A COMPREHENSIVE ANALYSIS OF CURRENT INDUSTRY CHALLENGES
Column by GREG HORN, CHIEF INDUSTRY RELATIONS OFFICER, PARTSTRADER
In recent months, the automotive industry has faced significant challenges that highlight vulnerabilities within its infrastructure. From a massive ransomware attack on CDK Global that disrupted operations for thousands of dealerships, to the impact of labor strikes and supplier bankruptcies, the sector is navigating a complex landscape. Additionally, shifting consumer preferences towards traditional vehicles amid declining electric vehicle sales raise questions about the future of EV adoption. This analysis delves into these pivotal events, examining their implications for dealerships, suppliers, and the broader automotive market as stakeholders seek to bolster resilience and adaptability in an evolving environment.
CDK DEALER MANAGEMENT SYSTEM DATA BREACH
On June 18 and 19, 2024, CDK, a provider of technology solutions for automotive dealerships, experienced back-to-back ransomware attacks in the U.S. These incidents affected approximately 15,000 out of 18,000 new car dealers in the country.
The ransomware attack impacted the Dealership Management System (DMS), which is crucial for various operations such as repair scheduling, sales, and automated parts orders. As a result, the dealerships were unable to conduct daily business activities across all departments. To restore operations from this catastrophic attack, CDK reportedly paid $25 million in bitcoin to the hackers.
While most dealers had some capabilities restored by July 5, there have been eight lawsuits filed against CDK by large dealer groups, alleging negligence in their security measures. The impact of the ransomware attack on CDK and the automotive industry has raised concerns about the need for robust cybersecurity measures to prevent and mitigate such incidents in the future.
U.S. GULF AND EAST COAST STRIKE ILA CONTRACT EXTENDED
When the International Longshoremen’s Association (ILA) went on strike on October 1, impacting seven of the ten busiest U.S. ports on the East and Gulf Coasts. The U.S. economy was bracing for a long-term strike, but the workers were back on the job October 4 after both the ILA and the USMX, (who manage the ports) agreed on a 62 percent salary increase over the six-year term. This key agreement allowed the existing contract to be extended until January 15, while the negotiations on healthcare and limiting automation of manual positions are completed. We will wait and see how things shape up in January.
TWO GERMAN AUTO SUPPLIER BANKRUPTCIES COULD IMPACT COLLISION REPAIR
Well-known seat manufacturer Recaro Automotive has recently filed for bankruptcy. The German company supplies more than 133 OEM seats to major automakers such as BMW, Ford, Volkswagen, and newcomer Ineos. The company has been approved for self-administration by the district court in Esslingen, Germany. This development may result in a shortage of seats with bolster airbags, potentially leading to insurers totaling more vehicles. The recent bankruptcy filing of alloy wheel manufacturer BBS for the fifth time since 2007 will have different implications for car makers and aftermarket customers. While the BBS brand still holds value and is likely to be purchased again in the future, car makers may remove BBS wheels from their options list due to just-in-time delivery practices. However, for aftermarket customers looking for a set of BBS wheels for their existing car, there is still inventory available with suppliers. The impact of the bankruptcy will vary for both car makers and aftermarket customers, with the BBS brand likely to continue in some form despite the filing.
WHAT IS THE FUTURE OF ELECTRIC VEHICLES AMID SOFTENING SALES?
The results of a recent McKinsey survey show that nearly 40 percent of U.S. electric vehicle (EV) buyers express a desire to return to traditional combustion engine (ICE) cars, a significantly higher percentage than in Europe, where only 29 percent of respondents indicated a similar sentiment. Additionally, in the U.S., 21 percent of drivers who do not currently own an EV have no interest in ever purchasing one. The survey did not include Canadian participants. The main concerns cited by participants include limitations in driving range and a lack of public charging stations. These findings highlight the challenges that the EV industry still needs to address to increase consumer confidence and adoption. It’s clear that improving infrastructure and addressing range anxiety are key areas for continued focus in the EV market.
Despite reaching approximately 12 percent of new vehicle sales in the U.S. for the first time, car makers such as GM and Volvo have modified their ambitious plans to offer an entire EV lineup. This shift is due to the higher demand for hybrids, which consumers are purchasing at a higher rate than fully battery-powered vehicles, even without pricing discounts. Additionally, there has been a rapid depreciation of EVs in the market compared to 2023 rates. Used EVs are now selling for thousands of dollars less, on average, than comparable gas-powered vehicles. In June 2023, average used EV prices were over 25 percent higher than used gas car prices, but by May 2024, used EVs were on average eight percent lower than the average price for a used gasoline-powered car in the U.S. This change in consumer behavior and market dynamics has led to adjustments in the plans of car manufacturers regarding electric and hybrid vehicles.
In this year alone, the dollar gap has significantly widened from -$265 in February to -$2,657 in May, primarily due to Tesla and the numerous price reductions implemented by CEO Elon Musk. The depreciation of Tesla vehicles has seen a substantial increase in 2024, with values declining by 47.2 percent from the peak in October 2022, and has had a noticeable impact on the market.
Car makers such as GM and Volvo have modified their ambitious plans to offer an entire EV lineup. This shift is due to the higher demand for hybrids, which consumers are purchasing at a higher rate than fully battery-powered vehicles, even without pricing discounts.
The average number of parts has increased from 5.3 to 7.3 for SUVs and trucks, and from 4.5 to 6.3 for passenger cars.
PARTS PERFORMANCE
The data suggests that while inflation rates of parts has long been seen as the primary driver of collision estimate inflation, the increase in the number of parts used per estimate also contributes to the overall trend. PartsTrader uses uploaded estimates to create a quote request for major parts on the estimate., and according to our analysis, there has been a noticeable rise in the average number of parts per estimate quote for SUVs, trucks and passenger cars. This trend is evident as the average number of parts has increased from 5.3 to 7.3 for SUVs and trucks, and from 4.5 to 6.3 for passenger cars. It is important to note that the figures presented are lower than what Mitchell shows as the average number of parts per estimate, but the Mitchell estimate includes items such as clips and fasteners, which are not routinely included in quote requests on the PartsTrader platform.
This information provides valuable insights into the factors influencing collision estimate inflation and can help industry professionals make informed decisions.
