AudatexDirectionsNews from Audatex North America, Inc. Vol 05

Vehicle Mix and Repair Costs

How will an influx ofAsian vehicles impactinsurers?

ALSO IN THIS ISSUE> Shop View: Making the Journey to a Lean Shop (Part 2): I’M PIT ROW™ Waste Identification

> PCI Article: Protecting a Competitive Property Casualty Marketplace

> IAA Article: Factors and Influences of the Automotive Salvage Industry

> APU Solutions Article: Can Changing Alternative Parts Policies Impact Costs?

> Trends Data: RV Valuation Trends

> Much More

Audatex Directions is a quarterly newsletter that provides in-depth trends and industry analysis on the auto physicaldamage market. It is published by AudatexNorth America, Inc., a Solera Company.

Contributing WritersMichael T. AndersonSr. Director of Data Analytics, Audatex

Fred BersotSr. Product Manager, Audatex

Kelly BradySr. Director of Corporate Sales, Audatex

John EuellSr. Business Analyst, APU Solutions

Brian GraingerDirector, Product Services, Audatex

Diane KlundRegulatory Compliance Manager, Audatex

Charles LukensCEO, APU Solutions

Krishna MasurLean Six Sigma Black Belt, Audatex

Jeanene O’BrienVice President, Provider Marketing,Insurance Auto Auctions (IAA)

David SampsonPresident and CEO, Property CasualtyInsurers Association of America (PCI)

Dave TrisselAssociate VP of Process Excellence,Audatex

Request CopiesTo request a printed copy of this publication,please email: shamaila.shah@audatex.comTo download the pdf, please visit ourWeb site: http://audatex.us/thinktank.aspx

Local focus. Global knowledge.

Audatex is the leading global claimssolutions provider. As part of the Soleragroup of companies, we draw on our broadglobal claims market experience to identifyand implement the best-practice processesthat drive continuous improvement for ourlocal customers and their trading partners.Solera companies serve the automotiveindustry in more than 50 countries acrosssix continents.

© 2009 Audatex North America, Inc. All rights reserved.Audatex, AudaInsight, Autosource, Audatex Estimating,Audatex Win-EMR, PenPro and Shoplink are trademarks orregistered trademarks of Audatex. All other companyand/or product names may be trademarks or registeredtrademarks of their respective owners in the United Statesand other countries.

ContentsManaging Director’s Message

Feature Article–Vehicle Mix and Repair Costs: How will an influx of Asian vehiclesimpact insurers?

A Closer Look at Claims

–What Drives Supplements? Added Parts

–Are the Right Vehicles Being Totaled and

Repaired

On the Road–Do HOV Stickers Impact Vehicle Values?

Shop View–Making the Journey to a Lean Shop (Part 2):

I’M PIT ROW™ Waste Identification–Reviewing Estimates within a Multi-Shop

Environment

Insurance Issues–Protecting a Competative Property

Casualty Marketplace–Factors and Influences of the Automotive

Salvage Industry–Can Changing Alternative Parts Policies

Impact Costs?

Regulatory Update–Total Loss Updates

Trends Data–RV Valuation Trends

Audatex News and Events–Recent Press Releases –Upcoming Events

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Audatex Directions

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Glass Half Full

Lately, it seems we can’t get through the day without a common theme hangingoverhead—the economy is faltering and U.S. automakers are among the hardest hit.The topic is unavoidable. As GM and Chrysler are expected to close dealerships inrecord numbers, what will this mean for the industry?

Some see a bittersweet silver lining, reasoning that drivers who previously turned todealers for repairs will now beat a path to national chains and independent repair shopsto keep their vehicles on the road for as long as possible.

While there is certainly opportunity amidst the uncertainly, we must not becomecomplacent. We must continue to engage the challenges we face. For example, if vehicleowners turn to independent shops, what difficulties may arise in terms of warrantycoverage, service agreements, and vehicle-repair history records? This type of criticalquestioning is essential to success. And, it’s exactly what Audatex Directions aims toinitiate in each issue.

This quarter’s cover story explores what the rise of Asian vehicles will mean for collisionrepairers, insurers and consumers. Take a look and see why, for some, it could make asignificant impact. We then take a closer look at claims, analyzing what drivessupplements, whether the right vehicles are being totaled, and how HOV stickers canimpact vehicle values.

On the shop side, we continue to support our readers in their journey to a Lean shop byexamining waste identification techniques. We also examine methods through whichshops can ensure estimate quality and accuracy—even in a multi-shop environment.

Our insurance articles this quarter come courtesy of PCI, Insurance Auto Auctions andAPU Solutions. PCI discusses the importance of protecting a competitive propertycasualty marketplace. Insurance Auto Auctions shares the factors and influences of theautomotive salvage industry, while APU Solutions delves into the question of whetherchanging alternative parts policies can impact costs.

With summer fast approaching and vacations top of mind, we deemed this issue ofAudatex Directions the perfect time to dive into trends we’re seeing with RV valuations.

Finally, don’t miss the summary of the latest Audatex events and news, including anexciting new deal we’ve forged with eBay that will benefit our Hollander customers, aswell as the millions of eBay customers who may be looking for quality recycled auto parts.

From all of us at Team Audatex, thank you for your business.

Regards,

John Kotsopoulos,Managing DirectorAudatex North America, Inc.

3www.audatex.us

‘‘’’

Our insurance

articles this quarter

come courtesy of

PCI, Insurance Auto

Auctions and

APU Solutions.

Managing Director’s Message

4 Audatex Directions Vol 5

Figure 1: U.S. and Asian vehiclemarket share notably shiftedfrom March 1999 through March2009, with Asian vehicles gainingmore than 10 percentage pointsbetween 2003 and 2008. GeneralMotors (blue), Ford (orange),Chrysler LLC (maroon), Toyota(green), and Honda (gray).(Source: Wall Street Journal)

Growing up in Connecticut, I found there weretwo subjects that would always cause a heateddebate among my childhood friends. Who’s abetter team—the Red Sox or the Yankees? And,who built a better vehicle—Chevrolet, Mopar orFord?

While the baseball debate will continue for futuregenerations, I wonder if kids today still debatethe better vehicle maker with the fierce loyaltyseen in years past. And if so, does the debatenow include Honda and Toyota?

Asian InfluxIn June 2008, Asian vehicle manufacturerssurpassed U.S. automakers in terms of lightvehicle unit sales. According to Autodata,January 2009 sales suggest that Japanese andSouth Korean automakers together represented49.5 percent of light vehicle sales, while U.S.automakers fell to a record low 42.5 percent.This is a far cry from the 70 percent marketshare enjoyed by the Big Three U.S. automakersin 1995.

Attaining this milestone didn’t occur overnightfor the Asian vehicle manufacturers. As shownin Figure 1, Asian market share has steadilyincreased between 1999 and 2009, with morethan 10 percentage points gained between 2003and 2008. In 2005, Japanese automakers Toyotaand Honda experienced huge increases in sales,while smaller companies like South Korea’sHyundai made significant inroads as well.According to a December 2006 study performedby J.D. Power and Associates for The DetroitNews, the primary reasons consumers areavoiding American-made vehicles are concernsover reliability, quality and depreciation rates.

Vehicle Mix &Repair CostsHow wi l l an in f lux of As ian vehic lesimpact insurers?

By Michael T. Anderson

Feature Article

Continued next page

Mar. 1999 Mar. 2009

0

8

16

24

32%

0

8

16

24

32%

Total U.S. Market Share for Top Five Manufacturers

(March 1999 to March 2009)

Implications on Vehicle RepairabilityThis change in vehicle mix will have an impacton the industry—especially insurers—over thenext few years. Why? As shown in Figure 3(next page) for model years 1985 through 2008,Asian vehicles cost more to repair than domesticvehicles. In 2008, Asian vehicles cost anaverage of $75 more to repair than domesticvehicles. On top of that, in 2008, Asian vehiclesalso represented 39 percent of all claim volume.And, so far in 2009, this has increased to 39.7percent of claims, following exponential growthbetween 2003 and 2008. As claim distributionchanges to reflect the current market share data,the percent of Asian claims will increase evenmore.

There any many factors that may causedifferences in repair costs. For example,compared to their domestic counterparts,Asian vehicles:

• Average one full model year newer

• Average 12,000 fewer miles when involvedin a loss

• Have higher actual cash values (ACVs)

• Are 22 percent less likely to be declared atotal loss

These attributes will increaseloss costs for “repairable”Asian vehicles because agreater amount of damage willneed to be incurred before anAsian vehicle is deemed atotal loss.

5www.audatex.us

The misfortune of the U.S. automakers continuesin 2009. In addition to consumers’ concerns overthe Big Three’s financials, the influentialConsumer Reports magazine named only oneU.S. vehicle (the Chevrolet Avalanche) to its top10 picks for most reliable vehicles in the April2009 issue.

