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Letter to the Editor
This article originally appeared in the April 2001 Issue of INSIGHT
What's Up with the Aftermarket Parts Industry?
Still rebounding from the State Farm decision, the non-OEM industry begins to fight back
By Marc Duvin
One way or another, the public must have a choice. That’s the refrain being heard from the aftermarket part industry these days.
"Given an open field," says Stan Rodman, Executive Director of the Automotive Body Parts Association, "I believe [aftermarket parts] could grab up to 25-percent of the market. I firmly believe that.
"But as we know too well in this business, we don’t have an open field out there at this point in time.."
While they may not have what they perceive to be an open field right now, the powers that be in the aftermarket world are fighting to erase that fact. And headway is being made.
"Yes our industry was hurt by the State Farm case," said Jack Gillis, Executive Director of the Certified Automotive Parts Association. "But we’re putting that behind us now, and we’re moving forward.
"There are aftermarket parts out there that are every bit as good as the ones being produced by the big car companies," said Gillis, whose organization certifies such parts. "In the end, that fact has got to win out in the marketplace."
The State Farm case. One could excuse those in the aftermarket parts world if they brace themselves for a thunder clap when those words are spoken. It was that case, in an Illinois courtroom, that cast such a dark cloud over the viability of the aftermarket parts industry.
In short, a jury held that State Farm’s use of non-OEM aftermarket parts constitutes a breach of its contract with the policy holder to return damaged cars to pre-accident condition. The damages for failing to do so - $1.186 billion.
In the wake of that decision, which is currently on appeal, many insurance companies pulled back from the aftermarket parts industry, with some refusing to write such parts. State Farm, after years of being at the forefront of the industry, no longer authorizes the use of aftermarket parts.
"I don’t even know which insurance companies are actively authorizing CAPA parts at this point," said Gillis, citing GEICO, Farmers, Allstate and USAA as insurers he believes do authorize such parts.
Another barometer of where the market has gone since the State Farm case is the number of seals sold by CAPA. After selling more than 3.5 million in 1998, CAPA was roughly 2.5 million off that pace in 2000. The sale of those seals has long been considered the key to CAPA’s financial independence from the insurance companies.
There are signs of late, though, that at least some insurance companies are looking to get back into the business of writing aftermarket parts.
Nationwide, for instance, announced at the end of 2000 that it was launching a program that would allow the use of some parts that have been made by select MQVP-registered manufacturers.MQVP (Manufacturers Quality and Validation Program) establishes quality management expectations and guidelines for non-OE part manufacturers and distributors.
While Gillis questions the standards under which MQVP is operating, Rodman sees the fact that insurance companies are inching back into the aftermarket parts business as a positive step.
"We’re in a dogfight for our survival," Rodman said. "The State Farm thing was just craziness, and we’ve got to get away from that. I think it’s going to take a few of these big insurance companies coming back into the market to open up the flood gates for our parts."
And in the end, Rodman said, it is the parts themselves that will level the playing field with the big car companies.
"Our parts are good, quality parts," he said. "If I showed people comparable non-OE parts and OE parts, 99 out of 100 times they couldn’t tell them apart. That’s how good our parts are.
"Ultimately, the market is going to have to let the public make its own choice as to which parts they want to use. Right now, the big car companies are trying to push us out... to swallow up as many marbles as they can. So we’ve got to fight back, and the best way to do that is to make quality aftermarket parts.
"I don’t like confrontation," he said. "I don’t think it’s the best way to go.
"But if you’re attacked, what other choice do you have?"
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