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.
And while a decline in roadway crashes is undoubtedly good news for society, it's bad news for automakers and repair service businesses, who 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. If self-driving cars lead to a big reduction in road accidents—and studies indicate they likely will— original equipment manufacturers (OEMs) and service providers will need to transform to find ways to make up for this knock to their profitability.
KPMG's Automotive practice has been at the forefront of researching the widespread effects of autonomous vehicles on the transportation landscape and has published several white papers on the topic (see Appendix for list.) Our most recent paper, I see. I think. I drive (I learn)., briefly discusses how the enhanced safety of self-driving cars is expected to affect collision-repair revenue and profits, as well as reshape the auto insurance market. KPMG's Insurance practice, in their paper Automobile insurance in the era of autonomous vehicles, performed an extensive analysis to better understand and quantify the impact self- driving vehicles on the auto insurance market. They evaluated a number of factors and found that autonomous vehicles could lead to a potential 40 percent decline in total loss costs by 2040.
This paper will take that analysis further to explore the specific effects of autonomous vehicles on the approximately $30 billion collision-repair market and the OEM collision parts business. Based on our analysis, OEMs should sit up and take notice because the impact on their business will be significant. Although collision parts typically account for less than 3 percent of OEM sales, they provide a highly stable source of revenue, and more important, account for 10 to 20 percent of operating profits. Particularly in lean years, as we saw following the financial crisis, collision parts serve as a critical buffer to offset the drop in OEM profits from new-car sales.
OEMs who think this challenge is still in the far- away future should be wary. KPMG's analysis shows that increasingly sophisticated autonomous vehicle technology will become more widely available over the next five to 10 years. With this fast-approaching disruption, OEMs can't delay to address this imminent threat to a highly lucrative part of their business, and should begin working today to position themselves to mitigate these risks tomorrow.
For more information, download the full report below.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.