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Articles

Toyota Launches On-Time Collision Repair System

The Alliance of American Insurers Sues Florida Agency over Aftermarket Parts

ABRA Auto Body and Glass Pays the Rent on Two Wisconsin CARA Locations

Salvage Airbags Another Viewpoint

Auto Recyclers Respond to AORC Concerns over Recycled Airbags

Investment in Japan's Auto Parts Market May Be Key to Success for U.S. Suppliers

Progressive Warns: Q2 Results May Miss Consensus View

Allstate Profit Falls 29% on Storm Losses

PPG Reports on Q2

Sherwin-Williams Company Reports Q2 2000 Earnings Results

INDUSTRY UPDATE

Toyota Motor Sales, USA, Inc. has launched the Toyota On-Time Collision Repair System, which is modeled on proven Toyota Production System manufacturing principles and designed to improve body shop efficiency and on-time delivery of repaired vehicles.

The national launch follows a successful 12-month pilot program with three Toyota Certified Collision Repair Centers. During the pilot test, body shops implementing the On-Time Collision Repair System reported up to 40 percent increases in overall shop productivity, as well as significant improvements in cycle time reduction, on-time delivery, and repair order volume.

At Phil Smith Toyota in Fort Lauderdale, Florida, the Toyota On-Time Collision Repair System resulted in 99 percent of drivable vehicles being returned to the customer in three days or less - and a 40 percent increase in overall shop productivity, with no addition of space, equipment, or technicians, according to body shop manager Larry Cummings. Phil Smith Toyota, one of 60 Toyota Certified Collision Centers in the USA, also has seen substantial gains in its average monthly body shop sales volume since beginning the program in July 1999.

Overall, the dealership's "delivered when promised" Customer Satisfaction Index (CSI) rating is 98 percent, more than 20 points higher than the industry average of 78 percent, and a meaningful improvement over the Toyota Certified Collision Centers' average of 86 percent.

"The Toyota On-Time Collision Repair System is a logical, step-by-step process that eliminates bottlenecks and 'stop and start' repair cycles," explained Randy Profeta, TMS boss and collision development manager.

The system divides the body shop into two operations with separate teams of technicians - one dedicated to repairing heavily damaged vehicles and the other fixing lightly damaged but drivable vehicles that can be completed in an assembly line fashion. Once a drivable vehicle enters the production area, it moves straight through from start to finish in approximately one day. No job is begun until every part is on hand and no technician is expected to "squeeze in" the smaller jobs around larger ongoing repairs.

"This eliminates the unnecessary movement of technicians, vehicles, and parts," said Profeta, "which allows them to complete tasks more efficiently and to focus on achieving the highest level of quality on each repair." According to Phil Smith Toyota General Manager John Lutter, "Our productivity and dollar volume have been up every month since we started this pilot. Even though our volume has increased substantially, both large and small jobs flow through the shop smoothly with minimal delays."

Customer satisfaction is at a record high, and insurers have taken note as well. "We're getting more assignments from our direct repair companies," said Lutter, "and even the non-direct repair companies have commented on our short cycle times."

Toyota will begin rolling out the Toyota On-Time Production System to other Toyota Certified Collision Centers over the next several months. "It's such a logical principle, yet it makes a tremendous difference," said Roger Foss, TMS national dealer development manager. "We're excited by the outstanding results our pilot shops have seen and look forward to taking the program national. With the Toyota On-Time Collision Repair System, Toyota Certified Collision Repair Centers will be able to streamline their processes to maximize space and productivity in ways that benefit the dealership, the customer, and the insurance industry."    o

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The Alliance of American Insurers filed a lawsuit July 12 in Florida’s Leon County Circuit Court challenging a notice that Agriculture Commissioner Bob Crawford sent to motor vehicle repair shops that unfairly casts a cloud over the quality and suitability of generic aftermarket crash parts.

The suit contends that Crawford's notice is not based on statutory authority, misstates Florida law, misleads motor vehicle repair shop owners into thinking it is illegal to use generic aftermarket crash parts, and inaccurately implies that Florida has a quantitative standard for determining if generic aftermarket crash parts are "equal in like kind and quality to the original parts in terms of fit, quality and performance."