According to Audatex data, in 2008:

• Asian vehicles comprised 39 percent of allclaims (up 2 percentage points from 2007)

• Domestic vehicles comprised 53 percent ofall claims

• European vehicles comprised 8 percent ofall claims

• The average model year across all claims was2002.1

We further examined this 2008 claims data tounderstand how changes in domestic and Asianmarket share will impact the industry over thenext few years. When the 2008 claims data wasbroken out by model year, the shift towardsAsian vehicles is clearly present, as shown inFigure 2. By model year 2007, the percentageof claims for Asian vehicles exceeded that fordomestic claims, and this trend was also seenfor the 2008 model year.

Feature ArticleCont inued f rom prev ious page

Continued next page40%

45%

50%

55%

60%

65%

35%30%25%20%

2000 2001 2002 2003 2004 2005 2006 2007 2008

Asian Vehicles Domestic Vehicles

Domestic and Asian Claim Distributionby Model Year in 2008

Figure 2: The distribution of Asian (orange) and domestic (gray) claimvolume for calendar year 2008 illustrates a trends towards Asian vehiclesover time. By model year 2007, claims for Asian vehicles surpassedclaims for domestic vehicles. (Source: Audatex Insight™)

In 2008, Asian

vehicles cost an

average of $75

more to repair

than domestic

vehicles.

PartsAsian and domestic vehicles share the samerepair versus replace ratio—a figure often usedto gauge performance. For both, an average of24 percent of parts are repaired, while 76percent are replaced. However, understandingthe parts per claim is also critical. Not surprising,Asian vehicles—which are associated with morecollision losses—have more repair andreplacement parts per claim. As shown in Figure5 on the next page, compared to domesticvehicles, Asian vehicles consistently required 1.2more replacement parts and 0.4 more repair

parts per claim, which obviously impactsboth part and labor costs. This trend isobserved across all vehicle classes,including economy, mid-size, full-size,trucks, sport utility vehicles, etc.

6 Audatex Directions Vol 5

Types of Losses As seen in Figure 4, Asian vehicles have a fivepercent greater frequency of collision losses,which tend to be higher severity. Conversely,they experience significantly fewercomprehensive losses, which tend to be lesscostly (15 percent versus 22 percent). Thebiggest difference in comprehensive loss claimsare seen in the upper midwest and southwest.In fact, only in Massachusetts and Vermont doAsian vehicles have more comprehensive lossesthan domestics.

$80

$100

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$140

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$60$40$20$0

1985

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2004

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2007

$200

Repair Estimate Variance by Model Yearfor Asian versus Domestic Vehicles in 2008

Feature ArticleCont inued f rom prev ious page

Figure 3: In 2008, theweighted averagerepair costs forrepairable Asianvehicles exceededdomestics by $75.(Source: AudatexInsight)

Figure 4: Asian (orange) and domestic(gray) vehicle losses by coverage type in2008. (Source: Audatex Insight)

Continued next page

Asian Vehicles Domestic Vehicles

30%

35%

40%

45%

50%

55%

25%20%15%10%

Collision Comprehensive Liability

Losses by Claim Type for Asianand Domestic Vehicles in 2008

7www.audatex.us

In addition to containing a greater number ofparts to be repaired or replaced, Asian vehicleclaims average a 9.5 percent higher OEM-partspercentage.

Despite Asian vehicles having more collisionlosses, more parts per estimate and a greaterOEM-parts percentage, their average part-dollars-per-estimate is identical to domesticvehicles at $916. Why? Because many of themost common parts cost less on a per partbasis, as shown in Figure 6.

Continued next page

Feature ArticleCont inued f rom prev ious page

LaborThe average labor rates for Asian and domesticvehicles are very similar. However Asianvehicles require an additional 1.8 labor hours.The majority of the labor variance lies injudgment times associated with repairing sheetmetal and refinish hours. However, the data didreveal:

• 0.6 additional labor hours for sheet metalrepair hours (which can equate to anadditional $26 in costs)

• 0.5 additional hours of refinish work (whichcan equate to an additional $21 in costs)

• 0.2 additional hours for mechanical, electricaland frame work (which together can equateto an additional $10 in costs)

Much of the remaining variance-per-claim-dollars for Asian vehicles versus domesticvehicles are likely related to the additional laborneeded because of the greater number ofreplacement parts on the estimate.

The Impact for InsurersBased upon market share figures and Audatexclaim data, the industry may experience higherrepair costs over the upcoming years as a directresult of the influx of Asian vehicles into theoverall vehicle mix. Considering what is known

from 2008claims data andwhat can beprojected fromthe 2009 marketshare data, it issafe to assumethat Asianvehicles willhave asignificantimpact on repaircosts in the nextfew years. Theseverity of the

impact will greatly depend on an insurer’s bookof business. Using current data and the $75-per-claim cost difference, for every 50,000claims that shift from domestic to Asian insurers

Figure 6: Part costs for Asian vehicles are oftenlower than for domestic vehicles, thereby offsettingthe greater use of OEM parts and number of overallrequired parts.

Asian and Domestic Part Costs

Front Bumper Cover

Headlamp Assembly

Rear Bumper Cover

Hood Panel

Left Front Fender

Grille Assembly

Right Front Fender

Tail Lamp Assembly

Front Bumper Cover

A/C Condenser

$281

$285

$286

$409

$237

$145

$239

$164

$195

$384

$400

$247

$405

$491

$249

$260

$248

$124

$278

$356

$172

$182

$183

$252

$140

$87

$142

$114

$158

$191

$253

$170

$273

$293

$157

$154

$158

$84

$250

$187

$234

$134

$168

$200

$123

$67

$124

$79

$91

$88

$254

$118

$310

$224

$136

$96

$136

$68

$83

$84

Part

Avg.Asian

OEM Cost

Avg.Asian

AM Cost

Avg.DomesticOEM Cost

Avg.DomesticAM Cost

Avg.Asian

LKQ Cost

Avg.DomesticLKQ Cost

Domestic VehiclesAsian Vehicles

8

10

12

14

6

4Collision Comprehensive Liability

Replacement Part Count by ClaimType for Asian and Domestic Vehicles

Figure 5: Replacement parts by coverage typefor Asian (orange) and domestic (gray) vehicles.(Source: Audatex Insight)

Using current

data and the

$75-per-claim

cost difference,

for every 50,000

claims that shift

from domestic

to Asian,

insurers may

expect an

additional

$3.75 million in

loss costs.

Feature ArticleCont inued f rom prev ious page

may expect an additional $3.75 million in losscosts.

There are several variables that are driving theloss-cost variance for Asian vehicles versusdomestic vehicles. First, Asian vehicles havehigher ACVs and can incur higher damageswithout being declared a total loss. As a result,larger hits are included in the repairability metric.Minimizing the costs associated with this greaterrepair burden will depend heavily upon utilizingalternative parts, making proper repair-versus-replace decisions and making subjective repairand refinish times.

Successful managers will possess the toolsneeded to:

• Recognize the trends associated with thechanging vehicle mix

• Understand how market dynamics influencetheir specific results

• Identify where there is room for improvement

This requires having access to organizational,vehicle, parts, labor and operational data at boththe highest and lowest possible levels, as well asthe ability to gauge performance over time andexamine data at a transactional level. AudatexInsight is the only analytical tool on the markettoday that empowers users to have all of thisdata, instantly accessible at their fingertips. n

Audatex Directions Vol 58

References:

1. “Hyundai Defies U.S. Slump as Asians Grab Record Share (Update 2),” Bloomberg.com. Available at: http://www.bloomberg.com/apps/news?pid=20601087&sid=ajt4QNiM2RFo&refer=home. Accessed May 13, 2009.

2. “2006 Detroit New Domestic Vehicle Avoider Study: Conducted by J.D. Power and Associates,” The Detroit News, December 11, 2006.

3. “Best and Worst 2009 Cars: Most Reliable,” Consumer Reports, April 2009.

4. “What’s Moving: U.S. Auto Sales,” The Wall Street Journal Online. Available at: http://online.wsj.com/mdc/public/page/2_3022-autosales.html. Accessed May 13, 2009.

By definition, a supplement is an addendumto an original repair estimate created by arepresentative of an insurance company or repairfacility. Supplements may be needed for anumber of reasons, such as the identification ofhidden damage not visible during the originalestimate preparation, changes in the originalrepair methods, part price changes, insurerappraisal policies, or errors made by the originalappraisal resource. Regardless of the cause,supplementing an estimate decreases theefficiency of the claims process and addssignificant costs for both insurers and repairers.Unfortunately, it is often quite difficult to quantifya supplement’s contribution to unit cost.

