Crisis Point: Industry facing significant headwinds, report finds

Toronto, Ontario -- The North American collision repair industry is facing significant economic headwinds that are altering the way business is being conducted.

New data from CCC Intelligent Solutions' latest Crash Course report shows how tariffs, inflation and cash-strapped consumers are creating what analysts are calling a "supply chain reaction" that's forcing everyone from automakers to bodyshops to completely rethink their strategies.

The numbers tell a pretty stark story. After staying flat for nearly two years, average auto part prices jumped more than four percent year-over-year this past spring, right around the time tariff-related supply chain disruptions really started hitting. By summer, that escalated to 6.6 percent increases as pre-tariff inventory ran dry.

"Today's auto industry is navigating unprecedented economic turbulence," says Kyle Krumlauf, director of industry analytics at CCC in a press release. "These forces are converging in ways that represent not just cyclical pressures, but a structural shift."

And consumers are really feeling the squeeze. Total household debt in the U.S. hit US$18.2 trillion (roughly $25 trillion Canadian) in the first quarter, with auto loans making up US$1.66 trillion ($2.3 trillion Canadian) of that mountain of debt. Nearly eight percent of all auto loans are now more than 30 days behind – the worst it's been since 1994.

That isn't the only unsettling financial news highlighted in the report. In the U.S. vehicle repossessions jumped 43 percent from 2022 to hit 1.73 million last year.

When people are this stretched financially, they start making tough choices about their insurance coverage. The most popular US$500 (roughly $680 Canadian) deductible has dropped by six percentage points since 2021, while US$1,000 ($1,360 Canadian) deductibles have gained nearly five points. Even more telling -- one-in-three consumers would temporarily drop insurance coverage entirely just to free up cash for basic necessities.

For collision repair shops, the challenges are coming from every direction. A survey this past April found that nearly 39 percent of repair facilities are already dealing with operational impacts from tariffs, mostly in the form of higher costs. Larger shops are getting hit especially hard -- almost 74 percent of shops with eight or more bays are seeing tariff-related cost increases, compared to just 16 percent of smaller operations.

Then there's the technology factor that's making everything more complicated and expensive. Nearly 87 percent of direct repair program estimates now include a diagnostic scan, and calibrations are showing up in about 32 percent of jobs -- that's up significantly from under 24 percent just a year ago. When a repair involves multiple calibrations, shops are looking at over 17 days from when the car comes in to when it goes out, compared to 13 days for jobs without any calibrations.

All this high-tech equipment doesn't come cheap either. Diagnostic gear can run anywhere from US$5,000 to US$20,000 ($6,800 to $27,200 Canadian), plus ongoing maintenance costs. And shops are trying to deal with all this while facing a serious shortage of skilled technicians. Industry projections suggest there will be demand for 75,000 new collision repair techs by 2028, but only 30,000 graduates are expected to come through training programs.

On the insurance side, results were mixed. Claim counts are actually down 8.5 percent year-over-year through July, but that's not because the roads are getting safer. People are just choosing not to file smaller claims because of those higher deductibles and their tight financial situations. Claims for damages under US$2,000 ($2,720 Canadian) have dropped from 41.5 percent of all repairable jobs in 2019 to just 25.5 percent this past June.

But while there are fewer claims, the ones that do get filed are getting more expensive. Average total repair costs hit over US$4,730 ($6,430 Canadian) in 2024, up 3.8 percent from the year before, with another 1.4 percent increase in the first half of this year. Labour rates, too, are up 3.1 percent year-over-year.

The injury side of things is even more concerning. Average third-party bodily injury payouts reached US$28,700 ($39,000 Canadian) per injured person in the first quarter, up seven percent from last year. First-party personal injury protection claims jumped 10 percent, driven mostly by increases in radiology, surgeries and medical evaluations.

Automakers are caught in what the report calls a "re-shoring paradox." The tariffs are supposed to encourage more U.S.-based production, but the higher costs of imported materials and parts are squeezing profit margins so badly that companies can barely afford to make the investments needed for domestic manufacturing. Industry analysts estimate the total impact across all automakers at US$107.7 billion ($146 billion Canadian), and they expect dozens of vehicle models will need complete re-engineering over the next year and a half just to meet domestic content requirements.

This uncertainty has also forced some major strategic shifts. Companies like Ford, General Motors, Honda and Nissan have all scaled back their electric vehicle plans in favor of hybrids and SUVs as consumer demand for EVs falls short of expectations and the US$7,500 ($10,200 Canadian) federal tax credit for new EVs faces an uncertain future.

According to the CCC, the old model of global supply chains and predictable costs is basically broken, and everyone from manufacturers to repair shops needs to figure out how to operate in this new reality where volatility is the norm and margins are razor-thin.