By Sheila Loftus
January 2007

In the last two years, the issue of total losses has received considerable airtime at several U.S. and international collision repair forums, including the International Bodyshop Industry Symposium (IBIS), the International Autobody Congress and Exposition (NACE), and the Collision Industry Conference (CIC).

Experts haven’t been able to pin down a single issue, or even a consistent set of issues, that explain the increase in total losses. They agree, however, that as a percentage of all collision-damaged vehicles, total losses will likely remain high.

Combined with the decrease in the overall number of accidents, the rise in the percentage of total losses spells tough times for collision repairers all over the world.

While there are no exact figures on total losses in the world market, the U.S. market provides a capsule of the international scene. In the United States, as many as one in five vehicles damaged in an accident is now declared a total loss. In 1980, the number was one in 25.

Historically, automobiles in the United States have been declared total losses when the repair bills reached 75 percent of the vehicles’ cash value. But according to Herb Lieberman, an executive with the automotive parts recycler LKQ Corp., 75 percent has now become 60 percent—and sometimes a mere 50 percent.

While this trend has been driven by insurers, collision repairers may have contributed to it. Typically, collision repairers make less money on “heavy hits” than they do on other repair work and therefore may be less eager to take on the bigger jobs. (This seems especially true of collision repairers who are part of insurers’ direct repair programs and are wary of hurting their cycle-time numbers by becoming bogged down with large jobs.)

On the other hand, some repairers consider handling total losses a profit center. Dick Strom, a shop owner in Washington state, said, “There is great profit in totals when you aren’t hobbled by direct repair program agreements that forbid you to charge for storage, towing with markup, hazardous waste cleanup, pictures, full list price on all parts purchased, and the like…also there is no lifetime liability involved with totals.”

Here’s another theory to explain the upswing in total losses: According to some collision industry observers, it has become more difficult to gain access to repair information, thereby making the repair process more cumbersome and costly. Training body men to repair today’s vehicles is also a potentially large expense that can increase the repair bill.

The increase in the use of airbags in vehicles has often been cited for the increase in total losses. The logic behind this argument is that airbags are expensive components and are, therefore, costly to replace. In addition, they can, upon opening, damage other parts of the vehicle.

But while airbags certainly offer a safer experience to drivers, and therefore a greater value, they don’t necessarily make vehicle repair more expensive. Multiple vehicle manufacturers have analyzed the affect of airbag replacement on totals. They concluded that substantially reducing the price of airbags does not reduce the number of total losses.

The modern automobile tends to include other advanced features besides the airbag, however. “Automobiles these days are as sophisticated as the Starship Enterprise,” said BASF’s Guy Bargnes. “Multiple airbags, crash avoidance systems, computers, black boxes, and sensors everywhere—even a minor accident is likely to impact these high-dollar, high-tech components.”

There’s more to add to Bargnes’ list, including the use in vehicle design of aluminum, boron steel, magnesium, high strength steel (HSS), high strength low alloy steel (HSLA), ultra-high strength steel (UHSS), hydro form steel, laminated steel, and dual phase steel.

Because repair of the latest vehicles requires up-to-date training, it would be natural to conclude that repair costs would rise as a result. But as with airbags, this isn’t necessarily so.

Another factor that might be contributing to the increase in total losses is the aging of vehicle fleets. While it used to be something of a middle-class tradition in the United States to buy a new car every few years, car owners are now hanging on to their vehicles until they’re the automobile equivalent of senior citizens. And as these vehicles age and therefore decrease in value, just about any accident puts them in jeopardy of being totaled.

Lieberman, from LKQ, thinks the fact that only 30 percent of vehicles that go through salvage pools each year are recycled for parts means that far fewer used parts are available for repair jobs. (And those parts that are available are therefore more expensive than they would be if there were a greater supply of them.) The Internet, Lieberman points out, allows international bidding on total losses. What isn’t worth repairing in the United States might be worth repairing in, say, Mexico. Insurers sell to the highest bidder.

“They are creating this huge—I’m not going to say cottage industry, which is what it used to be—this huge industry that is exporting these repairable vehicles because they are worth so much more in these other countries,” Lieberman said.

This trend, far more than the expense of airbag replacement, is what is driving the increase in total losses, Lieberman said. “There is no doubt that replacing an airbag costs a lot of money, more than it should,” he said. “But when we look at what the information database providers are telling us about the average severity, when we look at those average costs of severity over the last five years, severity hasn’t increased that much.”

Depending on whom you ask, it may not have increased at all.

“If it were really the cost of the airbag that was a huge problem, severity would be going up,” Lieberman said. “And it is not.”

To the extent that vehicle design plays a role in the increase in total losses, change in this area will likely come as a result of action by either legislators and consumers or both, said Sir Nick Scheele, a former president of Ford in Europe. Currently, it isn’t high on either legislators’ or consumers’ agendas, however.

“The reason that the customer does not have vehicle repairability as a key requirement is because when you are buying a new car, you tend not to think about crashing that car,” Scheele said.

And legislators, Scheele said, are more concerned with vehicle safety and, especially in Europe, where an enlightened citizenry understands the dangers of global warming, in a vehicle’s carbon dioxide emissions.

Insurers are the chief factor in determining total losses. And if it’s more economically viable for insurers to declare a vehicle totaled at 50 percent of what it would cost to repair it and turn around and sell the vehicle, then it’s likely that this is what insurers will continue to do.

“Insurers mitigate their losses by selling the totaled vehicle to the highest bidder,” Bargnes said.

The Automotive Recyclers Association is supporting federal legislation that would create an electronic database in the U.S. of the vehicle identification numbers (VIN) of all vehicles totaled by insurers or self-insureds, the latter categories including such businesses as Hertz and Avis rental cars. “We feel this is the first step to gaining the knowledge we need as to how many vehicles are being totaled and what is happening to them,” Lieberman said.

For decades, there has been talk of a disposable car—in other words, of a future in which all automobiles involved in accidents would be total losses. But not many people in the automotive industry are giving the idea of a disposable car much credence these days, Scheele said.

Everyone can remember his or her first car, said Scheele. “That’s what cars are all about—they’re an emotional purchase.” Most car owners now expect to keep their vehicles indefinitely.

Given the rise of total losses, however, it’s becoming more likely that vehicle owners involved in accidents won’t be keeping their cars at all.

That’s bad for vehicle owners.

It’s terrible for collision repair shops.

© 2007 Sheila’s Information Network Inc.

Sheila Loftus (sheilaloftus@yahoo.com), past publisher of the CRASH Network, has written about the auto collision repair industry for 32 years. She lives in Washington, D.C.