Autonomous vehicles and the future of the collision-parts business
Autonomous or “self-driving” cars are widely expected to offer society a number of benefits. Most noteworthy is that they will be involved in significantly fewer accidents and be safer than human-piloted vehicles.
While a decline in roadway crashes is undoubtedly good news for society, it’s bad news for automakers and repair/service businesses that will face a significant hit to their bottom lines as the market for their lucrative collision parts and services business shrinks dramatically—and sooner than they may think.
Although the public typically sees automakers focusing on the sale of their new vehicles, what’s not so obvious is that a good amount of car manufacturers’ profits comes from replacement parts—the new fenders, hoods, windshields, etc., that go to repair vehicles damaged in accidents—and the service fees that repairs provide.
While collision parts typically account for less than 3% of original equipment manufacturer (OEM) sales, they provide a highly stable source of revenue and, more importantly, account for 10 to 20% of operating profits. Particularly in lean years, as we saw following the latest Great Recession financial crisis, collision parts serve as a critical buffer to offset the drop in OEM profits from new-car sales.
If self-driving cars lead to a big reduction in road accidents—and studies indicate they likely will—OEMs and service providers will need to transform to find ways to make up for this knock to their profitability. The time is now for OEMs to start evaluating this development and begin taking preemptive actions to mitigate the risk to their collision parts business. They must:
- Understand and quantify the risk to their own business, as well as identify the suppliers, dealers, and regions that may also be subject to substantial risk.
- Analyze and anticipate the declines in the types of collisions (rear end, blind spot, etc.) and their impact on the business as AV (autonomous vehicle) technologies are introduced.
- Develop a plan to right-size their collision-parts business and variabilize costs efficiently in response to a shrinking collision repair market.
As previously mentioned, failing to right-size the business in a timely manner could lead to an even more pronounced hit to the OEMs’ profits. And while it is critical to manage and contain the bottom-line impact, it is almost equally important for OEMs to identify opportunities to fill this gap left by collision-parts sales in the new era of autonomous vehicles.
Despite the enhanced safety afforded by autonomous vehicles, collisions won’t completely go away, particularly during the phase-in period following their introduction. As a result, the need for some collision repair parts will remain, and cars will have embedded new, high-value components such as sensors and cameras.
To ensure the integrity of these safety systems, the vehicles’ digital plan and system architecture may need to ensure that these safety-critical parts are certified to work in the system as a whole—in other words, original-equipment parts would be the only valid replacement for a safe operating system. With this collaboration between product development and the parts business, OEMs can effectively create a high-value proposition based on the safety needs of the vehicle.
Moreover, OEMs should investigate additional sources of profit from new services and business models, including:
- Providing alternative mobility solutions such as ride hailing, ride sharing, or car sharing
- Offering vehicle management as a service to corporate fleets
- Displacing auto insurance companies by providing bundled insurance with autonomous vehicles.
Autonomous vehicles and the impact they will have on the way OEMs do business is moving forward at a rapid pace. To ensure the viability of their collision-parts business, it is imperative for OEMs to reassess their current state and begin implementing necessary changes to reflect the coming new reality in automotive.
For more information on this report and others, visit the KPMG U.S. Manufacturing Institute Automotive Center page at http://www.kpmg-institutes.com/institutes/manufacturing-institute/automotive.html.