Solving the Aftermarket Parts Equation
Have you ever experienced the perfect storm?
It’s a scenario that has likely happened an untold number of times in body shops across the country. And, as one shop owner tells FenderBender by email, the frustration can be as apparent as if the emailer could actually be seen scratching his head, shrugging his shoulders and maybe kicking the tires on a vehicle he was trying to put back together.
“A good aftermarket fender, a good aftermarket headlamp, a good aftermarket hood and a good aftermarket bumper cover come together for a perfect storm where nothing fits, and it’s laughable,” writes the Midwest shop owner, who agreed to comment on his aftermarket experiences only on the condition that he wouldn’t be identified. “This is usually after it has been painted, and the bumper cover or the park lamp is the last thing installed. … Oh, and by the way, it usually happens on a tri-coat pearl car too!”
At that point, the email writer continues, his shop orders new parts and sends the unusable ones, along with a bill for his time, to the aftermarket supplier, who complains loudly.
“I ask him to not send me parts that don’t fit. He asks for a labor rate discount. I refuse. I tell him he shouldn’t lie to us—he knew the parts didn’t fit when he sent them,” the shop owner explains. “He said he’d give me a bigger discount on the parts if we didn’t send so many back. I told him don’t send them to me if they don’t fit, and then I won’t have to send them back.”
Obviously, no body shop can live by aftermarket alone, but is all-original equipment manufactured (OEM) parts a viable solution all the time? The anonymous Midwest shop owner has wondered this, too. His regimen of altering misfit aftermarket parts and sending them back and forth to the distributor hampers the process and puts a hitch in his shop’s efficiency, at times bringing the work to a stop.
Tim Ronak, services consultant for Akzo Nobel Coatings and instructor of the Automotive Management Institute course, “Parts Management,” has this to say about using aftermarket instead of OEM: “The process introduces an extra step if the parts need to be test-fit prior to paint, which shops are only compensated for if the parts do not fit. The reality is that if they edge the parts and then try to install them, they are not able to return the parts. It creates a friction point for them to use them and introduces avoidable cost for the shops. By this I mean that if they buy OEM, they do not feel they need to trial-fit the parts.”
“There are several shops that flat out refuse to use aftermarket parts but are not part of any DRP (direct repair program) relationships,” Ronak adds. “I see some shops leaving the DRP-managed model in favor of a customer-focused one where they do not have to repair by the rules dictated. Rather, they repair based on what they feel is the ‘best’ repair method in their experience and charge accordingly.”
Our anonymous shop owner is on board with that sentiment.
“Looking back, I would have put them all on without ever test-fitting them. Never look back,” he says, especially when generic parts are called for in a customer’s insurance policy. “‘Not our decision, not our problem’ would have been our mantra. If the entire industry did the same thing, the parts would be great by now, and this discussion would not even be happening.”
THE LAND OF MISFIT PARTS
Like the age-old predicament most frequently associated with the opposite sex, many autobody repair shops share the same feeling about aftermarket parts: Can’t live with them, can’t live without them.
And, particularly for the independent shop that operates under one or more DRPs, that assessment is more fact than opinion. For it seems that unless a body shop is rife with high-end repairs on vehicles whose owners pay premiums that ensure OEM parts—or who can afford to pay for OEM themselves—aftermarket parts are a regular part of the repair process that can create an itch that just can’t be scratched.
However, for DRP-dependent and independent shops alike, the very existence of aftermarket parts has helped boost the overall health of the collision repair industry. For not only are generic replacement parts more affordable, the fact that they exist as OEM competition has made OEM parts more affordable as well.
In the end, writes another industry observer, without a less-expensive, aftermarket alternative to pricey OEM parts, the collision industry would lose a substantial amount of repairs. And it almost goes without saying that the more expensive the repair, the more likely a vehicle is to be declared a total loss. Besides, automobile makers and OEMs have one primary goal, the writer continues: to sell cars. This means that every total loss is a chance for a new-car sale.
