by David P. Carlisle
Google’s been showing us the end-state of their driverless car concept. We are half way there already, as evidenced by the last few years of Super Bowl commercials. Advanced collision avoidance systems have become familiar TV turf, with cars swerving around a busted load of big fat watermelons, braking hard, and saving the day.
But, what pushed it over the top, for me, was the Detroit News talking about “Obamacar” – President Obama pushing wireless talking cars that could save tens of thousands of lives.
So, I made some calls.
I talked with an insurance company executive who confirmed that they have been studying collision avoidance and have already built advanced models of the impact of these systems on crashes … and on insurance premiums. But, collision avoidance has so far been “evolutionary” and easy to adjust to. The Driverless Car will be revolutionary. Collision avoidance “averts” a certain amount of collisions; the Driverless Car pretty much will avoid them all. Zippo. Nil. Nada.
The Driverless Car “revolution” is easy to understand – the Driverless Car will save lives and trips to the hospital … and it will thrash entire industries built on the fact that you crack up your car. The Driverless Car will act like the asteroid impact on the dinosaurs. Collision repair shops? – like the Brontosaurus, headed for extinction. Aftermarket collision parts suppliers like LKQ industries? – like T-Rex, got to move to juicier markets. Insurance companies? – headed down the same path as the Dubreuillosaurus; hard to explain annual increases to “collision insurance” premiums.
To do this, we made some more calls and talked with some of the automotive engineers who are creating these systems. They are really excited about all this. There are literally dozens of subsystems that work together to detect and avoid an imminent collision. We simplified them to just four technology clusters: forward collision, side view assist, lane departure, and adaptive headlights. Based on Insurance Institute for Highway Safety (IIHS) data and Carlisle & Company mathematical modeling, it appears that, once fully deployed, 30% of collision repairs could be avoided by these four technology sets.
- 15% of all collision repair jobs will be avoided … along with commensurate reductions in the markets that are associated with these repairs.
- For the OEMs, the collision parts market represents approximately 35%-40% of their parts revenue. 15% of this will vanish.
- Automotive dealers represent the OE “genuine” selling channel for this 35%-40% of the parts market. Again, 15% of this will vanish.
- There are thousands of collision repair facilities that live off collisions … already, and they have been mightily squeezed by insurance companies as part of massive cost reduction efforts. 15% of their businesses will vanish.
- There are dozens of aftermarket companies that serve the collision market. They will have to exist in a brave new world where 15% of their market vanishes.
- The 15% market contraction will have other “second order” impacts on the automotive OEMs.
- A smaller market will require less warehouse space for storage. By 2022, we calculate the need to be 6% less than today.
- The market collapse will shrink the warehouse headcount – we think the reduction here will come to 8% by 2022.
- If the market vanishes by 15%, transportation costs can be avoided. This cost reduction tallies to about 5% of overall parts distribution transportation cost.
It is easy to imagine a 2022 future where the impact on collision repair jobs increases from a15% decline to a 20% decline.
Collision avoidance is not at all like front air bags, which were also designed to save tens of thousands of lives. Air bags individually cost a fortune, but their deployment actually increased the size of the collision market – by increasing the economic likelihood that a vehicle would be totaled in a collision. Deploy an air bag in a fender bender, add $1,000 to the repair cost. Couple this with another $1,000 in collision repair for that accident, and the car’s got to be worth more than $2,000 not to be totaled. Air bags saved lives and actually created jobs.
And collision avoidance? Obviously, this will saves lives, too … but in the process these new systems will also reshape every industry based on the assumption that vehicles will have accidents. If you avoid the crash, the air bags do not deploy, and no fender gets a bender. I know that the insurance companies are thinking a lot about what this means for them. But, are auto dealers? Collision shops? Independent aftermarket suppliers? Air bag manufacturers? Junk car part shops? …