A Collision Industry Council (CIC) study from2007 to 2009 attempted to quantify the directexpense to process a supplement. The studyincluded participation from insurers, repairersand suppliers. It found that costs can be as highas $737 per supplement, which represents $400for insurers, $239 for repairers and $98 forsuppliers. Even if the CIC’s estimates differ fromthe supplement costs you undertake, you can’tignore the fact that a certain percentage ofsupplements are in fact avoidable. However, toavoid supplements, you must first be aware ofthe factors that drive supplements.

As part of a new series of Audatex Directionsarticles called “What Drives Supplements?” wewill analyze various factors that contribute tosupplements in an effort to help you eliminatewaste, reduce expenses, and increase efficiency.Supplements may be associated with a numberof factors that can drive up costs, such asadditional parts, labor, tax and non-financialadministrative changes. In this first article of thenew series, we take a closer look at thefrequency and financial impact of repaired partsthat are subsequently changed to replacementparts on a supplement. We define these as“added parts.”

Added PartsDue to the lower costs associated with repairs,insurers often emphasize repair versus replace.However, during the repair process, it may bedetermined that the damage is too extensiveand a replacement is warranted. In such cases,it is often viewed positively that the estimator atleast considered repair as the first option andthe resulting supplement may be deemed a“good supplement.” But, what if only 20 percentof the total allotted repair time had passedbefore that repair was changed to a costlyreplacement? Does that still constitute a “goodsupplement”? What if that supplement had amuch higher likelihood of utilizing OEM parts,even when similar original estimates used non-OEM parts for the same part? Being able toanswer to these types of questions will help youbetter gauge performance and reduce the costsassociated with supplements.

We examined added parts for some of the mostcommon sheet metal parts, including frontbumper covers, which are included in 30 percentof all estimates. Despite being one of the mostcommon parts on estimates, front bumpercovers are changed from repair to replace just5 percent of the time. Overall, this conversionfrom repair to replace of sheet metal parts issurprisingly low, with only about 3.6 percent ofrepair decisions being changed to replacementsin supplements. This low percentage raisesanother question—Can more parts be repairedversus replaced?

But despite the low percentage of supplements,the question still remains as to whether or notthe supplement was a “good supplement.”When taking a closer look at the estimates thatcontain added parts, there still seems to beroom for improvement in terms of reducingsupplement frequency and decreasing the costsassociated with these claims. For example, for

Continued next page

What Drives Supplements? Added PartsAs insurers and repairers strive to increase efficiency,Audatex unveils a new series of articles that takes a closer look at what drives supplements.

By Michael T. Anderson

www.audatex.us 9

A Closer Look at Claims

those estimates where the front bumper coverwas changed from repair to replace, the originalrepair cost averaged $83, but the cost rocketedto $422 when the repair was changed to replaceon the supplement. The original repair cost of$83 represents about 1.9 labor hours, which iswell below the maximumrepair-versus-replace timethreshold used for many parts.In fact, 18 percent of allbumper-cover repairs thatchange from repair to replacecontain just one labor hour orless of repair time on the initialestimate. Moreover, 52 percenthave two hours or less ofrepair time. These statisticslead to two questions—Shouldthe part in fact be replaced onthe supplement? And if so,why did the estimator grosslyunderestimate the damage onthe original estimate?

Analysis of the sheet metal data also shows thatOEM part utilization is much higher on repair-to-replace supplements than on original estimates.When front bumper covers are changed toreplace on supplements, the utilization of OEMparts jumps to 64 percent compared to 44 percent OEM part utilization seen with otherestimates (Figure 1). While the front bumpercover is the primary example in this article, othercommon sheet metal parts such as fenders,quarter panels, hoods and rear bumper coversshowed very similar data in terms of repair-to-replace percentages, repair hours and increasedOEM part-utilization differences.

Opportunity for ImprovementAlthough added parts may not be the key driverof supplement activity, they contribute to overallsupplement costs and frequency. There isopportunity to improve the accuracy of originalrepair-time estimates and examine whydecisions to replace are sometimes made beforea reasonable percentage of the repair-timethreshold is reached. When estimators changeparts from repair to replace during thesupplement process, OEM part utilization is

also much higher compared to original repairestimates, adding to the overall claim costs.Effective business intelligence and compliancetools with real-time data alerts can help Audatexclients better monitor and manage the use ofadded parts.

Next in “What Drives Supplements?”In the next volume of Audatex Directions, we willanalyze “missed parts,” or replaced parts thatappear for the first time on a supplement withoutbeing in the original estimate as a either a repairor an R&I. We’ll dig into the data around missedparts and look at whether they’re a result ofhidden damage, or if they are just simplymissed. n

Audatex Directions Vol 510

A Closer Look at ClaimsCont inued f rom prev ious page

Figure 1: OEM part utilization percentages forcommon sheet metal parts when they appear inoriginal estimates (gray) versus when they appearin repair-to-replace supplements (orange).

Supplements Original Estimates

60%

65%

70%

75%

80%

85%

90%

55%50%45%50%

FrontBumperCover

HoodPanel

FrontLeft

Fender

FrontRight

Fender

Left Qtr.Panel

Right Qtr.Panel

RearBumperCover

OEM Sheet Metal Part Utilization: Original Estimatesversus Repair-to-Replace Supplements

% O

EM

Par

t U

tiliz

atio

n

...OEM part

utilization is

much higher on

repair-to-replace

supplements

than on original

estimates.

References:

“Supplement Reduction Best Practices,” 2007-2009 C.I.C.Business Management Committee. Accessible at: http://www.ciclink.com/business/2007-7-Business.pdf.

11www.audatex.us

provided so the client could validate theaccuracy of the algorithm and reference theactual claim contents, such as the estimate,photos, adjuster notes, payee information andthe valuation.

Of the claims tested for this client, the accuracyrate was 90 percent. Data suggest that 3 percentto 5 percent of decisions to total a vehicle maybe questionable. While this may not represent alarge percentage of overall claims, it cantranslate into millions of dollars in loss costs.Furthermore, the analyses have pointed to areaswhere clients may look to improve theirworkflow. This type of laser-focused reportingprovides re-inspection and quality assuranceteams with access to actionable information,helping them better manage loss costs, improvedecision making and enhance customersatisfaction.

Leveraging this method earlier in the claimsprocess could have a great impact on decision-making, helping drive significant value forAudatex clients. Currently, Audatex isinvestigating how these algorithms couldpotentially be integrated into the suite ofAudatex compliance and business intelligencesolutions. With this new way of garnering insightfrom claims data, Audatex is positioned to helpclients intelligently answer that million-dollarquestion—repair or total? n

Are the Right Vehicles Being Totaled and Repaired?By Michael T. Anderson

A Closer Look at ClaimsCont inued f rom prev ious page

“How do I know if we are totaling vehicles thatshould be repaired and repairing vehicles thatshould be totaled?” Sound familiar?

Considering the highly volatile vehicle valuesseen in recent months, this million-dollarquestion is increasingly important, and it’s onethat most executives will ask their auto physicaldamage management teams.

Often, answers to this question can be foundthrough re-inspection and quality assuranceprograms. However, in a recent client meeting,a senior insurance executive looking for newways to approach this question petitioned theAudatex team to provide a means for moredetailed analyses.

In response, we developed a statistical modelthat isolates the attributes within claims datathat are most often indicative of a total loss, inaddition to the attributes most often linked torepairs. We used these attributes, as well asother “common-sense” rules, to develop acomplex algorithm that can flag illogical claimsituations, such as a total loss claim that hasattributes of repairability, or vice versa.

Results from the analyses can be provided inthree sets of detailed reports, each designed toaddress different aspects of the total-versus-repair question. In this initial case, the list ofclaims used within the analyses was also

12 Audatex Directions Vol 5

Continued next page

In an effort to promote environmental initiatives,some states have provided incentives to driverswho choose hybrid vehicles. For example, inearlier years, California used a “Clean AirVehicle” decal as motivation for car buyers tochoose hybrids. These yellow decals aren’t likelyto catch your eye while you’re stuck in trafficbecause, thanks to their favorable emissionsoutput, vehicles with these decals have earnedthe right to utilize California’s High OccupancyVehicle (HOV) lanes, regardless of how manyoccupants are along for the ride. The perk isvaluable for commuters on California’s jammedhighways.

Despite their original cost of only $8, thesedecals—and the hybrids to which they’reaffixed—are now a hot commodity because thestate has stopped issuing new ones. In fact, the

Do HOV Stickers ImpactVehicle Values?By Brian Grainger

On the Road

Because vehicles with California Clean AirVehicle decals appear to have a higher valuethan those without, should insurers considerthis factor when settling a total loss?

