The motor market has been volatile in recent years due to several factors. New vehicle sales were already down by 28.7% on pre-pandemic levels in 2021 and have failed to bounce back due to the ongoing impact of the global semiconductor shortage and the war in Ukraine affecting supply chains.
Allianz UK noted that new vehicle registrations only started to pick up in August 2022 and used vehicles had gained significant value.
We’ve been out of lockdown for the best part of two years, so why haven’t we got enough chips yet?
Semiconductors are used in virtually everything – and something we take for granted. When the pandemic struck, we were instructed to work from home. It wasn’t just the spike in orders for new laptops and phones, as data-centre demand also surged as people turned to video-calling, streaming, and gaming.
Typically, a car has between 1,400 and 1,500 semiconductor chips – and some as many as 3,000. These chips are used to control everything from emissions systems to driver assist systems, making them an essential part of vehicle production.
“They’re everywhere. They’re in the wing mirrors, they’re everywhere. And there’s been a massive shortage of semiconductors. Last Christmas nobody could get hold of a PlayStation for love nor money. These chips go in PlayStations, smartphones, cameras…
“Vehicles are now a lot more advanced. They are like a moving computer. Front damage is not just a bump. Now, it could appear to be just cosmetic but there is likely to be damage to sensors and the likes. As a result the vehicle might need recalibrating which requires specialist mechanics to do this.
Allianz UK found that the average price of semiconductor chip has risen by 95%. Separate analysis showed the average value of chips in a car cost £360 in 2022, and this is expected to rise to in excess of £550 by 2026.
Elsewhere, parts for one specific brand are in exceptional demand.
“We’re hearing a lot in in the market about availability of one particular manufacturers parts even down to something as basic as a windscreen. There was a mass shortage of their windscreens. At one stage, there was 600 customers in a backlog waiting for windscreens – and we got a phone call in our claims team to say ‘we’ve just taken delivery of 34’. I thought that wasn’t too bad… Except it was the UK market getting 34 windscreens.”.
Pre-pandemic in 2020, a bodyshop could expect to get over 70% of parts within 2 days. Right now, you would likely only receive just over 50% of parts in 2 days. There would typically be a small percentage of parts on delay, but according to our survey, the new normal is to have up to a quarter of all jobs waiting over 7 days for all parts to arrive. In 10% of cases – parts are delayed longer than 2 weeks. In other cases, odd parts can be delayed for months.
Getting parts is only one half of the problem: the UK is facing a labour shortage too.
“Electric vehicles now are even more complicated and costly to repair. And they really do need specialist people to repair these. The batteries need to be made safe in some situations, even removed from the vehicle before any work has happened.
“Only 6.5% of qualified motor engineers are qualified to work on electric vehicles. So, there’s a real shortage of expertise, which is very worrying. And obviously they get paid a lot more which is all obviously passed on to us and the end customers.
“The average cost per claim is now in excess of £5000. To put that into context, it’s an 18% uplift since 2019. The industry is facing higher energy costs and they’re also being conscious to move to net zero. But these pressures, and alternative sources of fuel and heating, generally cost a lot more. So that will, again, get ultimately passed on to the end customer”.
Insurers, brokers and repairers are actively working to minimise disruption and cost to customers. The global situation is out of their hands, but Allianz UK have adapted to introduce an effective solution: green parts.
“If a vehicle needs a new part, and we can’t get one new because of delays, we can source one that’s the second hand and has been reconditioned. It’s as good as new, and they’ve got quite an extensive stock and supply of parts.
“If somebody has got a radiator that needs repairing and it’s a three-year-old radiator, they’re not going to get a ten-year-old radiator – it will be the same age, if not newer.
“The other thing is with the green parts is that they cost less. So that ultimately reflects in the in the final cost of the claim which benefits the customer. If their claims experience is lower, they should enjoy more competitive pricing going forward on their on their motor fleet”.
While the challenges the motor industry has faced over the last 3 years continue to create challenges and inflation is still causing concerns, there are some positive signs. New vehicle registrations and availability is increasing, parts and semiconductor supply issues are starting to ease.
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This article was adapted from an article by Momentum Broker Solutions which can be found here.