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FUTURE OF Recycled Parts

Case for Certification

Automotive recyclers are always looking to increase parts sales. Taking a side step to independent certification may actually be the straightest path to that end goal. By Chris Daglis

It was early September, I was in New Zealand as the Keynote speaker at the Partsworld 2017 Conference and a Trade evening held at Affordable Partsworld. Speaking with representatives from the insurance industry, the issue of vehicle technology and its impact on the repair process and repair cost became a hot topic.

The example of a Hyundai Genesis involved in an accident came up – the repair cost should have been $15,000, but blew up to over $55,000 dollars. The sole factor was the array of technological components, sensor and computers that were damaged which had to be replaced.

Only 20 feet away from us were three late model vehicles that had come into this recycling facility – a Porsche Panamera, a new Mustang with only hundreds of miles and a late model Bentley. The technology in each of these vehicles is state of the art and its replacement cost exorbitant. “Imagine if we could actually re-use some of the technological components from any of these vehicles when having to repair one,” stated one of the insurance representatives. Imagine!

Here’s the deal. In the past and even in the current environment, harvesting these components and reinvesting them back into the repair of vehicles is just not an accepted practice because they are regarded as safety components. Even if the one being harvested has only traveled a few hundred miles and it is being put into a vehicle that has traveled thousands more.
It all comes down to being able to guarantee that the part in questions will work as designed. The owner of the vehicle deserves nothing less and rightly so.

So let’s cut to the chase. We need to find a solution to this. There is absolutely no reason why we shouldn’t and couldn’t. Let’s face it, these same parts are driving around in every vehicle on the road today and we assume that these used components work perfectly. The reality is that each of these components goes through a diagnostic check every time we start our cars, so we know they are working as designed, otherwise our vehicles would tell us there is a fault.

Technology in vehicles is already affecting the automotive industry. Supply chains will need to adapt to better service the needs of the repairer and insurers, who ultimately service the consumer.

Independent certification programs are now emerging. These will make sure auto recyclers adhere to and are audited against these independent standards. Those recyclers that decide to participate and go through the process to comply with these standards will differentiate themselves as the best of the best. A move towards component certification – a set of standards that clearly defines how specific harvested parts need to be removed, handled, stored, tested and distributed is the next logical phase in developing supply chain and repair process.

The Economics
High-tech parts are expensive and are hurting consumers. If the repair bill increases, so do our premiums. Sure, we can argue that it is the greedy insurers trying to squeeze more money out of each of us, but while this could be a contributing factor as shareholder returns are protected, the rising repair costs also drive these price hikes.

Through the extensive work I do with insurers, I know that approximately 45 percent of a repair cost is made up of parts. In an article from The Age (August 24, 2017) titled “High-tech parts push up repair bills – Motor claims costs dent IAG margins,” IAG’s chief executive, Peter Harmer stated – “the parts of some vehicles, especially grilles and bumper bars, have actually skyrocketed…” Where do many of the sensors and collision avoidance technology components sit in the modern-day vehicle? In the grilles and bumper bars. Now comes the opportunity –
• What if recyclers could harvest sensors, test them, certify them and make them a viable alternative?
• What if we found a way to make them an option for insurers to use in collision claims?
• What if we found a way to run them through a diagnostics check?

In the current context, it is a scary thought, but for those in the insurance and repair industry, a thought that could provide a safe alternative and save millions of dollars a year if it materialized. Repairers would have thousands more vehicles, as in the Genesis example, that they could repair and the parts supply chain, millions more parts to sell.

Independent Certification
One solution, independent certification ensures that parts meet a certain set of agreed criteria to give confidence to the end user. It ensures the part has gone through an agreed process to make sure that it will function and perform exactly as it was designed. This type of certification has driven the use of certified aftermarket parts in the U.S. up from 13.72 percent in Q2 2014, to 20.66 percent in Q4 2016 according to Mitchell.1

Independent certification will enable the automotive recycling industry to make these high value, hi-tech part types saleable. It will also establish a sound set of criteria that will give repairers, insurers and their policy-holders confidence in the parts.

In this way, via the certification process, the automotive recycling industry can help insurers keep the cost of their policies at sustainable and affordable levels for the consumer, and keep more of these vehicles from becoming uneconomical write-offs – a win for the collision repairer, as well.

We have witnessed moments in history where change has swooped in on the traditional industry. The innovators, the leaders, the visionaries, have not only taken advantage of the change coming through, they have designed and guided it. This is one of those moments. If you are an insurer, think differently. If you are a repairer, embrace the opportunity to use alternative supply chains in the future. If you are a recycler, be proactive and invest in your future. Many say change brings with it risk, but with every risk there is opportunity for those willing to think and act strategically.

For over 10 years, Chris Daglis of PARTnered Solutions has been the leading independent advisor to major Australian insurers on alternative parts strategies. He has an understanding of the key drivers for all stakeholders and an ability to build strategic mutually beneficial solutions for insurers, repairers and suppliers. You can reach Chris at chris.daglis@cdps.com.au or at www.cdps.com.au.