The car repair industry has been facing significant challenges over the past few years, resulting in slow and expensive repairs. New vehicle sales have dropped by 28.7% on pre-pandemic levels in 2021, and the ongoing global semiconductor shortage and war in Ukraine have only added to the problem.
Allianz UK notes that new vehicle registrations only began to pick up in August 2022 and used vehicles have gained significant resale value. This shortage of semiconductors is due to the pandemic’s impact, as people turned to video-calling, streaming, gaming, and working from home, resulting in a spike in orders for new laptops and mobile phones.
Typically, a car has between 1,400 and 1,500 semiconductor chips, with some models requiring over 3,000, making them an essential part of vehicle production.
Semiconductors are used in a wide variety of applications in today’s cars and are an integral part of the vehicle with them everywhere, from in the wing mirrors, seat controls, engine controls, safety equipment and the infotainment system.
Semiconductors are used in the powertrain to control the electric motors and batteries in hybrid and electric vehicles and are used to connect most cars to the internet and other devices, enabling features such as remote start, navigation, and traffic updates.
All vehicles are amazingly advanced machines these days, and have often been described as a computer on wheels. A damaged bumper could be much more on a current vehicle because whilst it may just look cosmetic, the likelihood is that there is damage to parking sensors or proximity sensors, which means the vehicle probably needs new sensors and recalibrating, which require specialists in the body shop to do this, which of course involves higher cost.
The average price of a semiconductor chip has risen by 95%, with suppliers struggling to keep up with the demand.
As the automotive industry continues to adopt new technologies, the demand for semiconductors is likely to remain strong. This will put more pressure on the semiconductor supply chain, and it is important for automotive manufacturers to develop strategies to mitigate the risk of future disruptions.
Parts for all manufacturers are in exceptional demand, resulting in delays and backlogs.
Atticus, The Insurance Solution
Parts for all manufacturers are in exceptional demand, resulting in delays and backlogs.
The average price of chips in a car cost £360 in 2022, expected to rise to more than £550 by 2026. Additionally, the UK is facing a labour shortage, which is affecting the repair of all types of vehicles which all require specialist mechanics.
Only 6.5% of qualified motor engineers are qualified to work on electric vehicles, leading to a real shortage of expertise in this market sector which is growing and will continue to grow because of the 2030 ICE Ban which will end the sales of new petrol and diesel cars in the UK.
But the cost of car repairs is not just down to the semiconductor market. We are aware of basics such as windscreens being in short supply. In one particular case Allianz UK had over 600 customers waiting for windscreens, and the Allianz team had a phone call saying, ‘We’ve just taken delivery of 34 windscreens,’ and the team thought, well, that’s not too bad. Except that was the whole of the UK market getting 34 windscreens!
The spare part market for car repair has been hit particularly hard. Pre-pandemic – back in 2020, a body shop could get 70% of its required parts within 48 hours. Now in 2023, you’re likely, as a body shop, to just get 50% of your required parts in two days. Statistically, research shows us the new norm is that 25% of all jobs are waiting over a week for parts to arrive, and in 10% of cases, the required parts are delayed for more than two weeks and, in some extreme cases, months.
Despite these challenges, insurers, brokers, and repairers are actively working to minimize disruption and cost to customers when it comes to car repairs.
In terms of the value of car repair claims today, the average is an excess of £5000, which is roughly 18% higher than it was in 2019. The body shop and repair industry is facing higher energy costs, as we all are, and the repair industry is being pushed towards net zero.
Increased running costs and pressures generally cost the industry and the customer more because the cost has to be passed on somewhere.
Allianz UK has introduced a solution: green parts. These are second-hand parts that have been reconditioned and are as good as new. Not only do they cost less, but they also reflect in the final cost of the claim, benefiting the customer with competitive pricing going forward.
While the challenges faced by the motor industry continue to create inflation concerns, there are some positive signs, with new vehicle registrations and availability increasing and parts and semiconductor supply issues starting to ease.
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