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Government Regulation in Parts Procurement

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In general, more government regulation is a hard pill for many shop owners to swallow.

But with an increasing insurer presence in the selection and procurement of parts, especially since the implementation of State Farm’s PartsTrader program, many in the industry feel that insurance companies are overstepping their bounds. Some view government regulation as the only remaining option for owners to retain their right to select and procure parts as they choose.

The Washington Metropolitan Auto Body Association (WMABA), an organization that represents body shops in Virginia, Maryland and Washington, D.C., is attempting to make legislative regulation a reality. The organization, a regional affiliate of the Society of Collision Repair Specialists (SCRS), worked with Maryland state Rep. Mark Fisher (R-27B) to introduce House Bill 1375, which would limit an insurer’s ability to intervene in the selection and procurement of parts.

Although the bill has been tabled for the current session and its future remains unclear, WMABA’s move represents a viewpoint that government regulation is a necessary step to keep parts procurement in the hands of repairers.

Jordan Hendler, executive director of WMABA, recently discussed the topic with FenderBender.

 

What’s WMABA’s stance on government regulation of parts and parts procurement issues?

Our association feels like legislative or government involvement is always a last resort. We would prefer to address any issue through negotiation and working together with all the segments or parties involved. That’s definitely how we’d rather resolve anything in our industry.

But we are not in favor of insurers mandating any aspect of the parts process. That decision should be left to repairers.

The business of insurance should not be allowed to preclude repairers from specifying vendors or types of parts, because we feel that the collision repairer knows what’s best for the customer and his or her business.
But recently, parts are the segment of the collision repair industry that insurers have been trying to control. Labor rates are already as low as they can get, so the other obvious aspect of the business where they can affect price is parts.

And for most collision repair shops, parts are the remaining profit center. Without a reasonable profit, repairers won’t be able to reinvest in their business and people. The ability for them to survive and thrive becomes less and less, the more insurers become involved in things that affect price.

So with respect to parts, we feel that government regulation is necessary.

 

How does the need for government regulation apply to the use of aftermarket versus OEM parts?

As an organization, we are not opposed to aftermarket parts. But there are some policies out there where the insurer is the decider on which parts are going to be used to repair a vehicle.

Customers should have the right to choose whatever kind of parts they want to put on their car. The insurance company should be responsible for paying the price of the best part for the vehicle, which some insurers currently refuse to do.

 

How would obligating insurers to pay for OEM parts benefit shop owners?

Well, fit and finish are issues that repairers could have with aftermarket parts. If the aftermarket part does not fit the vehicle like the OE part does, it’s going to affect how long the vehicle stays at the shop, because they’re going to have to reorder parts. This extends the time that a vehicle owner is out of their own vehicle and could increase the cost of rental fees.

Sometimes, there are differences in materials between an OE and aftermarket part, and that can affect the safety system.

Also, availability is sometimes an issue all around, whether the part is aftermarket or OE.

With the option to decide what types of parts they want to use, repairers don’t have to worry about these things.

 

How has the implementation of State Farm’s PartsTrader program contributed to your outlook?

The whole nation is watching what State Farm is doing—not only repairers, but other insurers as well.

As an organization, it’s not the PartsTrader program we have a problem with. It’s insurers mandating the use of the program that we have a problem with.

PartsTrader, in and of itself, may be a good solution for some collision repairers and their businesses. It may help productivity. It may help their cycle time. However, when it’s mandated and repairers don’t have a choice, that’s what WMABA has a problem with.

 

Why is government intervention a necessary step to prevent insurers from mandating a parts procurement process like State Farm’s?

We feel that insurers are going to try to mandate their own processes regardless of negotiations made by industry associations.

We’ve attempted negotiation—not only on our own, but also through our affiliation with SCRS. We’ve given our positions during open discussions at industry conferences and meetings. We’ve also given our position through talks with representatives from State Farm.

It does not seem at this point in time that they are open to retracting any of their endeavors to mandate their own processes.

 

Tell me a little bit about the legislation WMABA helped introduce in Maryland.

Delegate Fisher came to us. His family was in the repair business, so he grew up understanding some of the issues repairers face.

He wanted to draft a bill that protected consumers from insurers mandating the use of aftermarket parts.

We assisted in finding the language that would help him draft a bill for Maryland. We looked at all the other states out there that had similar legislation. We put the information together and came up with suggestions for how we could improve on what’s already out there.

The bill, as it was proposed, mandates that if the customer chooses to install OE parts, the insurer must pay for those parts for the first five years of a vehicle’s life, which is usually the same amount of time the vehicle is under the manufacturer’s warranty. It also had a paragraph that would prevent the insurer from mandating a particular process or vendor for parts procurement.

The bill was referred to the economic matters committee, but because of the amount of bills the committee had to hear, they weren’t able to give it a hearing in time for the crossover deadline to send it to the [Maryland State] Senate to be approved. So it’s been tabled. But we’re not done addressing these issues, and we hope that the bill will be looked at in the future.

 

With the bill tabled for the time being, do you see any alternative to government regulation?

Aside from the insurers walking away from their mandates willingly, we don’t have any other options. This is our only option as an association.

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