"There is no such standard in Florida law," said William Stander of Tallahassee, government affairs representative for the Alliance in Florida. "Meanwhile, the notice has caused a chilling decline in the sales of generic aftermarket parts. Under the threat that they may be shut down by the state, repair shops are being forced to purchase car company aftermarket parts at steeply inflated prices. The department's notice effectively sanctions the monopolization of car company aftermarket parts, a result sure to harm consumers."

The Department of Agriculture and Consumer Services sent the notice concerning generic aftermarket parts to motor vehicle repair shops April 14. The notice seems to imply that generic aftermarket crash parts -- the "skin" of a vehicle -- are inferior to aftermarket parts produced by car companies. The notice also required shops to maintain documentation proving the "like kind and quality'' of a generic part.

This has created confusion throughout the state where consumers have had access to generic parts certified by the Certified Automotive Parts Association. CAPA is an independent, non-profit organization dedicated to ensuring that generic aftermarket parts are safe and of high quality.

"A part that earns a seal of approval from CAPA is, in every way, comparable to a car company part," said Kirk Hansen, director of claims for the Alliance. "During 1999, CAPA received complaints on only 0.08 percent of the more than 2.4 million parts it certified. This gives CAPA a record of quality that is unrivaled in any industry."

The vast majority of CAPA-certified parts carry lifetime warranties -- an offer not available for parts manufactured by car companies. In fact, car company parts are neither certified by an independent certifying agency, nor do consumers have any assurances of their quality.

"Though CAPA provides a complete disclosure of the number of parts it rejects or decertifies," Hansen noted, "we have only the word of the car companies that their suppliers produce acceptable parts."

Meanwhile, consumers have long embraced generic aftermarket mechanical parts such as oil filters, batteries, spark plugs and brake pads, because they recognize the value of competition among manufacturers.

In its annual cost study on automobile replacement parts, the Alliance has repeatedly demonstrated the excessive cost of car company aftermarket parts. Generally, the cost of rebuilding a car with new OEM parts is triple the original price of the car itself.

However, in the Alliance's most recent study (1999), the subject vehicle, a new Toyota Camry LE, cost $101,335.55 to rebuild -- more than four times the manufacturer's suggested retail price of $23,263. Another Alliance study shows that car companies charge 60 percent more for their parts than certified aftermarket parts.

In its lawsuit, the Alliance is seeking an injunction prohibiting the Department of Agriculture and Consumer Services from continuing to disseminate the notice and requiring it to issue a retraction stating that the use of generic aftermarket crash parts is legal in Florida. The lawsuit also asks the court to find that the department is attempting to unlawfully delegate to motor vehicle repair shops the right and responsibility of determining whether such parts meet this phantom standard.

"The department is forcing consumers, many of whom have just been through the trauma of an auto accident, to pay up to two or three times more than they should for aftermarket parts," Stander said. "This lawsuit is aimed at ensuring that consumers have access to quality aftermarket parts at the most economical price."

The Alliance of American Insurers, based in Downers Grove, Illinois, is a national trade association representing 326 property/casualty insurance companies.

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INSIGHT has learned that ABRA Auto Body and Glass has paid the rent for the month of July on two Milwaukee locations of bankrupt former rival consolidator CARA Collision and Glass. ABRA will in all likelihood succeed in obtaining court-appointed trustee Michael J. Iannacone's approval of leases on the West Alice and Wakasha properties.

Jim Keller, formerly with CARA, has bought out the lease on the CARA Bradley Road location (He owns the building.). According to Keller, he will re-open within the week and plans to open another Milwaukee collision repair facility very soon.

The Sherwin-Williams Company filed an objection, dated June 28, to the trustee's motion to reject executory contract, to assume and assign executory contract, to abandon property and to sell assets. Sherwin-Williams' sizeable loan to CARA, of $1.5 million, was collateralized with equipment. Keller and the paint manufacturer are negotiating an arrangement that should be satisfactory to both. Since ABRA is already a Sherwin-Williams customer, too, the paint company's presence in the Milwaukee market remains strong.

