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Parts Substitution Causing Average Severity to Decline

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Despite rising OEM parts prices, average severity is decreasing, according to Mitchell International’s latest quarterly Industry Trends Reports (ITR). Mitchell’s Greg Horn says that the decline in severity is surprising considering OEM parts prices, but the use of aftermarket and refurbished parts is likely the cause.

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Horn, vice president of industry relations, says that the “substitution effect” is driving down estimate severity: Rising OEM parts prices as tracked by Mitchell’s Collision Parts Price Index (MCPPI) have resulted in more repairers using alternative parts. The MCPPI tracks prices of the top 20 most-replaced collision parts to show how inflationary trends related to parts affect collision repairers.

“Comparing our supporting data from the MCPPI with trends in severity and the national rate of inflation shows that a clear substitution effect is at work, causing average gross repairable estimate severity to decline, despite rising OEM parts prices,” Horn writes in the ITR. “As repairers opt to substitute more economically viable used or aftermarket parts in place of costly OEM parts in ever-larger numbers, the net effect has been a decrease in parts dollars and an increase in labor dollars on repairable estimates in recent years.”

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Mitchell’s most recent ITR also shows that the actual cash value of vehicles appraised for collision losses during the third quarter of 2009 was $12,188 – $829 less than the same period last year – reflecting the lower value of today’s vehicle population.

Mitchell also reports that the average gross appraisal value of comprehensive coverage estimates processed through the company in the third quarter of 2009 was $2,468 – a $164 increase from the same period last year.

A copy of the Industry Trends Report can be downloaded at Mitchell’s Web site.

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