Recently, I have had multiple conversations with a number of very intelligent people about ADAS – Advanced Driver Assistance Systems, and the impact the automotive aftermarket industry. Each of these conversations have been interesting, and while opinions have varied, one thing is certain – the role of technology in the automotive aftermarket is only increasing. Some are very concerned about the impact of ADAS on the automotive aftermarket, and others appear ambivalent about the technology. The more conversations I have, the more I realize that there is much uncertainty on ADAS impact on the automotive aftermarket.
Recently, KPMG released a report that spelled out a rather gloomy future for companies that operate in the collision repair segment, including OEMs, parts distributors, paint distributors, and collision repairers, suggesting that the industry could see as much as 75% decrease in parts replacement business as a result of autonomous vehicle technology.
My friend and colleague James Carter, Principal Consultant at Vision Mobility sees a similar dreary future for the industry. In a recent report titled “Who Stole My Company” he states “As the convergence of new technologies into a “CASE” platform (Connected, Autonomous, Shared, Electric) occurs, people will be able to access their mobility cheaply through pay as you go systems.” James is very active in the mobility space, and sees autonomous technology and ADAS having a significant impact on industry profitability as well. He believes we are on the cusp of a major shift in how consumer purchase, service and use automobiles. “As the popularity of such autonomous car sharing services grow, many current industries and businesses associated with Automotive and car ownership will begin to dwindle and finally fail.”
The Information Providers
In the collision repair segment, the information providers sit atop a unique perch. The information providers include companies like CCC, Mitchell, and Solera (parent company of Audatex). These companies provide database services to both insurers and collision repairers through cloud based claims management and damage estimating platforms. From their unique vantage point they have deep insight into the fundamentals of frequency and severity.
According to both Mitchell and CCC, despite increased adoption of ADAS in many vehicles, both frequency and severity continue to increase. In other words, despite increasing technology designed to improve driver performance, the opposite is happening. The U.S. public is crashing more frequently than in past years, and is also causing more damage to their vehicles in each crash and replacing more parts. There are many causes, but generally speaking, our addiction to smartphones has an incredible ability to foul up even the latest ADAS technology.
The Repairers and Suppliers
The repairs and the suppliers to the repairers I interface with generally have taken a “wait and see” approach regarding the impact of ADAS on the automotive aftermarket. Recently, I attended NACE Automechanika in Chicago and generally speaking, few participants were focused on the potential negative impact ADAS could have on the industry. Technology was in the spotlight, however, repairers and suppliers focused on the impact of new vehicle construction methodologies, the impact of lightweight metals and materials on vehicles, and the increasing role of OEMs in dictating repair methodology. ADAS was mentioned, but in passing, and generally in relation to the importance of diagnosing and calibrating systems pre and post repair.
The investors I have spoken with appear to be most concerned about the impact of ADAS on the automotive aftermarket. While these investors see a risk from ADAS, some also see opportunity, and generally they take a very nuanced approach to the technology. Many are keenly attuned to current and projected severity and frequency rates, and see little cause for concern in the near to medium term. Others consider historical vehicle scrappage rates have trended below historical averages over the past 5 years. For example, IHS projects that vehicles older than 16 years of age are expected to grow from 62 million in 2016 to 81 million units by 2021, suggesting that adoption of new automotive technology in the overall fleet will be dampened as consumers hold on to vehicles longer. Additionally, some investors I spoke with, while bullish on the technology, recognize technology comes at a cost that not all consumers are willing to incur immediately. While the hype over Tesla’s Model 3 grabs headlines, the sober reality is that fully and/or highly autonomous vehicles represent a tiny fraction of the 250+ million cars on the road in the U.S.
Looking further out, other investors see opportunity in ADAS and autonomous technology. As vehicles become increasingly self-sufficient, utilization rates will increase. The result, increasing demand for consumable parts and maintenance services.
One thing is unanimous – autonomous technology and ADAS will impact the automotive aftermarket. I do find it interesting that the businesses that potentially face the greatest impact as a result of ADAS – repairers, suppliers, and distributors – seem to be discussing it the least. However, based on current and historical data, including frequency and severity, and future trends, including trends in scrappage rates and adoption of new technologies, the impact of ADAS on the automotive aftermarket is likely years, and possibly decades out. If, however, scrappage rates begin to significantly shift from current levels, average vehicle age begins to decrease from the current 12-year average, government regulations and/or mandates change, consumer purchasing power increases significantly, or the cost of ADAS and autonomous technology drops rapidly, we may see a much more rapid impact on the industry than previously anticipated.
What do you think? Do you think ADAS will have a larger impact. Is the collision repair segment going the way of the Polaroid picture? If so, what does that mean for property and casualty insurers, database providers, or other industries selling into the collision industry? I’m eager to hear your thoughts. Subscribers hit REPLY and let me know, or get a hold of me using my Contact page.
Until next week!