Sterling Collision Centers, the Massachusetts-based consolidator, had been negotiating for all three of CARA's Milwaukee locations. For now, it would appear that Sterling is out of the picture.

The Marquette Bank will probably end up with the receivables, work-in-process, and bank accounts for all the CARA locations.    o

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The growth in the airbag equipped vehicle population, now almost 100 percent of 0 - 7 year-old vehicles, creates new opportunities for everyone associated with the vehicle repair business. The OEs sell more new replacement parts, recyclers/dismantlers sell more salvage airbags, and others such as specialist airbag installation companies also benefit. There is however, a negative development to all this which cannot be overlooked.

Dangerous practices such as replacing deployed airbag modules with covers only have begun to appear, giving the false impression that there is a functioning airbag installed.

A clear distinction has to be made between acceptable product such as new OE parts and salvage OE parts, tested before installation, and these other non-OE, repaired, or bogus products. Many in the new OE airbag business are highly critical of salvage OE parts, e.g. Mr. Kirchoff of the AORC quoted in INSIGHT on June 30th.

How safe are salvage OE airbags? Are they as reliable as their new counterparts? These are legitimate questions, that must be answered satisfactorily before salvage OE airbags can win widespread acceptance and approval by insurers who currently specify new parts be used in collision repairs involving airbags.

It is our belief that the reliability of a salvage OE airbag can be tested and certified to be equivalent to a new OE airbag. There is evidence from studies done by the ARA and the Insurance Corporation of British Columbia (ICBC) that the reliability and performance of salvage bags is equivalent to new. We believe that testing and certifying each salvage OE airbag before it is installed in a vehicle under repair can improve this general level of confidence still further.

Our company has developed a testing procedure that examines all the key parameters of the airbag. The test allows us to say with certainty, that the salvage airbag being tested is as reliable as a new OE airbag.

Testing of salvage OE airbags removes doubt regarding their reliability and adds peace of mind. We can only assume that Mr. Kirchoff’s concern over the use of salvage airbags is safety focused, so let’s take a look at that issue.

How can a salvage airbag be tested? The key challenge associated with testing airbags, both new and salvaged, is that they cannot be cycled individually to confirm their function. Testing has to be non-destructive in nature. We at Airbag Testing Technology Inc. have developed a procedure for salvage modules that is non-destructive, and checks all the key parameters of the airbag.

Critics of airbag testing such as the AORC assert that airbags cannot be tested for exposure to excessive heat, shock or flood exposure. This is both misleading and incorrect.

If an airbag is exposed to excessive heat, the auto ignition device will cause the module to deploy and render itself inert. This is a built in failsafe device. In addition, airbags are developed to withstand significant shocks during service, such as rear end collisions, side impacts and roll-overs.

The OEs design airbags to withstand these stresses, otherwise manufacturers would require they be changed out after such events, which they don’t. Concerning flood damage, we have developed a proprietary method for testing an airbag’s exposure to flood waters which is robust and reliable.

Our procedure is currently in beta testing to confirm its reliability as a predictor of the performance of the salvage airbag. Data and results will be available by October.

It is a fact that among salvaged airbags are airbags that are as good-as-new and airbags that have been damaged in some way and should be destroyed. The challenge then, which we have addressed, is to devise a way to tell these apart. Our test methodology will make a significant number of good-as-new salvaged airbags available at a substantial cost saving to the insurance industry and to the consumer. The installation as a part of a repair or rebuild process of anything but new or tested/certified airbags should be outlawed - anything short of this will continue to put consumers at risk.    o

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In Washington, D.C., the Automotive Recyclers Association voiced concern over material presented in an Automotive Occupant Restraints Council (AORC) presentation which they say misleads the public when it comes to the safety of recycled air bags.

The Automotive Recyclers Association (ARA) has stood by the use of undeployed, recycled OEM air bags as viable, economical and safe alternatives to the use of new, more costly OEM air bags when properly evaluated, handled, shipped and professionally installed. "We believe this is a cost effective option for a consumer," said Bill Steinkuller, Executive Vice President of ARA, "but, more importantly, we also believe that based on research, this is a perfectly safe alternative as well."

