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All Parts Included. A roundtable with representatives from the parts industry
By Jeff Nystrom

Recently, CCC gathered a group of leaders on the topic of something touching virtually all segments of the vehicle claims and collision repair industries—the availability, procurement and usage of replacement parts in the insurance repair process. Paramount to the process of selecting this as a key industry talking point was the overwhelming amount of data pointing to the topic.

Consider the Following

  • The cost of parts replacement in repairable vehicle appraisals contributed 38.4% of the total repair cost in 2004.
  • The cost of parts replacement is second only to labor cost, constituting 42.5% of the total repair expense.
  • Parts represent a gradually decreasing share of total cost since 1997, when their share was 40.1%. During this same time however, the average number of parts replaced per claim has increased from a low of 7.49 (1998) to 7.89 in 2004.

In order to take a sharp snapshot of these facts and its significance within the industry, we gathered leaders across the parts supply option list. The group consisted of the following:

  • Christopher Northup, Vice President of Sales and Marketing at Keystone Automotive Industries
  • Jeff Schroder, President of Car-Part.com.
  • Rob Wagman, Vice President of Insurance Services at LKQ Services Corporation
  • Ken Weiss, Senior Vice President of National Sales for ComSearch—a division of Adesa Inc.
  • Al Temple, Marketing Manager for Wholesale Markets for NAPA Auto Parts
  • Frank Ferrara, Executive Vice President of Parts and Service for Hyundai Motor America

What follows is just a portion of the topics—ones identified as important factors—addressed by the expert panel.

What are the macroeconomic factors affecting the automotive replacement parts industry today?

Ken Weiss (KW), ComSearch/ADESA: I feel strongly that legislation is and will continue to be the greatest factor impacting alternative parts utilization. We already have legislation restricting aftermarket parts and to some extent recycled parts—and we continue to see new, similar such legislation attempted almost monthly. “Cradle to Grave” legislation might also ultimately play a role. In Europe it has crept into the conversation with regard to parts disposal and in this country with regard to paint and materials waste.

Christopher Northup (CN), Keystone: We constantly hear about the impact of raw materials in the news in regard to things like steel, but it’s also petroleum costs. We’ve seen this effect on several other segments in the economy, but we really haven’t seen the impact it will have on the manufacturing of plastics. I definitely feel that it’s looming in the background.

Frank Ferrara (FF), Hyundai: On a short-term basis, our suppliers were pretty successful last year in deferring any of the price increases, but as a company that primarily imports 90% of its’ parts, the position of the dollar against other currencies is definitely a concern. Our parts suppliers are talking about a large single-digit price increase; hopefully we’ll be able to hold some of that off. That of course is not only driven by the dollar value, but by raw material cost.”

Al Temple (AT), NAPA: I feel that raw material and energy costs will continue to increase and continue to dictate a substantial portion of the marketplace. I also think that vehicle complexity will play a significant role in parts as it relates to inventory, etc.

Rob Wagman (RW), LKQ Corp: As mentioned previously, with the prices of raw materials going up, that impact will start to show up on the aftermarket costs and will follow that same progression. On the salvage side of the business, the value of the dollar—being so lucrative by being offset by other foreign currencies—has a significant effect. We’re starting to see a lot more salvage vehicles leave the country, which is a troublesome aspect for our industry because it affects both raw material availability and the number of available salvage parts.

Jeff Schroder (JS), Car-Part.com: I think technology—having electronic access to all types of parts—will play out as an important factor, because I think it will help drive cost down overall. This will help offset some of the negative factors in the business.

What are some of the trends/developments that are taking place within the industry that will help change the landscape over the next one to five years?

JS: Integration is—and will continue to be—one of the driving forces in the replacement parts industry. Trying to integrate parts information into the whole collision repair process: whether it’s having the correct information on-hand during the estimate, after the estimate or during the purchase of the parts. With that said, I think the next step is finding the right way to integrate this information into the workflow. This is driving efforts for standardization, which is focusing on making the process more efficient. On the recycling side, another aspect is standardizing pricing and description of part condition. It needs to be set up so it can be used in an electronic environment—grading parts in an electronic way.

RW: The product is here today and not gone tomorrow, but more likely in an hour. And until we can get that real-time feed between the information providers and ourselves—and any recycler for that matter—that’s a huge challenge that we face. We certainly support the electronic transfer of data and allow electronic purchasing.

KW: Industry focus on cost containment will help resolve a lot of issues. For instance, we can’t go forward totaling out cars the way we do now. The repair industry doesn’t want it, the insurance industry doesn’t want it, and the consumer doesn’t want it. Controlling replacement parts costs will help—and technology can certainly make the entire process much more efficient.

CN: Skilled companies are going to take that technology and make that their value proposition with the customer, and whatever that level is, the pressure of cycle time and reducing cost—that’s going to be the focus and driver for a considerable amount of time. We’ve talked about integration and how it’s worked in other industries, and now it’s time for us to get up to speed.

AT: One of our major initiatives moving forward is shop connectivity—the ability to order online. I cannot stress how important that is: the ability to have that electronic connection with our customer.

FF: Our dream would be to have collision shops electronically transmit the orders to the dealerships and having us run that information through our systems, process it and verify the part numbers and get the order out quickly from the dealer to the repair shop.

What do you think will be the impact of the technology and integration on distribution systems? How it will impact supply and availability?

FF: With the increase in the numbers of models and the number increasing, just the size and scope of the inventory is going to increase dramatically. From the OE’s position, we’ve taken the responsibility for the dealer’s inventory—and we need the electronic link to make that happen. I imagine all of the distribution networks are going to be faced with the challenge of a smaller per-vehicle population, with a more diverse part count.

CN: I believe there will be a supply-chain evolution—maybe even a supply-chain revolution in the aftermarket part side. We’re the one’s who have been taking the product to the collision repair industry. But for the bulk of our industry, we’re still following practices that are antiquated. And that change—getting the product electronically to the collision repairers—is going to compliment the change of lowering cost.

KW: On the recycled side and to some extent on the aftermarket parts side, bona fide availability and dependable delivery are of serious concern. Consequently, market boundaries are typically smaller than they realistically need be. Recycled parts are a limited commodity and the industry must find a way to make a part available at an east coast recycler work on the west coast. Quality parts can be delivered timely over greater distances than the market permits today. Technology and consolidation will add confidence as well as improve distribution networks. We just need to open our minds and accept the possibility it can work.

RW: Brokering. A recycler should legitimately say “yes” to a parts request only 28% of the time. I think the two biggest myths are: “I’ve got it,” and “It’s in perfect condition.” You have to sort through the information. We’re trying to get away from the practice of brokering. Once you start brokering, you take away any promise of service and quality are out the window. That has nothing but a negative impact on each insurer and repairer using such a system.

JS: As the information is integrated between the recyclers you’ll see larger companies forming distribution networks so they can more efficiently manage their businesses. The regional groups whether at a national or regional level, will combine their efforts to provide a better service.

Conclusion
While we’ve only touched upon a handful of topics that these leaders believe have an effect on the availability, procurement and usage of replacement parts, several other issues were identified as having a significant impact, chief among them being: the effect of total loss increases; the time lag between estimate submission and actual repair; part detail descriptions; and the need for integrating part information into the repair workflow. Perhaps of paramount importance is having each segment of the parts supply chain provide us a valuable window into their industries, since it gives us an opportunity to keep abreast of current and future activities and keep our collective finger on the pulse of this issue.

Jeff Nystrom is Market Development Manager at CCC Information Services Inc.