Growth in the U.S. collision repair market is likely to be anemic at best for the next four years, but things could be a lot worse for shops and vendors in the industry, according to Tony Aquila, founder and CEO of Solera, Inc., the parent company of Audatex.

“We’re pretty lucky, we in this industry,” Aquila said as a keynote speaker at the 2009 International Bodyshop Industry Symposium (IBIS) held in Berlin, Germany, in June. “We have our issues, but you know what? It’s hell of a lot better than owning a car dealership right now.”

Part of Aquila’s optimism could be based on the fact that Solera’s eight companies do business in 52 countries, including India, Brazil and China, which are expected to have collision repair revenue growth rates of more than 40 percent over the next four years as their growing middle-class populations begin buying cars.

But Aquila also noted that the projected 2 percent downturn in the U.S. collision repair market in 2009 isn’t nearly as bad at the hit taken by the retail apparel sector (-5 percent), by the industrial equipment or new car sales sectors (-8 percent), or the new home construction sector (-17 percent).

“In reality, we are very counter-cyclical, and that’s because we provide an essential service,” Aquila said. “Think about if we were in the retail business what our problems would be compared to what our problems are. They’re not that bad. There are very few body shops that can’t withstand a (drop of a) couple percentage points.”

He said that while there may continue to be a decline in the number of small shops as larger shops get larger, total auto claims volume is expected to remain stable or grow slightly – maybe 1.5 percent per year – over the next four years.

A number of factors are working in the industry’s favor, he said. Drivers are five times more likely to have an accident when using a cell phone – even a hands-free one – and cell phone sales continue to climb. “Mother Nature” has also helped the industry, he said, with weather-related catastrophes up 200 percent since 1980.

“No doubt, though, at the end of the day, we still have a rough road ahead,” he said. “We’re affected by home sales, car sales, capital markets. But we’re more resilient. It’s the nature of our business.”

Aquila said businesses moving forward can take one of two roads.

“I think you can just focus on ‘faster, better, cheaper,’ but to me, that’s a dead-end,” he said. “It really doesn’t take you anywhere at the end of the day, because eventually, you can’t make it that much cheaper, and you start to erode your profitability, then you start to lose your enthusiasm and vision, and everything kind of unravels. Or you can focus on what we believe, which is ‘faster, better, more valuable’. Focus on high-value things that allow you the opportunity to innovate. Because then price is not the issue. It’s about the value you are delivering. We make no bones about it: When we do something, we want to get paid for it because we’re doing something high-value.”

Speaker addresses total losses IBIS chairman Chris Mann of Bodyshop Magazine in the United Kingdom said he was “delighted to see so many delegates here this year even though we’re in the midst of the worst financial crisis since the 1930s.” Though fewer than last year, about 250 attendees representing shops, insurers and vendors from more than a dozen countries attended the two-day event, which focused on the topic of “sustainability.”

One session at the conference focused on the issue of total losses. Speaker Matt Ohrnstein of the U.S.-based consulting firm Symphony Advisors said that in addition to other factors that have driven up the percentage of vehicles being declared totals, several newer causes have more recently come into play. First, he noted, the U.S. vehicle population now has an average age of 9.4 years, the oldest in history. Second, as vehicle brands are discontinued, the actual cash value of those vehicles suffers.

“In just days or weeks after the announcement, the value of a used Pontiac just plummeted,” Ohrnstein cited as one example.

Ohrnstein argued that only the salvage auctions and rebuilders benefit from the uptick in total losses, which now account for 44 percent of the $52 billion U.S. auto insurers pay out each year. Although average repair costs rose just 10 percent (to $2,430 in 2008) over the past five years, total loss costs are up 18 percent since 2004, Ohrnstein said, to now over $7,000 per vehicle. An insurer who receives $1,000 in salvage value ends up paying more than $3,000 when parts from that salvage are used in another claim after fees and mark-up from the salvage auction, dismantler and shop. And consumers, now often “upside down” on auto loans for the first four or five years of ownership, increasingly want their vehicles repaired rather than totaled.

Ohrnstein said that although the auctions – particularly the two largest which process two-thirds of the 3 million total losses each year – are certainly “incentivized” to maintain the status quo, every time the percentage of vehicles declared total losses drops by one point, “a billion dollars moves from the total loss (bracket) back to the repair segment.” Automakers, too, realize they lose parts sales when a vehicle is totaled rather than repaired, and may lose subsequent parts sales when that total loss vehicle is dismantled and sold as recycled parts.

Ohrnstein’s proposal for reversing the total loss trend? First, he said, insurers could partner with auto recyclers to ensure more total loss salvage gets in the hands of dismantlers rather than rebuilders. This may reduce salvage value for insurers, but would reduce the number of costly and customer-opposed totals, would help prevent unsafely rebuilt totals from being put back on the roads, and would increase the availability (and lowering the cost) of recycled parts, which also would help reduce total losses.

Second, Ohrnstein said, insurers may want to change how they handle those vehicles that information providers can help identify from the first notice of loss as “potential total losses.”

“I tend to use the health care industry when I offer analogies about this industry,” Ohrnstein said. “If you took an individual who had a need for a triple bypass and sent them to a general practitioner, the general practitioner may say, “The patient is a total loss; I can’t fix it.’ So in the health care system, we tend to send those with a catastrophic illness to specialists. I think we have the information from the data…collected on first notice of loss to generally predict whether a car absolutely is going to be fixed, absolutely will be totaled or is somewhere in the middle. And if we think it’s somewhere in the middle, let’s set up within our direct repair program, a group of specialists that these cars get directed to.”

This subset of the DRP shops, he said, would be “lean facilities,” perhaps running multiple shifts that understand their numbers enough to know when they can sell at a lower margin, and have special relationships with new, used and non-OEM parts vendors willing to assist in preventing the vehicle from totaling. Given the benefits to the OEMs of fixing rather than totaling a vehicle, he said for example, they may be willing to allow a new parts pricing model to kick in when a system verifies a vehicle is at-risk for totaling.