Generally, parts make up about 45 percent of the average value per repairable vehicle appraisal, according to the first-quarter 2007 Mitchell Industry Trends Report. This includes OEM, aftermarket, remanufactured and Like Kind and Quality (LKQ). Of these, OEM represents nearly 74 percent of all parts dollars, with aftermarket parts commanding close to 11 percent; remanufactured or “non-new” parts comprising just less than 5 percent; and LKQ just over 10 percent of the average parts dollars used per appraisal.
But not all interested parties agree every time on what kind of replacement part is best.
“Some insurers expect us to use OEM and bill for aftermarket. But with the thin margins we’re on, it would be costly,” says the Midwest shop owner cited at the beginning of this story. “The only reasons OEMs match the pricing is because they know that they may lose a sale and that we do have an alternative.”
Before the fairly recent rise of the aftermarket industry, which has grown dramatically in the past two decades, OEMs enjoyed a competition-free world where seemingly they could charge almost anything for a given part: One shop owner remembers a Chevrolet fender costing $300 as far back as 25 or 30 years ago. Today, the same fender can be had for about half the price.
Whatever your experience with aftermarket parts has been, it’s possible that some of your customers—paying out-of-pocket for repairs in order to avoid an insurance-premium hike—have benefited from their existence, too. Even if the vehicle owner selected an original equipment manufactured part over its aftermarket alternative, that OEM part was cheaper than if aftermarket hadn’t been an option at all.
IMAGE IS EVERYTHING
It also should go without saying that aftermarket parts are only beneficial to the collision repair industry if the quality is good. And, although certification has improved the quality and reliability of aftermarket parts in recent years, some terrifying true incidents—like hoods flying up at highway speeds, blocking the driver’s sight—have left a blight on their name, no matter who the maker is. Given that certain components of a vehicle are designed to protect the passengers in the event of a crash, no body shop wants to gamble with the lives and safety of its customers.
Whether a part is purely cosmetic or performs some safety or mechanical function is the key issue when deciding whether to use aftermarket or OEM, says Ronak.
“If the component is a radiator and for some reason the engine fails later or burns a head gasket, the manufacturer may have the right to deny warranty due to a non-OEM component that may have contributed to the failure,” Ronak explains. “Safety systems like a hood, for example, are designed to fold and crush to prevent guillotine-like damages to occupants in a crash. If an aftermarket hood is not constructed with all of the structurally designed fold points, who assumes the liability for injury? Investigators after the fact may not inspect to see if the hood was OEM or not.”
The Coalition for Collision Repair Excellence (CCRE), comprised of shop owners, technicians and repair inspectors, makes its position on aftermarket versus OEM clear: “The insurance industry has no authority to mandate the use of parts, materials or procedures to be employed in the repair of our customers’ vehicles,” the organization states online. In the eyes of this group, “aftermarket” is synonymous with “inferior.”
“The CCRE [refuses] to allow any insurers, parts suppliers, adjustors or estimating database providers to deter us from providing consumers with the best quality repair available,” reads a letter from CCRE President Tony Lombardozzi to a committee of the National Conference of Insurance Legislators during the summer of 2005. “For years now, aftermarket parts manufacturers and the ‘so called’ independent certifiers have pushed the use of inferior parts on consumers. They have done this solely to serve their own economic interests with little regard for the safety or problems these parts may cause consumers.
“Additionally, the Certified Aftermarket Parts Association (CAPA) continually decertifies parts it had previously certified. The fact that this occurs with such regularity demonstrates how suspect their certifying methodology is.”
Not only must some aftermarket parts be modified before they can be installed on a vehicle, they are generally more difficult to work with even when they do fit, Lombardozzi adds.
“Aftermarket parts are typically made with thinner gauge metal than the original equipment parts, lack proper corrosion protection, develop problems with finishes applied to their surfaces and do not typically have as many spot welds or other attachment brackets that are serviced with the OEM part,” notes Lombardozzi’s letter. “They also experience problems with latching devices and catches that endanger occupants of the vehicle and put the lives of other travelers at risk.”
PATENT, PROFIT INFRINGEMENT
As aftermarket parts pose a threat to the cycle time or quality of a repair, so do patent-infringement lawsuits threaten the aftermarket industry’s very survival.
