Susanna Gotsch, Sr. Industry Analyst, CCC Intelligent Solutions, provides a summary regarding supply chain issues of auto parts, the effect this has had on the auto industry, and what this means for suppliers of secondhand auto parts.
As consumer demand surged in the second half of 2020, industries across the globe encountered significant supply chain constraints. One of the industries hardest hit was the auto industry, which found itself short of semiconductor chips used for numerous features in a vehicle like touchscreens, safety features, vehicle connectivity, and more.
Many industries like the automotive industry had moved to a just-in-time inventory system prior to the pandemic – an approach that has been sorely tested over the last two years with surging customer demand and recovering auto accident and claim counts.
Inventories had been drawn down from plants being closed at the outset of COVID and have operated at lower levels of production due to a shortage of necessary components and labor. Higher raw material prices, higher transportation costs from higher wages and fuel prices, record spot container shipping rates that tripled between June 2021 and June 2022 and are only slowly coming down1, more money and time to unload goods at shipping ports, and a shortage of employees on site.
As a result of substantially higher costs for manufacturers and distributors, the cost of replacement parts has soared. Indexing the average cost per part across all part types from Jan 2001 forward illustrates just how substantial recent increases in part costs have been (Figure 1). The average cost per part rose over 7 percent in 2021 versus 2020, and by June 2022 increased another 6 percent over 2021.
Supply chain issues are a key reason part costs have risen, but analysis of major part groups like Front and Rear Lamps, Hood, Grille and Windshield reveal some parts had already been experiencing larger increases before the pandemic, as automakers produced more complex lamps, more heads-up display windshields, and changed the material to more lightweight materials like aluminum (Figure 2).
Combined, OEM and non-OEM replacement now account for over 42 percent of the overall repair cost, up from 39 percent in CY 2013 (see Figure 3). OEM share of replacement part costs had increased in 2019 on the tail of five-plus years of 17M new vehicle sales but declined slightly in 2020 as the average vehicle age increased (see Figure 4). But with repairers needing to use whichever part they could get their hands on the quickest, OEM share of replacement part costs jumped further in 2021 and 2022.
Higher cost parts combined with continued growth in the average number of parts needing replacement due to rising vehicle complexity (Figure 5) has been a key factor driving up repair costs sharply over the last several years. More parts needing replacement also means more labor hours per repair at a time when labor costs have been rising sharply (Figure 6 and Figure 7).
For the four quarters ending Q2 2022, the average repairable vehicle appraisal amount rose by 12 percent to $3,901 (Figure 8). As replacement parts account for a growing share of overall repair costs, technology that can help repairers find the most cost-effective parts that can be delivered in the needed timeframe will become even more important.
Please find Figures 1 to 8 here