logo_sm.gif (4042 bytes)
Your Source for Up-To-Date News and Research on the Collision Repair Industry 

 
Subscribe to INSIGHT Editor's Desk News Alerts
click here to subscribe to the FREE INSIGHT Editor's Desk News Alert Email

lftspace.GIF (57 bytes)
SUBSCRIBERS-ONLY
Today's News
INSIGHT This Month
INSIGHT Archives
Survey Center
Letter to the Editor
Business Tools
Subscription Information
CSI Reporting
Financial Analysis
IRS Audit Guide
Management/
Technical Info

1999 Market Watch Rates
INSIGHT Inside this month's issue...
Feedback
Letter to the Editor
cntspace.GIF (53 bytes)
This article originally appeared in the November 2000 Issue of INSIGHT

Are We Salvaging All We Can from the Salvage Industry?

A continued look at how shops, insurers, and auto recyclers view the future of salvage parts

Mention Keystone Automotive to many in the industry, and they will say Keystone is a supplier of non-OEM parts. But the company actually got its start in the 1940s as an OEM parts "recycler," remanufacturing and reselling steel bumpers.

Keystone’s Charlie Hogarty said the company in the mid-1980s added remanufactured plastic bumper covers to its product line as automakers moved from steel to plastic bumpers. Today, Keystone remanufactures about 1,100 bumpers a day at three facilities in Minnesota, Michigan and New Jersey, selling them through its 118 distribution locations.

The bumper remanufacturing process has some key players in the industry wondering: Could automotive reyclers do more to deliver collision repair shops "ready-to-use" products? Could, for instance, a recycler remove the trim, mirror and door lock from a salvage door, bagging them for delivering with the door to the shop? Or could they - as the bumper remanufacturers do - actually make any minor repairs that door requires and deliver it primed, ready to jamb, to the shop?

It’s an idea that has piqued the interest of at least some insurers, but one that gets a chilly response from many shop owners and auto reyclers.

"It’s extremely dangerous for a recycler to repair a part and then prime that part," says Herb Lieberman of Lakenor LKQ Auto Salvage in Sante Fe Springs, Calif. "The repairer at that point has no idea about the quality of that repair or the extent of that repair or even the type of primer that was used. Recyclers owe the repairer an accurate description of all parts. And any part that requires repairs, the recycler should reimburse the repairer for that repair. Anything other than that compromises the position of both the recycler and the repairer."

"The repair shop is the expert, not me," agrees Ed Lacy of Lacy Auto Parts in Virginia. "If I were to repair a front end and they don’t have a clue what’s under it, most of my customers won’t like it. That puts me in the body repair business, and I’m not sure I want to be in that business. I’m not going to do anything that’s going to mess somebody up, because we’d both have to live with it."

"It’s difficult enough to get technicians in shops to straighten things properly, let alone having salvage yards do it," said Nebraska shop owner Boyd Dingman. "We could end up having to redo it and then argue with them or else be concerned about the warranty process of their repair. I don’t want to have someone else do repairs that I have to redo or warrant."

And Mike West, a shop owner in the Seattle area, said his experience with remanufactured bumpers hasn’t convinced him that working with salvage products repaired by the vendor is the way to go.

"I wouldn’t want to have anything to do with that," West said. "We offer a lifetime warranty on our work. I’ve bought some remanufactured bumpers from a salvage supplier out here and one, for example, blew up big time right on top. It had a hole that had been filled, and it cracked all the way around. Of course, who looks like the idiot? There’s probably a lot of things the salvage yards could do, like cleaning up - literally cleaning up - the grease off the hinges and power washing parts and stuff like that, but as far as priming and doing any repair work on it, no."

West, Lieberman and others contend that one of the biggest impediments to growth in the use of salvage parts is the economic disincentive for shops to do so.

INSIGHT’s TrendLine last month confirmed that doors are the most commonly used recycled part, with an average mark-up of 25 percent and an average clean-up time of 1.5 hours.

As shown in the chart, given just this information, a shop seems to come out ahead with the used Honda door, with about $221 in gross profit compared to just $172 gross profit on the new door.

But West and other shop owners are quick to point out a laundry list of factors this basic analysis overlooks:

  • Added administrative time to locate the used part and coordinate payment, returns and credits with another vendor.
  • Time to thoroughly inspect the part upon arrival to ensure it is correct, complete and in the condition described.
  • Labor and materials to clean the part and make necessary repairs.
  • Delays (and increased cycle time) caused by problems with the part found at various points in the process (a power regulator, for example, that doesn’t work once the door is installed).
  • Estimating system replacement labor times that - in the case of doors - are often half what they are for new.

"They absolutely slow the process down," West said of used parts.

Lieberman said his personal opinion is clear. "Mark-up does not work," he said. "I’m a third generation recycler. My grandfather said mark-up didn’t work. My father told me that. Everyone is trying to figure out where mark-up ever came from in recycled parts. If recycled parts were treated the same as new OEM, where the marketplace determined the discount and the financial incentive, the situation would be totally different. It is my industry’s responsibility to price product to save the consumer and insurer money. It is also my industry’s responsibility to be sure that the professional repairer can make a profit using my product. That has never been allowed to happen. If we can deal with this issue legally, abiding by antitrust laws, responsible insurers, recyclers and repairers could address this issue, and usage would go up and most of the problems we hear about would go away."

