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Letter to the Editor
This article originally appeared in the October 2000 Issue of INSIGHT
Can the Collision Repair Industry Be Salvaged?
Shops, insurers, and auto recyclers consider how the use of salvage parts can be increased and improved
As insurers backed away at least temporarily from the use of non-OEM parts in the past year, it was widely expected they would increasingly turn to the other lower-cost parts alternative: salvage.
The degree to which that has happened seems to vary based on who you ask. State Farm’s John Kent said he hasn’t seen a dramatic shift to salvage at his company.
"We’ve always had an interest in recycled parts," he said. "It’s running about the same. We’ve always advocated use of recycled parts when it makes sense."
"It seems to have had very little effect," agrees Ed Lacy of Lacy Auto Parts in Virginia. "We see a little evidence of it. [But] they (non-OEM parts suppliers) were selling a lot of the small, quick-and-easy panels that we really don’t deal with much. I don’t know how much we can replace what they did. So I haven’t seen that all of sudden we were getting flooded with phone calls because a guy can’t use the aftermarket stuff."
But Herb Lieberman of Lakenor LKQ Auto Salvage in Sante Fe Springs, Calif., thinks the shift to salvage is still building.
"Insurers are certainly having meetings with our industry all over the country trying to find out how to increase the use of quality recycled parts," he said. "Insurers are looking to our industry to be more responsible and responsive than we have ever been before because they want to utilize more of our product for one basic reason: to total fewer repairable vehicles, which will allow more repairable vehicles to stay in shops for repair."
This month, INSIGHT examines some of the issues that will need to be addressed if salvage is to play a larger role in the repair of collision damaged vehicles.
Issue No. 1 - Interchange information:
"This is the most frustrating issue to me when it comes to recycled parts," said Mike West, a shop owner in the Seattle area who has participated in ASA efforts to improve communications between repairers and the salvage industry. "After all the time you have invested in cleaning up the part, repairing minor damage and getting it in primer, you can go to install it and find that the welded-on hinge, for example, doesn’t line up with the hinge half on the pillar."
Lieberman agreed that this is an issue his industry must address - especially as more parts are sold "electronically" through the internet rather than through the traditional phone calls where such issues can be discussed.
"If the consumer - whether it be a shop, an insurer or vehicle owner - is buying a 1996 part because it says it’ll fit a 1994 automobile, they need to know what they have to do to make it work," he said. "That is one big black hole that is going to get a lot of people in trouble. Some [salvage parts] websites allow people to select ‘exact match only,’ or ‘exact match or interchange’. We have to make it very clear what is required to make an exact match part out of an interchangeable part."
Issue No. 2 - Limited supply:
Obviously, there is a finite amount of quality salvage parts. Lieberman said that only about 30 to 40 percent of vehicles sold at salvage pools go to auto recyclers - but that could change if more salvaged vehicles were declared ‘non-repairable.’
"When insurers say, ‘We want to use more of your product; how can you be more responsive and more reliable,’ we say, ‘How can you supply us more product?’" Lieberman said. "‘If you make available the truly non-repairable vehicles to our industry, our inventories will increase, and the quality of parts will increase because we’ll have more to select from.’"
Scott Morgan, a material damage manager at GMAC Insurance, agrees with State Farm’s Kent that the insurance industry may balk at such a proposal that would jeopardize insurers’ return on salvage. But they both personally believe it could reduce the problem of consumers and insurers being stung by poorly-rebuilt vehicles.
"It may even reduce the overall price of recycled parts because with more vehicles coming in for dismantling, there’s going to be more parts, which will mean the supply side is greater and prices should drop a little bit," Morgan said.
Issue No. 3 - Accurate, consistent parts descriptions:
If there’s a point that everyone - shops, repairers and insurers - agree on when it comes to salvage parts, it is this: The salvage industry needs to improve the accuracy and consistency in the way it describes parts.
"I want the part represented as it is, not as an undamaged perfect part," said Nebraska shop owner Boyd Dingman. "It’s not, for example, a $500 part. It’s a $400 part with $100 worth of repairs needed. I don’t want to pay taxes on a $500 part when it was a $400 part. And if it’s misrepresented to the body shop, there could be misrepresentation all the way through. If I tell a customer, ‘I’m going to put a $500 perfect used door on your car,’ and that door comes in and there’s five hours of clean-up needed and I call the salvage yard and they say they’ll send me a credit, I’ve misrepresented that part to the consumer."
"We can’t provide perfect parts, but we can give an accurate description of the part every time," Lieberman agreed. "Too often recyclers will say, ‘Yeah, I have a nice clean part,’ then deliver it and negotiate with the shop to make it nice and clean. We can no longer afford to do that today because repairers have gone through a tremendous evolution over the past five years. The production departments are totally different. If my parts hold up a job for two or three hours, or that production manager was not aware that he was going to have to have a tech do a 2- or 3-hour repair, it fouls up their production line. We can’t afford to do that anymore."