California Department of Motor Vehicles onlyissued 85,000 original decals, which don’t expireuntil January 1, 2011. Decals are associated withtheir vehicles, not the owners. So, the only waymost drivers can get a decal is by purchasing aused vehicle that already has one. For driverswhose vehicles already have the decal, they canonly obtain new decals if their current vehicle istotaled and they purchase another low-emissionmodel.

Paying a Premium for ConvenienceCalifornia deserves credit for offering thisincentive in the earlier years of the greeninitiative. However, did anyone at the timeconsider how the stickers, and moreover theirlimited availability, might impact both real andperceived vehicle values?

Just ask Californians. Anecdotally, they’ll giveyou an idea of how much they are willing to payto shave as much as 2 hours off their dailycommute. Therefore, it’s no surprise that thosein the used-vehicle market say they are willing to

www.audatex.us

pay a premium for vehicles with a Clean AirVehicle decal. But, does a Clean Air Vehicledecal add real value—or is it just talk?

To answer this question, we performed a side-by-side vehicle comparison. We comparedvehicles within the same market that have similarmileage, condition, packages and options. Theassumption was that such comparisons wouldlogically yield the most accurate results.However, the analysis is complex. Unlike known

factory options, there is no data point to isolateand systematically analyze for Clean Air Vehicledecals. As such, when we performed a generalanalysis, the results were inconclusive. In someinstances, the vehicles that were eligible forClean Air Vehicle decals sold for a premiumcompared to nearly identical vehicles, but inother instances there was little difference.

So we took a closer look at the data from adifferent angle. We specifically analyzed data forthe 2005 and 2006 Honda Civic hybrids andtheir gasoline equivalents, which were releasedduring the years in which the California Clean AirVehicle decal was offered. For each model yearand vehicle type, we trended the average actualcash values (ACVs) across multiple states. Ineach state, with the exception of California, theACVs trend similarly for the hybrids and theirgasoline counterparts. However, in California, theACVs for the Honda Civic hybrids averaged 7 percent higher than in the other states, whilethe ACVs for the gasoline counterparts trendedsimilarly with the other states. This translatesinto a $1,203 premium for the 2005 modelHonda Civic hybrid and a $1,509 for the 2006model.

What’s it Really Worth?Because vehicles with California Clean AirVehicle decals appear to have higher values thanthose without, should insurers consider thisfactor when settling a total loss? And if so, howmuch is such a premium really worth? Eachinsurer needs to determine how to handle theseclaims, value the decal, and meet the obligationsof their policies. Another thing to consider isthat, beginning in 2009, an owner whose vehicle

is declared a total loss after an accident canapply for a replacement sticker provided thereplacement vehicle also qualifies. Additionally,the life span of these decals is limited: Theirbenefits expire at the end of 2010. As such, anyvalue afforded to the decals will depreciate to $0on January 1, 2011. n

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On the RoadCont inued f rom prev ious page

14 Audatex Directions Vol 5

Even the best-run shops can benefit from Leanprinciples—an ongoing approach to running abusiness that focuses on value, wasteelimination and increased speed. In volume 4 ofAudatex Directions, we explored why Lean is anincreasingly necessary element for success intoday’s collision repair industry. Here, we take acloser look at how Lean can help you identifyvalue and eliminate waste, and why continuousreassessment is a key to success.

The true beauty of Lean is that it’s simple andstraight-forward. The challenge, however, can bethat after you’ve implemented best practices forrunning your business, you must continuallymassage these principles over time in order toadapt to inevitable changes in businessdemands, technology, and the industry ingeneral.

“A lot of body shops think they’re Lean, butthey’re not,” says Rick Tuuri, associate vicepresident of industry relations for Audatex. “Leancan run the risk of being labeled a buzz word,but when it’s applied correctly, it’s anything butthat. It isn’t a one-time or short-term effort thatyou undertake and then you’re done with. It’s aphilosophy that you incorporate into your

business so that you’re always rethinking andadjusting going forward.”

Finding Value in Lean andDiscarding the Waste“Value” has a very specific meaning in Lean.Value is defined by the customer. It is anythingfor which the customer is willing to pay. It is anyactivity, done correctly the first time, thattransforms raw materials and information into aproduct or service individuals want enough tospend their money on it. Anything you do thatdoesn’t add value in the eyes of the customer isa “non-value-added” activity, otherwise knownas waste. Anything you produce that thecustomer is unwilling to pay for is waste.

Of course, there are a few required, non-value-added things, such as regulatory requirements,accounting practices and limited internalreporting, that cannot be entirely eliminated,although their costs can typically be reduced.

Waste is also a very specific concept in Lean. Itfalls into eight distinct categories:

Continued next page

Shop View

Making the Journey to a Lean ShopPart 2: I’M PIT ROW™ Waste IdentificationBy Dave Trissel and Krishna Masur

15www.audatex.us

part. You might find yourself surprised at theratio of value-added to non-value-addedactivities in a typical repair process.

In fact, you can take these numbers and createan equation that provides you with a moreaccurate understanding of your shop’s efficiency.To do so, just take the total value-added timedivided by the total time. You’ll then have yourprocess-cycle efficiency. If you can achieve aprocess-cycle efficiency of 20 percent, yourprocess is considered tops in the industry.

You’re not at 20 percent? How can you improveyour efficiency? For starters, going through thismapping exercise and discovering what waste isand where it exists in your shop is the first step.

In future articles within this Lean series, we’llexplore some of the many techniques forachieving higher efficiency. Fundamentally, Leanall comes down to reducing or eliminating thewaste in your process without negativelyaffecting quality. It could be something as simpleas moving the tools needed for a particularrepair to a permanent spot within the repair siteand then organizing them so technicians don’twaste time searching for what they need. Itcould be renegotiating with a supplier to getwhat you need as you need it. Or, it could beinstalling a better software tracking system. Onlyyou can determine this, but you need to performvalue-stream mapping to learn whatimprovements are necessary.

Coming in Part 3In the next edition of Audatex Directions, keepan eye out for part 3 in this series of articles onLean collision repair. Part 3 will dig deeper intothe principles and concepts associated withLean, including 5S (a basic level of orderlinessand standardization) and kaizen (or change forthe good).

In the meantime, remember, the only way tohave a truly Lean organization is to train all theemployees in your shop. Audatex provides anonline Lean Shop certification course thatdoesn’t just cover the basics of Lean, it appliesthe principles specifically to collision repair.

If you’d like more information about AudatexLean Six Sigma for Collision Repair, contactAudatex at 1-888-776-5372 extension 1964. n

• Intellect: Not fully utilizing the time and talentsof your people

• Motion: Any unnecessary movement of peoplethat does not add value

• Processing: Doing more than is necessary;over-processing

• Inventory: Accumulation of excess finishedproduct, work-in-process, or raw materials

• Transportation: Any conveyance of theproduct or information is waste

• Rework: Repair or correction of work; defects

• Overproduction: Producing too much ortoo soon

• Waiting: Waiting on work or information

You can use the acronym I’M PIT ROW toremember the eight types of waste. Use it toremind yourself that you should strive to be asfast and efficient as the pit crew on an autoracing team. For a pit crew, every tiny detailcounts; there is not a wasted second, no wastedmotions or wasted transportation, no tolerancefor rework or doing more than is absolutelynecessary to get the car back on its way with100-percent quality.

Value-Stream Mapping (or SeeingHow Well Your Business ActuallyWorks)To find value and eliminate waste, you need tofully understand your operational process. If yourorganization operates in a haphazard way, or ifyou started out with a process but made detoursto accommodate problems such as late partdeliveries, absent employees, broken tools orthe like, then you need to revisit your processand address the issues that have knocked it offcourse.

This means you must go to what is called the‘gemba,’ or your actual workplace, and preciselyfollow the flow of vehicles, materials, parts andinformation that takes you through the entirerepair process. Map the process on paper,noting the value-added activities, as well as thenon-value-added activities. This process iscalled value-stream mapping. Take a stopwatchand time each activity—even the wait timebetween steps, the time to find a tool or order a

Shop ViewCont inued f rom prev ious page

‘‘’’

It isn’t a one-time

or short-term effort

...It’s a philosophy

that you

incorporate into

your business so

that you’re always

rethinking and

adjusting going

forward.

Rick TuuriAssociate Vice President,Industry Relations,Audatex

16 Audatex Directions Vol 5

‘‘’’

Reviewing Estimates within aMulti-Shop Environment By Fred Bersot

Shop ViewCont inued f rom prev ious page

Quality and accuracy. These are two attributesthat are on every estimator’s mind. They greatlyimpact the collaborative relationship amongvehicle owners, repairers and insurers. But theyalso hinge upon the right decisions being made.And anyone who has written an estimate knowsthere are many decisions to make and methodsto consider when setting out to best restore avehicle to its pre-loss condition. The repairprocess combines both art and science.Answers are not black and white. Yet thechoices made affect the quality and accuracyof the estimate produced.