Called antiquated by some, design patent laws are a constant thorn in the side of companies that try to provide alternatives to OEMs.
Perhaps the most well-known case is targeting Keystone Automotive, the country’s largest aftermarket parts supplier, along with a handful of Taiwan manufacturers.
In what has been called “a body blow” to the aftermarket parts industry, a panel of International Trade Commission judges last spring refused to hear an appeal of a decision rendered in December 2006 by an administrative law judge: The judge agreed with Ford Motor Company that Keystone had stepped on its design patents in seven out of 10 replacement parts that it provides for the top-selling Ford F-150. The judge refused to hear appeals from either party, with Keystone protesting the seven design-patent infringements and Ford protesting the remaining three patents, which were deemed invalid due to prior public use.
The issue of patent infringement isn’t unique to the automotive repair industry, however, and Keystone and others with a vested stake in this type of design-patent infringement claims will be watching the ultimate result of this decision closely.
The concept of using a non-brand name alternative in order to save money isn’t unique to the automotive repair industry, either. Says longtime repairer Bill Park, owner of Big Sky Auto Body in Tucson, Ariz., “Of course we would love to use just OEM. But it’s like most things in the world today, consumers and everyone are looking for a better price, and I’m OK with that.”
He continues, “If you’ve got a prescription medication that’s costing you a certain amount of money every month, then you find out that there’s a generic alternative out there, which one are you going to choose?”
Aftermarket parts aren’t necessarily detrimental to the collision-repair industry, either, Park says. “Consumers are OK with these parts; they’re the ones driving the vehicles, and they know what they’re getting for parts on their cars. We do need to educate more shop owners out there about the dangers of using unsafe or inferior parts, but, of course, a bad repair with OEM parts is just as dangerous.”
The implications of using less-costly parts extend to the profit margins of some body shops, too—beyond the expense of sending back those that don’t fit—because, typically, parts sales comprise about 40 percent of a body shop’s profits.
“Looking at the profit percentage aspect, I can understand where [aftermarket opponents] are coming from,” writes another industry professional who requested anonymity. “Back in the day, let’s say pre-1980, shops earned about a 30 percent discount on a $300 fender, or a $90 gross profit. Along came aftermarket sheet metal, and shops found themselves earning a 25 percent markup on a part that the aftermarket sold for $120, or $30 gross profit. Losing two-thirds of the profit on a single part certainly was reason enough for repairers to lose their cool.”
However, the writer continues, “Did these people forget how many times they were able to repair a car that was headed for the salvage yard because aftermarket parts were used in the repair? Let’s be fair, you can’t have your cake and eat it too. If aftermarket parts disappear from the marketplace, you will end up with much bigger profits on parts from the OEMs, but of course you will have substantially fewer cars to repair.”
Evidenced in part by the anonymous Midwest shop owner’s “perfect storm,” there’s scarcely a collision repairer around who expects his or her aftermarket parts to fit exactly right every time, without a single cause for concern. And while the aftermarket sector has labored under preconceived notions for years, they actually prove to be true just a fraction of the time, says one Michigan collision repairer, who also wished to remain unidentified.
He recalls the time a customer came in with an older pickup, still in great shape but needing a new bumper. The first OEM fender didn’t fit, and, in fact, damaged the vehicle when he tried to install it. A second fender from the manufacturer didn’t fit, either, so “against my better judgment,” he called the vehicle owner and the insurer asking permission to use an aftermarket part. Then, he called Keystone. The fender they sent fit immediately, but a job that should have been done in a day rolled out of the shop four days later.
The Michigan repairer also said that many times, an aftermarket or OEM part doesn’t fit because the repair wasn’t done exactly to specification. For him, it’s back to the measuring equipment when this happens, no matter where the part came from.
“If the parts are truly the same as OEM, no one has a problem,” adds the Midwest shop owner. “We explain that to the client, too—that we are their advocate for quality and do not want to use parts that don’t fit. Unfortunately, sometimes we lie because we’re a DRP [shop].
“In the grand scheme of things, we try to be smart, but we’re not that smart, and the entire cost of trying aftermarket parts is probably greater than I can calculate.”