Salvage truly becomes the preferred source when cycle time can be reduced as, for example, If a new OE door shell for a Windstar is on backorder, a salvage door may be available that would save several days of car rental expense. Otherwise, the savings has to be tied to the cost of the part and labor. With wreck rebuild bidding up the price of salvage this is becoming harder and harder to achieve.

Last month’s INSIGHT reported that testing in Canada had been completed on a process to test and certify undeployed salvage airbag modules for reuse in vehicles. The company that plans to begin offering the certification service by early next year presented its findings at last month’s Collision Industry Conference (CIC) in Nashville, Tenn.

Peter Byrne, president of Airbag Testing Technology, said his Ohio-based company verified its testing process this past summer and will begin certifying salvage airbag modules in one or more Canadian province in 2001. He said the company plans to later move into other markets - including the United States.

Byrne said the testing process includes checking for proper electrical integrity and resistance; checking the mechanical fasteners and cosmetic appearance of the module; ensuring that no foreign matter (such as glass) has entered the cushion cavity; and checking for surface levels of sodium or calcium that would indicate the module had been immersed in water and is thus unusable.

"Water is the Achilles’ heel of an airbag," Byrne said. "An airbag is not designed to withstand immersion in water. We have developed this test so that even in the remote chance that an airbag has been immersed in water - such as in flash flood - and even if the surface of the bag is clean cosmetically to make it appear that the bag has not been submerged in water, we can test to determine scientifically whether or not this has occurred."

Byrne said it is only immersion in water - not exposure to atmospheric humidity or rain - that impacts a module’s performance. His company’s test, he said, can detect immersion even if it occurred years previously.

The company conducted tests on 68 Ford Taurus airbag modules (58 salvage modules, and 10 new modules used for comparison) this past summer at a research facility in British Columbia, Canada, to verify its testing procedures. All of the modules were successfully deployed following the certification testing.

Byrne said the company expects the initial market for its certified modules to be in the three Canadian provinces with government-run insurance monopolies - followed by the non-insurance-paid repair market in the United States.

"We recognize that it will take a long time for the insurance-paid section of the marketplace to come around to this," Byrne said, acknowledging the liability concerns for shops and insurers. "We recognize that we would have to indemnify body shops that are currently handling insurance-paid work."

But, he said, the certified modules - which will come with test results and a written warranty - could reduce liability for those currently using non-tested salvage airbag modules.

CIC also hopes to offer its prescription for improvements in the salvage parts arena by preparing "best practice guidelines for the use of used parts." The guidelines, still in draft format but expected to be finalized later this year, call for shops to provide recyclers with the VIN and other information needed to provide the correct parts; request realistic delivery dates; inspect parts and request any adjustments promptly; and minimize returns and make them promptly.

The guidelines call for reyclers to: quote parts as complete and undamaged but provide an accurate description of the parts; respond to inquiries and meet delivery dates to expedite the repair process; request VIN and options required to provide "exact match" parts; and make agreed adjustments promptly.

The document concludes by stating that insurers and repairers should "consider recyclers who adhere to these best practice guidelines."

"I truly believe that it’s time for my industry to change," Lieberman said in a presentation at CIC in Nashville. "Adopt the CIC best practices with regard to the use of used parts. Do not as it says in those best practices, consider recyclers who adopt those practices. Require that our industry uphold those standards."

A Note from INSIGHT Publisher Charlie Baker:

The accompanying chart is an example cost comparison of a new OE door shell and the required parts versus a salvaged door.

This is our first crack at this and, while we have had the help and advice of an experienced estimator, I am sure that either we have overlooked an element of cost or we have some other inaccuracy. Trust that we did our best, and my comment that making this comparison was a little like "walking on flypaper" is an absolutely valid simile.

The chart shows that for this example, the salvage door does save the insurer close to 15 percent on this part replacement.

Questions that the chart does not address are:

  • How long did it take to get the salvage door, and did this delay the job and run up car rental expenses?
  • Was 1.5 hours an adequate time allowance for any cleanup or repair work required to use the door?
  • Were our assumptions that the glass regulator and any electrical components were all in working condition In the salvage door valid?
  • Was our assumption that the interior trim panel, armrest, etc., etc., were transferable, to the salvage door, if required for color match, correct?
  • Was the manual regulator in the damaged door reusable in the new OE shell? We assumed it was.
  • Was our assumption that the side window glass was broken as a part of the accident valid? If not, OE shell replacement becomes the lowest cost.

If you have comments on this example or suggestions on other comparisons, please give me a call at (800) 860-2744 or e-mail editor@collision-insight.com.   o

Feedback

Have a comment about this article? Send Email to Charles Baker, INSIGHT's Publisher

©2000 Collision Repair Industry INSIGHT
All Rights Reserved

FEATURED
LINKS:

Get Free Email News Alerts

PPG Automotive Refinish

DuPont Automotive Refinish

Sherwin-Williams Automotive Finishes

Spies-Hecker Automotive Refinish

National Auto Body Council
INSIGHT Supports the NABC!
Do You?