Almost every part or operation added to anestimate requires some decision. Repair orreplace? New parts or recycled parts? Paintlessdent repair or traditional repair? What are theproper rates? What are the applicable taxes?The decisions that can affect estimate qualityand accuracy are numerous. Add in the variousinsurer guidelines and estimators face adaunting task in trying to make the best

choices and manage expectations, withoutimpacting quality, accuracy, productivity andservice.

To help in the daunting decision-makingprocess, many organizations have made rule-based compliance tools an integral part of claimoperations. Since first gaining popularity in the1990s, these tools have matured significantly.They now allow for abundant business rules andstatistical probabilities, and they can identifyworkflow bottlenecks that threaten anorganization’s ability to deliver consistent andhighly accurate service.

In years past, auditing and related re-work wasprimarily initiated by insurers, who would oftenconsult with repairers via phone. The burden fellupon insurers because even though mostrepairers were equally concerned with accuracy,quality and throughput, they were less equippedto identify, address and eliminate inaccuracieswithin estimates, which is an integral part of the

Audatex Estimate

Review™ enables

us to provide a

more accurate

estimate to our

insurance partners,

the first time

around.

Don MikrutCEO of CARS Collision

Continued next page

17www.audatex.us

Shop ViewCont inued f rom prev ious page

claims process. But, with the help of newestimate-review solutions, this paradigm isbeginning to evolve.

In the Canadian market, for example, manyAudatex clients are changing the traditionalroles of insurers and repairers by utilizing aweb-based rules engine that facilitates a morecollaborative, real-time estimate-review process.The solution replicates the traditional reviewprocess within the shop environment, anability that is increasingly important in today’senvironment of multi-shop facilities and multi-insurer relationships. With it, repairers can verifyestimate accuracy and check insurer-programcompliance prior to the final estimates beingelectronically sent to an insurer.

In the U.S. market, Audatex Estimate Review,which facilitates the electronic review process,has been successfully leveraged in collaborativeefforts between CARS Collision in Indiana anda top insurer. The results were overwhelminglypositive for both parties, who experienced:

• Reduction of supplements

• Decrease in overall cycle time

• Increase in throughput

• Improved customer satisfaction

Don Mikrut, CEO of CARS Collision, said,“We’re always striving to increase efficienciesand reduce waste from the process. AudatexEstimate Review enables us to provide a moreaccurate estimate to our insurance partners,the first time around.”

In today’s challenging times, insurers andrepairers need technology and services that willhelp directly influence profitability. Audatex’sindustry leading suite of compliance productsoffers flexible solutions to insurers and repairersalike, helping them achieve more streamlined,automated, cost-effective processes thatimprove estimate quality and accuracy. n

Audatex Estimate Review enables estimateediting with red lining for easy reference tochanged items. It also provides real-timechanges and feedback to appraises for first-time estimate accuracy and fewersupplements.

Enjoy flexible and personalized workflowoptions in Audatex Estimate Review.

18 Audatex Directions Vol 5

Insurers are facing uphill battles on several frontsthis year, but the industry is working diligently tocombat misinformation and set the recordstraight on a number of key issues. In fact, asdiscussed below, the property casualty industryhas already scored notable wins in statelegislatures nationwide.

Credit-based Insurance ScoringAs expected, bills to ban or restrict credit-basedinsurance scoring have emerged in a number ofstates, and the PCI is working across the nationto help elected officials, the news media and thepublic understand the value of this tool and howit benefits consumers.

PCI experts have testified at hearings in Iowa,Nebraska, North Dakota, Minnesota,Connecticut, Maryland, Montana andNew Hampshire to underscore the importanceof insurance scoring as an accurate predictor ofrisk, and to explain that insurers consider creditinformation in their underwriting and pricingdecisions for only one reason—to rate and pricebusiness with a greater degree of accuracy andcertainty.

In addition, we are aggressively pushing twoother important messages.

The first key message is that in these tougheconomic times, consumers are pulling back onspending; they are saving more, and they arepaying off debt, which is improving both theircredit and insurance scores. Despite dailyheadlines about the slumping economy,consumer reporting agencies indicate that creditscores are remaining steady, if not slightlyincreasing, and consumers are continuing tobenefit greatly from credit-based insurancescoring.

Secondly, we are pointing out that a primarycause of our current economic crisis was thefailure by other segments of the financialmarketplace to accurately assess and price risk.Property casualty insurers have been thesafeguard against systemic meltdown becausewe gather extensive risk information fromconsumers and adhere to traditionalunderwriting principles. Restricting insurers’ability to collect and analyze that informationwould severely undermine their ability toaccurately price risk, ultimately hurtingconsumers.

Thus far this year, not a single piece of proposedlegislation aimed at banning credit-basedinsurance scoring has passed in any state.

Bad FaithInsurers also face tough bad faith battles inseveral states as trial lawyers attempt to takeadvantage of political shifts to expand theirability to bring lawsuits. PCI is countering trialbar propaganda and providing information tolawmakers about the true effects of a morelitigious environment on consumers and oninsurers’ ability to fight fraud.

PCI has been successful in combating badfaith bills by explaining the costs involvedand illustrating the duplicative nature of the

Protecting aCompetitive PropertyCasualty Marketplace By David A. Sampson,

President and CEO, Property

Casualty Insurers Association of

America (PCI)

Continued next page

Insurance Issues

Despite daily

headlines about

the slumping

economy,

consumer

reporting agencies

indicate that credit

scores are

remaining steady,

if not slightly

increasing, and

consumers are

continuing to

benefit greatly

from credit-based

insurance scoring.

19www.audatex.us

proposals. After an auto accident, a personalinjury lawsuit is common because injuredaccident victims often seek to recover medicalpayments, lost wages, damages to their vehiclesand attorney fees. But when personal injurylawyers can also sue the defendant’s insurancecompany for “bad faith,” nearly every personalinjury lawsuit then spawns a second, bad faithlawsuit.

Thus far, bad faith bills have either beendefeated or withdrawn in Oregon, Iowa,Montana and New Mexico.

Accident TaxA number of local governments nationwide areimplementing ordinances that subject driversand insurers to fees imposed by police and firedepartments for simply responding to anaccident scene. Faced with tight budgets, manymunicipalities are using these accident responsefees, also known as an “accident tax,” toincrease revenues without formally raising taxes.But public safety is a core mission of localgovernment, and these fees take advantage ofconsumers.

Private collection companies are behind thetrend, and they promise cash windfalls inexchange for the ordinances. The vendors billthe insurers on behalf of the local governments,and if the insurers don’t pay, the vendors seekpayment from drivers.

Accident response fees amount to nothingmore than double taxation. Emergency responseservices are already paid for by property taxesand other local taxes, and the fees contradictthe idea of subsidizing basic local governmentservices with such taxes. By billing for policeand firefighting services, governments areimposing hidden, redundant taxes onconsumers, which will ultimately raise insurancecosts for everyone.

PCI has been generating media coverage on thisissue and is urging lawmakers to pass bills thatprohibit local governments from imposing anaccident response service fee on any person orinsurance company. In early April, the ArkansasLegislature delivered a major consumer victoryby banning the accident tax, and on May 1,

2009, the Florida Legislature passed a similarban. Similar legislation is already in effect inPennsylvania, Missouri, Indiana, Georgia, andTennessee. PCI is leading efforts to end theaccident tax in California and Alabama. Formore information on this issue, visithttp://www.accidenttax.com.

Engagement Drives SuccessPCI activated grassroots campaigns on all of theissues described here, and we will continue tofight proposals that have negative consequencesfor insurers and consumers.

Involvement is the most crucial element to oursuccess in countering hostile attacks andfostering a healthy, competitive property casualtymarketplace. Now more than ever we needinsurance professionals to take action and voicetheir positions on issues.

Get InvolvedPCI invites you to join thousands of otherinsurance professionals nationwide and becomea key contact in our Insurers for Action politicalinvolvement program. Key contacts areimmediately notified ofrelevant legislation andindustry-wide politicaladvocacy efforts throughInsurers for Action emailalerts, which provide theinformation and tools necessary to contactpublic officials on important industry issues.For more information, visithttp://www.pcipoliticalaction.net. n

Insurance IssuesCont inued f rom prev ious page

Accident

response fees

amount to

nothing more

than double

taxation.

20 Audatex Directions Vol 5

In 2008, the automotivesalvage industry was

influenced by a number of factors. Here, we takea closer look at how these factors impactedvehicle values and salvage returns in 2008, andwhat we might expect in 2009.