Lieberman said another step in the right direction would be for the software suppliers in the salvage industry to adopt the standardized description codes developed by the Automotive Recyclers Association (ARA). The systems currently allow one recycler to use "E" for "electric" and "T" for "tinted" while another uses "P" for "power" and "S" for shaded.
"At least then everyone would be speaking the same language," he said.
Issue No. 4 - Improved professionalism and consistency of parts suppliers:
Most observers believe that the entry into the recycling industry of Ford (and potentially other automakers) - along with consolidation efforts by LKQ Corp., Amera Parts and others - will "raise the bar" for service and quality in the industry.
"I think you’re going to see some radical changes in the recycling industry," predicts Norm Wright, owner of a two-location auto recycling firm in Denver. "You’re going to see communication and parts-locating changes. You’re going to see service and warranty changes. And I think the changes are going to happen very fast."
But Lieberman said insurers could help spur improvement. Just as they supported training in the collision industry by requiring direct repair shops to qualify for I-CAR’s Gold Class designation, insurers could improve the salvage industry by requiring recyclers to meet the ARA’s Gold Seal program requirements, which cover everything from dismantler training to return and credit policies.
"The 20 percent of the industry says, ‘Yes, I’m going to do this because it’s the right thing to do, the responsible thing to do,’" Lieberman said. "But the other 80 percent that should be in the program will join as soon as they see it will effect their cash register, their check book."
State Farm’s Kent said too few recyclers have met the Gold Seal standards to make such a requirement practical. Only about 100 of the ARA’s 2,000 members (itself only a fraction of the estimated 12,000 yards in the country) have earned the Gold Seal designation.
"You would be cutting out a ton of recyclers out there," Kent said.
Morgan said he believes the Gold Seal program could help eliminate some of the problems in the recycling issue and thought an insurer push for it was an idea with some merit.
"That’s really about as good a way to initiate that change as anything," he said, adding that it would likely require a move by one or more Top 10 insurers to have an impact. "I think that would assuage some of the shops’ concerns. It also would give the customer confidence."
Future issues of INSIGHT will examine other aspects of the salvage parts industry, including:
Can anyone Salage the Airbag Dilemma?
The debate over use of undeployed salvage airbags is not likely to abate, as the percentage of insured vehicles with one or more airbags continues to climb. Some statistics:
- Insurers can expect airbag deployments in about four of every 1,000 vehicles (about four-tenths of 1 percent) they insure this year.
- A Canadian study found that severity rates for airbag-equipped vehicles are about 4.5 percent higher than for vehicles without airbags.
- Almost 90 percent of six-year old vehicles are declared total losses following airbag deployment.
Proponents of reuse of non-deployed airbags say the modules offer a viable, economical solution to this issue, and that liability and other concerns can be addressed.
"I think there is starting to be a realization that this is similar to the situation that we had in the early 1980s when we were told we couldn’t fix an X-car," said Mark Buessing, a former president of the Automotive Recyclers Association (ARA). "Remember how long it took the collision repair industry to figure out the proper sectioning methods, and yet the [automakers] were telling you this was an unsafe practice. I think the obvious thing is that there are no moving parts to an airbag module. It sits in its cradle in the steering wheel until it gets that electric charge to deploy. It just makes sense that the airbag in a car hit in the rear or side could still be used in another vehicle."
A number of Canadian insurance companies (Saskatchewan Government Insurance and British Columbia’s ICBC) have been testing or even using salvage airbag components for several years.
And the ARA several years ago hired an independent testing firm to deploy more than 190 salvage airbags; only one removed from a flood-damaged vehicle did not deploy properly.
"Corrosion would probably be the best way to identify there is a problem with the bag," Buessing said of the flood-damaged module. "There’s corrosion on the rivets. There’s also a lot of sand and grit."
Buessing said the key to avoiding other potential salvage airbag problems is by dealing with a reputable auto recycler, one that checks to make sure part numbers and cover colors are correct, who packages and ships the modules correctly, who provides the VIN for the vehicle from which the module was removed, and who has appropriate liability insurance.
John Kent of State Farm said his company generally declares about 500,000 vehicles a year as total losses; he expects that figure to hit 600,000 this year, due to a number of factors including the cost of airbag replacement modules. He insists, however, that he has seen nothing that would lead him to expect any change in his company’s use of only new airbag replacement parts.
"We’re not testing them ourselves," he said. "We know what’s been going on and some of the tests that are being done, but we have issues with that, so I guess until we see some support from the manufacturer, we’ll probably maintain our position."
New technology may also help mitigate the cost of post-deployment repairs. In the near future, for example, seat sensors will prevent a passenger side airbag from deploying - with the resulting dashboard and windshield damage - if there is not a passenger in the front seat.
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