The Insurance Corporation of British Columbia, Canada's largest auto insurer, through independent testing, reached the conclusion that recycled air bags were "equal to OEM replacements in reliability, and performance." ARA also commissioned similar comprehensive safety tests on recycled, undeployed OEM air bag modules. "These tests only reinforced what we already suspected in regards to recycled air bag safety. Hopefully, it assures consumers as well." Steinkuller said.

The ARA pointed out that new OEM air bag failure rates are not zero. However, a deployed air bag, which either knowingly or unknowingly is not replaced and simply disguised by a "cosmetic cover," is sure to have a 100 percent non-deployment rate. While this type of "quick fix" is extremely unsafe, one can understand why some individuals choose to "fix" the problem this way. In reality, replacement OEM air bags can cost $1,500 or more, which can simply be too large a repair for many consumers who do not carry collision insurance to afford. Taking away the recycled air bag option is putting more consumers at risk as many more "cosmetic fixes" would likely find their way into the nations vehicles.

This issue is one that affects consumers greatly, not only financially, but from a safety standpoint as well. ARA hopes that AORC comes to accept the fact that properly handled and transported, undeployed and recycled OEM air bags are appropriate and safe for use in vehicles. ARA would encourage AORC to focus on reduction or elimination of hazardous substances in the production of air bag modules, and looks forward to joint efforts with AORC on minimizing threats to the environment and repair personnel from air bag components.

Founded in 1943, the Automotive Recyclers Association (ARA) has represented an industry dedicated to the efficient removal and reuse of automotive parts, and the proper disposal of inoperable motor vehicles.    o

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No longer can manufacturer/supplier relationships be measured in terms of corporate nationalities and reciprocal trade flows, according to William C. Duncan, General Director, Japan Automobile Manufacturers Association in the June issue of Japan Auto Trends.

"Consideration must be given to the dynamics of new competition, technological exchange between companies and the increasing flow of direct investment between nations or risk regressing into the counterproductive rhetoric and 'results-oriented' formulas of the mid-1990s," Duncan said.

Foreign parts and accessories are about five percent of the total sales in Japan and retail executives don't expect that situation to change. However, the face of Japan's auto parts supply is beginning to change with increasing evidence that foreign companies are playing a role through direct investment, marketing joint ventures and technological exchange with Japanese auto parts companies.

For example, joint ventures have included Goodyear Tire and Sumitomo Rubber; Robert Bosch and Zexel, a diesel fuel injection pump maker; Delphi Automotive and Akebono brake; and Valeo with Ichikoh Industries, a leading automotive supplier.

"These multinational auto parts companies seek to sell parts as original equipment to the Japanese vehicle manufacturers as well as to the replacement aftermarket. The market generally favors the investor in Japan," Duncan added.

Ultimately, Japan's vehicle manufacturers are more likely to rely on local suppliers, be they foreign or domestically owned. The locally based supplier is better able to meet the requirement of modern management technology, i.e. inventory control, rapid delivery and interface with the manufacturer during design and production.

In addition, Japan Auto Trends presents the globalization focus of Toyota's Chairman Hiroshi Okuda who was recently elected as the new chairman of the Japan Automobile Manufacturers Association (JAMA). Mr. Okuda believes JAMA "should take a leadership role in promoting harmonization and world vehicle standards by contributing our know-how to the world."   o

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Auto insurer Progressive Corp., headquartered in Mayfield Village, Ohio, has announced that poor underwriting results, made worse by catastrophe losses, may cause second quarter profits to fall below Wall Street consensus estimates of 37 cents per share.

The insurer's earnings have plummeted this year after reporting a profit of $1.32 per share in the second quarter of 1999. In this year's first quarter, Progressive reported a loss of 50 cents per share, well below analysts' estimates, due to payment of a large amount of old claims. Analysts expected the company to earn 37 cents per share profit in the second quarter.

Progressive, which specializes in insuring high-risk drivers and unusual vehicles, said its combined ratio -- claims paid out as percentage of premiums paid in -- for April and May was 103.5 percent, including 0.9 percent of catastrophe losses. o

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