2008 OverviewIAA divides the market into three segmentsbased on average vehicle sale price.

• Low-grade vehicles: 20 percent of vehiclestock with the lowest sale price

• Mid-grade vehicles: 60 percent of vehiclestock with the middle sale price

• High-grade vehicles: 20 percent of vehiclestock with the highest sale price

Overall, since mid-year 2008, the salvage markethas experienced slight declines. Our analysis

shows that the following six factors stronglyinfluenced the performance of all threesegments. But, as discussed, some factorsinfluenced particular segments more thanothers during 2008.

• Used Car Price Index (UCPI)

• Producer Price Index of IntermediateGoods (PPIITM)

• Crushed Car Index (CCI)

• Average Age of Vehicle Stock

• Exchange Rate Values

• Buyer Make-Up

The year 2008 started out strong for the salvagemarket and remained so until the beginning ofthe summer, at which time the UCPI began tofall, causing returns to respond starting in June.The three segments remained steady through

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Figure 1: The scrap price index from January 2007to March 2009. (Source: AmericanRecycler.com)

Factors and Influences of the Automotive Salvage IndustryBy Jeanene O’Brien, Vice President, Provider Marketing,

Insurance Auto Auctions (IAA)

Insurance IssuesCont inued f rom prev ious page

Continued next page

21www.audatex.us

the end of August 2008, but then responded todramatic shifts in foreign buying power due tothe U.S. Dollar gaining strength, large decreasesin U.S. vehicle production, and decreases inscrap prices.

Low-grade Segment TrendsIn 2008, the majority of low-grade vehicles wereused for scrap metal and they were valuedbased on the raw materials of which they arecomprised. The values of these materials aremeasured by both the CCI and the PPIITM. Rawmaterials behave much like a commodity andtheir values fluctuate in a manner similar to oil orgold. A significant driver in the commoditymarket is the value of the U.S. Dollar. Becausemost commodities are priced in U.S. Dollars,when the dollar decreases in value, one unit ofthe commodity therefore costs more U.S. Dollarsto purchase. When the U.S. Dollar valuedeclined sharply in the beginning of the year,corresponding increases were seen in both theCCI and PPIITM, which impacted the low-gradesegment. Conversely when the CCI and PPIITMsharply dropped in the fourth quarter, the low-grade segment reacted accordingly. Figure 1 onthe previous page illustrates the fluctuation inthe scrap price index from January 2007 toMarch 2009.

Mid-grade Segment TrendsThe mid-grade segment makes up the largestportion of IAA inventory and contains a range ofvehicle types, including those that can be usedfor scrap and parts, as well as those that can berebuilt, sold and driven again. As a result of thebroad span of vehicles in this segment, both thePPIITM and UCPI have the greatest impact on it.Because the PPIITM has strong influence, whenthe U.S. Dollar strengthened in July 2008,causing the PPIITM to decline, a downward shiftin the mid-grade segment was seen. In addition,the mid-grade segment also reacted to thedecline of the UCPI that started in April 2008,as well as the slight recovery in November andDecember of 2008. The modest recovery wasdirectly related to consumers beginning topurchase more used than new vehicles, as wellas an increase in the demand for parts. Together,these two factors drove an upswing in thedemand for parts vehicles.

Figure 2 shows the used car price index fromJanuary 2008 to March 2009.

High-grade Segment TrendsVehicles that are ready to be repaired and resoldmake up the high-grade segment. The UCPI hasthe single strongest influence on this segment.As noted, the decline in the UCPI beginning inApril 2008 effected the salvage market, mostspecifically the high-grade segment. As theoverall economy continued to slide through2008, consumers shifted from purchasing newcars to purchasing used cars, therefore giving apositive lift to this segment towards the end ofthe year.

What’s to Come in 2009?The global economic environment has exertedpressure on the selling prices of salvagevehicles, driven principally by decreased

commodity prices for scrap, lower used-vehicleselling prices, decreased demand for new carsand the growing strength of the U.S. Dollaragainst several foreign currencies. Thecombination of these factors has affected somesegments of salvage more than others.

So far in 2009, IAA has seen early indicationsthat lead us to believe the market mayexperience gradual recovery and returns willcontinue to lift from their current levels. Thisrecovery may be strengthened by an increase inthe demand for used cars and used auto parts,as vehicle owners keep their cars longer andpurchase new cars at a significantly slowerrate. n

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Figure 2: The used carprice index from January2008 to March 2009.

(Based on data fromADESA, a provider ofauctions and relatedservices for theautomotive industry)

Insurance IssuesCont inued f rom prev ious page

22 Audatex Directions Vol 5

When it comes to searching for like, kind andquality replacement parts, many companiesemploy a same-model-year-or-newer (SMYON)policy. More simply stated, they require that therecycled parts used in the repair must comefrom a vehicle that is at least the same modelyear or newer. Given the interchangeability ofparts across several model years, could thisrestrictive policy negatively impact recycled-partutilization and associated costs?

For example, if you were preparing an estimateon any 2002 to 2006 model-year vehicle that hasan interchange availability range of 2002 to2006, the chance of finding a part using theSMYON cut-off is naturally much lower than thechance of finding a part using the entireavailability range of 2002 to 2006. This is simplybecause you’d be considering a smaller pool ofparts using the SMYON approach. The onlyexception would be the 2006 model year, forwhich the chances would be the same. Why?Because in either case, only the 2006 modelyear would be considered. As illustrated inFigure 1, when employing the SMYON policyacross the 2002 to 2006 model years,companies would disregard up to 40 percent ofpotentially interchangeable parts (i.e., 10 of the25 total years would be disregarded).

Interestingly, as illustrated in Figure 2 (on nextpage), if companies modified their SMYONpolicies to also allow parts from vehicles that arejust one model year older than the repair model, 76 percent of the truly eligible parts would thenbe allowable, meaning that under the new policy,estimators could now consider 27 percent moreparts than they could under the more strictSMYON policy.

2002 2002

2003 2003

2003

2004 2004

2004

2004

2005 2005

2005

2005

2005

2006 2006

2006

2006

2006

2006

Parts Allowed Under the SMYON PolicyModelYear

Figure 1: In the example shown here, across the2002 to 2006 model years, employing a SMYONpolicy would mean only 60 percent of thepotentially interchangeable parts will beconsidered. Forty percent of the potential parts(shown in orange) are simply not considered dueto the SMYON policy.

Can Changing Alternative PartsPolicies Impact Costs?By Charles Lukens (CEO, APU Solutions) and

John Euell (Sr. Business Analyst, APU Solutions)

Continued next page

Insurance IssuesCont inued f rom prev ious page

23www.audatex.us

These examples clearly show that expandingsearch rules will afford greater opportunity forparts to be located. However, to determine howthe SMYON policy may impact part utilizationand resulting costs, we performed a deep-diveanalysis that focused on the following fourmetrics:

• Number of quotes where at least onegrade-A part is found

• Unique grade-A per part hit rate

• Percentage of parts recommendedversus parts available

• Percentage of parts recommendedversus parts eligible

As shown in Figure 3, companies that do not institute SMYON partspolicies had nearly twice as manyquotes with at least one grade-A partfound, and their unique grade-A per part hit rateincreased by 11 percentage points, while theirpercentage of parts recommended versus partsavailable increased by 10 percentage points.However, there was only a one percentagepoint increase in terms of the percent of partsrecommended by an estimator (and likelyinserted on the estimate) versus parts eligible.

To understand the dynamics behind partsselection, we more closely examined each of thetop companies that have varying parts policies,focusing specifically on those companies that do

not discriminate part searches bymodel year. These companiesrepresent 20 percent of all partsearches performed on APU’ssystems. However, digging intothe raw data didn’t provide aquantitative conclusion, so wewent to the companies to askwhy, despite greater partavailability, their alternative-partutilization rates were consistent

with other companies that had more restrictivepolicies.

After conducting several interviews andreviewing data with clients, we arrived at twoconclusions. The first conclusion, and mostprominent reason why there is only a nominaldifference between alternative-part utilizationrates in companies that follow a SMYON policyand those that don’t, appears to be that somecompanies continue to passively monitoralternative-part utilization by their staff andrepairers. The second conclusion is a byproductof the first. We found that in many instances,appraisers make their own SMYON decisionsdespite company policy that may allow forgreater use of alternative parts.

So, considering these finding, how canexpanding a SMYON parts policy impact losscosts? It seems benefits will only be realized ifthe proper compliance tools and policies are inplace. Companies must continuously ensurebest practices are being followed becausewithout true compliance minimal gains will berealized, even if more parts are available toappraisers. n

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ModelYear

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28%

37%

57%

47% 17%

16%

% of partsrecommended

vs. partseligible

% of partsrecommended

vs. partsavailable

Uniquegrade-A perpart hit rate

Quotes when atleast one grade-A

part is found

SMYON

NoSMYON

Figure 2: In the example shown here, across the2002 to 2006 model years, employing a policy ofSMYON minus one year would enable estimatorsto consider 76 percent of the potentiallyinterchangeable parts. With this more lenientpolicy, only 24 percent of the potential partswould not be considered (shown in orange).

