenger cars in the shop’s province.

Collision repair jobs of the future will go to shops that understand the vehicles, their materials and their parts sources.