Figure 3: Cleardifferences were seenon all key metricsexcept the percentageof parts recommendedversus parts eligible forcompanies that followa SMYON policy andthose that don’t.

Insurance IssuesCont inued f rom prev ious page

24 Audatex Directions Vol 5

Arguably, one of the most active andcontested bills in the automobile totalloss arena is Connecticut House Bill6450. This bill from the JointCommittee on Insurance and RealEstate, which is co-chaired byRepresentative Steve Fontana, wasfirst introduced on the basis of acomplaint from a constituent. In thepast few months, it has beensignificantly amended several timesas a result of meetings betweenlegislators, the Connecticut InsuranceDepartment, insurers, and AudatexNorth America, Inc.

Connecticut House Bill 6450 started as ameasure to replace the current calculationmethod used to obtain ACVs in total losssettlements. The current method uses anaverage value that is derived from valuesobtained from the National Automobile DealersAssociation (NADA) used-car guide, as well asan approved second source, such as theAutosource® total loss valuation solutionprovided by Audatex. The bill, as initiallyintroduced, would have required insurers to use the higher of the two values, instead of anaverage. It also would have required that thesettlement amount not be less than the retailvalue of a comparable vehicle at a dealership.

After being reported favorably out of committee,House Bill 6450 morphed into a menu of threeoptions, whereby an ACV could be derivedbased on values from:

• Two comparable vehicles at a local dealership

• The average of three written dealer quotations

• The retail value of the vehicle from a sourcesuch as the NADA used-car guide or any othersource approved by the InsuranceCommissioner

The vehicle owner would provide the values, andhave the choice of which option to use in thetotal loss settlement.

In its meetings with legislators, Audatexpresented details on the comprehensivenessand accuracy of vehicle valuations calculated byindependent valuation service providers.Audatex met with the following members of theJoint Committee on Insurance and Real Estate:

• Representative Steve Fontana, co-chair

• Senator Joseph Crisco, co-chair

• Senator Sam Caligiuri, ranking member

• Representative Anthony D’Amelio, ranking member

• Mike Christ, steering committee member

• Debra Korta, legislative program manager withthe Department of Insurance

The most recent amended version of House Bill6450 would continue to allow insurers to pay theaverage of Autosource and NADA. In lieu ofNADA, however, insurers will be able to use“any other publicly available automobileindustry source that has been approved forsuch use by the Insurance Commissioner.”

Also an additional requirement has been addedthat the insurer shall provide to the claimant, notlater than the date of payment of the settlement,a copy of the insurer’s calculation of thesettlement, or the valuation report provided tothe insurer by the approved industry source. Inaddition, the insurer must provide written noticeto the claimant that if (s)he disagrees with theevaluation, (s)he may contact the ConsumerAffairs Division at the Insurance Department, andinclude the contact information for the Division.

Lastly, a minor change was made to Subdivision(2) of subsection (b) of section 38a-9 of thegeneral statutes in which the interest rate on thedisputed amount, should the consumer prevail,is increased from 10 percent to 15 percent peryear.

Continued next page

Regulatory Update

Total Loss UpdatesBy Diane Klund

Total loss issues are of great interest to our clients and

industry partners. Here, we present the latest total loss

updates resulting from our continual review and monitoring

of bills and regulatory actions related to automobile

physical damage (as of the date of publication).

25www.audatex.us

You can view the amended bill athttp://www.cga.ct.gov/2009/lcoamd/2009LCO07580-R00-AMD.htm

Total loss issues abound in other states as well.

In West Virginia, House Bill 2895 proposed toadd “nationally accepted” as a qualifier for used-car guides approved by the InsuranceCommissioner for use in settling total losses. Italso sought to add a requirement for insurers toinform vehicle owners which of the nationallyaccepted used-car guides was used to settle theclaim. While the intent of this amendment toSection 33-6-33 of the West Virginia Code wasnot clear, the bill has died in committee.

In the previous issue of Audatex Directions, wereported on Oregon House Bill 2190, theInsurance Department’s total loss bill. The billhas now been signed by the governor and it:

• Requires insurers to provide the vehicle ownerwith written documentation to support thevaluation of the totaled motor vehicle, whenthe vehicle is a declared total loss

• Requires insurers, after certain conditions aremet, to pay the amount not in dispute, whenthere is a disagreement over the value of atotaled motor vehicle

• Allows the owner of a totaled motor vehicle torecover reasonable appraisal costs from the

insurer, if the final appraisal decision isgreater than the insurer’s final offer

The Oregon Insurance Department will bedrafting a written statement with informationabout total losses, vehicle valuations and theduties of the insurer. Insurers will be required toprovide the statement to vehicle owners.Audatex will continue to monitor this processand work with the Oregon Insurance Departmentto assure that the statement includes anaccurate description of total loss methodology.

Also in Oregon, House Bill 2370 has died incommittee after being introduced for the thirdconsecutive legislative session. The bill hadsought to require the use of two independentvaluation services approved by the InsuranceCommissioner.

Lastly in the total loss arena are the pendingregulatory amendments to Washington state’sUnfair Claims Practices Act, which were alsodiscussed in the previous issue of AudatexDirections. At press time, the final adoptedamendments resulting from the administrativehearing on March 2, 2009 have not beenreleased. Upon review of the final adoptedregulations, Audatex will post pertinentinformation regarding any changes toAutosource section of the Audatex OnlineTraining Center, www.training.audatex.us. n

Regulatory UpdateCont inued f rom prev ious page

26 Audatex Directions Vol 5

With summer nearly here, many recreationalvehicles (RVs) will be back on the roads.Surprisingly, despite an economic recession andthe status of RVs as a “luxury” item for most,many U.S. and Canadian dealerships arereporting increased sales. In fact, StatisticsCanada recently reported that RV sales rose 42.1 percent between December 2008 andJanuary 2009. Another survey conducted by theRecreation Vehicle Industry Association suggeststhat 55 percent of respondents intended to usetheir RVs more in spring and summer 2009 thanthey did last year, and 45 percent areconsidering another purchase. Currently, it isestimated that 1 in 12 vehicle-owing homes inthe U.S. has at least one RV.

If the survey results and sales trends hold true,more than 8 million RVs will take to the roads insummer 2009. Unfortunately for some owners,these experiences on the road will also result inan accident.

While RVs typically represent the minority of aninsurer’s claim volume, a single RV loss can costas much as several hundred thousand dollars.To effectively manage these losses and ensure afair and accurate settlement, insurancecompanies and their representatives need in-depth knowledge of the physical asset itself, aswell as the RV industry as a whole.

Among the factors that should be consideredwhen calculating an RV settlement are:

• Age and manufacturer – The depreciationrate among RVs can vary dramatically bymanufacturer, with prices for some RVs fallingsignificantly in just one year.

• Gas versus diesel – Diesel vehicles often costmore than gasoline models, partly because oftheir additional towing capacity and historicaldifferences in fuel and maintenance costs.However, as fuel costs have shifted in the pastseveral months, this perceived benefit hasdiminished, thereby lessening the pricevariances between diesel and gasoline RVs.

• Mileage –Typical RV mileage ranges from8,000 miles to 10,000 miles per year, but thiscan vary and influence values, dependingupon the type of RV.

• Options - Options can have a material impacton an RV’s value. It is not uncommon to seeinterior items such as Corian® counters,hardwood cabinets, and granite or tile floors.Exteriors can include double-pane windows,laminated fiberglass roofs and exterior walls,along with outside entertainment centers.Knowing how these options may (or may not)influence values is extremely important in thesettlement process.

• Accessories – The value of optionalaccessories, such as satellite dishes andflat-panel TVs, often depreciate faster thanthe RV itself, and in many instances theseaccessories add little to the overall value.

• Condition – Proper care will keep an RVlooking new for years and enhance its overallvalue. Poor condition can negatively impact anRV’s value by as much as 30 percent whencompared to other RVs in better condition.

Understanding how these various attributesspecifically contribute to the overall value of theRV is imperative during the total-loss settlementprocess, especially given the current markettrends. Similar to private passenger automobiles,the ACVs for RVs have fluctuated over the past18 months. However, while automobiles declinedsharply in the third quarter of 2008, RVs felt the

Trends Data

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Motor Homes 5th Wheel/Travel Trailer Camper Tent Trailer

ACVs by RV Type

Figure 1: ACVsby type of RV.

RV Valuation Trends By Kelly Brady

Continued next page

27www.audatex.us

impact in the second quarter, as gas pricesapproached $4 per gallon. Figure 1 (on previouspage) reflects the ACVs of RVs by type from thefirst quarter of 2006 to the first quarter of 2009.

The seemingly stable trend from the secondquarter of 2008 to the first quarter of 2009 maybe misleading. Take motor homes for example.Since the second quarter of 2008, motor homeACVs have held relatively constant. However, asseen in Figure 2, an increase in average modelyear has substantially outpaced calendar years.For example, from quarter one 2007 to quarterone 2009, the average model year increasednearly four years in just those two calendaryears. Yet, even with the abundance of newermodel-year motor homes, the ACVs remainedconstant, suggesting that these newer motorhomes are depreciating at faster pace than inyears past. Similarly, despite the average modelyear increasing more than two model years fromquarter one 2008 to quarter one 2009, the ACVshave declined by 23 percent. In fact, theNational Automobile Dealers Association

suggests that a new motor home is worth about60 percent of its original list price after just oneyear and its value declines to about 25 percentof its original list price within 10 years.

The market for RVs isn’t limited to buyerslooking for high-end motor homes; rather, it is a

market filled with a wide array of products thatare targeted to nearly every demographic group.As you look across the data for the differenttypes of RVs, you will find that each type has itsown trends. For example, fifth wheelers andtravel trailers show a different trend than motorhomes. From quarter one 2008 to quarter one2009, they have had a two-tenths of apercentage model-year increase along withACVs that were off by 11 percent; during thatsame period, motors homes have seen a 1.1percent model-year increase and 23 percentACV decrease. Campers and tent trailers havetheir own unique trends as well. Unlike the othertwo classes, when comparing quarter one 2008to quarter one 2009, their ACVs have increasedby two percentage points and they have seen a1.2 percent model-year increase.

Dealing with the DataReports suggest that sales of RVs are improvingin 2009. However, they may continue to posesettlement challenges as the AVCs remain flat,

even while theaveragemodel yearincreases. Asthe RV seasonnears, insurerswill need todetermine fairand accuratevalues forthose RVs thatare totallosses. It canbe quitedifficult tounderstand

how an RV’s features and unique attributes, aswell as the overall market conditions, impact itsfinancial worth during the total loss process. AtAudatex, our Autosource Specialty Departmentis uniquely qualified to provide you with fair,accurate, market-driven information that willenable your adjusters to confidently discuss thefactors used in the settlement of an RV totalloss. n

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Motor Home Trends

Figure 2: Motor home ACVs compared toaverage model year

Trends DataCont inued f rom prev ious page

Audatex News and Events

28 Audatex Directions Vol 5

eBay® Motors and Hollander to Unlock Used Parks Inventory with Exclusive Online DealSAN JOSE, CA (May 19, 2009) - eBay Motors (www.ebaymotors.com) (Nasdaq: EBAY), the #1 online automotivemarketplace worldwide, announced an exclusive agreement with Hollander, a Solera company (NYSE: SLH) and theleading provider of auto recycling and parts yard management solutions in the U.S. and Canada, to provide access toover $2.7 billion in retail value of used parts inventory on eBay Motors.

SafeAuto® Adopts New Business Analytics Solution from Audatex North America, Inc.,Signs Multi-Year AgreementSAN DIEGO, CA (May 11, 2009) - Audatex North America, Inc., a leading provider of software and services for theautomotive claims processing industry, today announced that it has signed a multi-year renewal with SafeAuto InsuranceCompany. Based in Columbus, Ohio, SafeAuto serves policy holders in 14 states across the Midwest, Arizona and Texas.

Hollander and Progi-Pac Settle Copyright Infringement Case, Enter Into Multi-Year LicensingAgreementSAN DIEGO, CA (May 5, 2009) - Hollander North America, Inc., a leading supplier of business solutions for automotiverecyclers, has reached a settlement in its copyright infringement dispute with Progi-Pac, a Canadian supplier of French-language management and parts-interchange software for automotive recyclers. Along with the settlement, thecompanies have also entered into a multi-year licensing agreement.

Independent Automotive Damage Appraisers Association (IADA) Signs National Agreementwith Audatex North America, Inc.SAN DIEGO, CA (April 27, 2009) - Audatex North America, Inc., a leading provider of software and services for theautomotive claims processing industry, today announced that it has signed a five-year agreement with the IndependentAutomotive Damage Appraisers Association (IADA). The IADA has more than 600 service locations serving the U.S.market and more than 400 automobile insurance providers.

Audatex’s New 6.0 Workflow Solution Sets Stage for “Intelligent” GraphicsSAN DIEGO, CA (April 22, 2009) - Audatex North America, Inc., a leading provider of software and services for theautomotive claims processing industry, today announced the availability of Audatex Estimating™, Version 6.0.

RSA Canada Selects Audatex as Exclusive Provider of Automotive Appraisal ServicesSAN DIEGO, CA (April 20, 2009) - Audatex North America, Inc., a leading provider of software and services for theautomotive claims processing industry, today announced that leading home, car and business insurer RSA has signed anexclusive, multi-year agreement to implement Audatex solutions for estimating, compliance, total loss and reporting.RSA Canada is part of the international RSA Group plc (LSE: RSA), which does business in 130 countries worldwide andhas net written premiums of £6.5 billion, or $11.6 billion.

To read the full versions of these Audatex press releases, please visit www.audatex.us/news.aspx

Continued next page

Collision Industry Council (CIC) Meeting in conjunction withI-CAR 30th Annual Industry ConferenceWashington, D.C.

July 28

July 28-31

Sept 22-24

Catch Audatex at the next industry event or trade show.

Audatex Technical Advisory Council - By Invitation OnlyWashington, D.C.

Audatex Strategic Advisory Council - By Invitation OnlySan Diego, CA

29www.audatex.us

Audatex News and EventsCont inued f rom prev ious page

Audatex Online TrainingCenter: Ongoing LiveCourses

Audatex continues to offer award-winningaccredited online training classes for free. Live,virtual classes make it easier than ever to putAudatex Solutions to work for you.

For the latest Audatex training informationand to see what classes are coming up, visitwww.training.audatex.us.

© 2009 Audatex North America, Inc. All rights reserved. All other registered trademarks are the property of their respective owners.

15030 Avenue of Science, Suite 100, San Diego, CA 92128Tel: (800) 237-4968 Fax: (858) 946-1073

www.audatex.us www.solerainc.com

SAN JOSE, CA (May 19, 2009) - eBay Motors(www.ebaymotors.com) (Nasdaq: EBAY), the #1online automotive marketplace worldwide,announced an exclusive agreement withHollander, a Solera company (NYSE: SLH) andthe leading provider of auto recycling and partsyard management solutions in the U.S. andCanada, to provide access to over $2.7 billionin retail value of used parts inventory on eBayMotors.

Hollander’s inventory represents nearly 60percent of the available used parts market andthis deal marks the first time their more than3,000 auto recyclers, rebuilders and collectorswill have the ability to list items online—reachingnearly 12 million unique monthly visitors on theeBay Motors site. Hollander’s enterpriseresource tool will power the listings which willthen feed directly on to eBay Motors. The launchis expected to take place by the end of 2009.

“Our goal is to connect buyers and sellers in aglobal marketplace with the largest selection ofgreat deals,” said Rob Chesney, vice president,eBay Motors, Marketplaces. “Working withHollander essentially doubles the eBay Motors

selection—already the largest parts inventoryon the web—and reinforces our position as aleading automotive destination online withaccess to the best inventory in the used,refurbished and liquidation automotive partsand accessories space.”

“Hollander has been helping auto recyclers sellparts effectively and efficiently for more than 70years,” said Tony Aquila, founder, chairman andchief executive officer of Solera. “With eBayMotors we are unlocking an unprecedentednumber of recycled parts new to ecommerceand creating a cost-effective and value-drivensolution for both auto recyclers and eBay Motorsusers.”

By exposing millions of what are often describedas used or recycled parts and accessories forthe first time on the eBay Motors’ automotivemarketplace, buyers have even broader accessto an extensive selection of great deals on anational scale. This includes many hard to find,used original equipment manufacturer (OEM) oroftentimes refurbished items previously onlyavailable through catalogs or recycling yards. n

eBay Motors and Hollander to UnlockUsed Auto Parts Inventory with ExclusiveOnline Deal

Proceed with Intelligence.

Intelligence. Built In.

Customers look to you for more than an insurance policy. They want safety and peace of mind. You ask no

less of your information provider. You want a partner who will be there as your business needs change. You

demand stability, vision, and intelligence. Audatex North America builds automotive claims solutions that provide

insurers with smart information. We develop software that runs on the world’s most comprehensive vehicle data-

base so you can delight policyholders. We’re constantly driving improvement. From a new dispatch solution that

can power your appraiser teams to higher performance to new business analytics that deliver unparalleled

insight, Audatex builds intelligence into every product. Audatex associates stand ready to help get you through

any obstacles ahead. For more than 40 years, we’ve done business this way. And we have no plans to change.

You can count on it.

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