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A Case for Competition: OEMs vs. A/M Parts

A/M crash parts were once the collision industry’s best-kept secret — until insurers discovered them. When the tables turned, so did repairers allegiance to A/M parts. But where would the industry be if only OEMs supplied replacement crash parts?

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Most of you reading this article are aware of the decades-long emotional and contentious debate about aftermarket (A/M) crash parts. The evolution of the industry would probably make a great case study in how not to introduce and market a product. But, at this point, the emotional debate about whether things could or should have been done differently is irrelevant; a more productive approach would be to analyze the current situation and go in search of solutions.

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A spokesperson for the Society of Collision Repair Specialists (SCRS) once stated that to thrive in the future, A/M crash parts must improve in the areas of quality, service and profits. Let’s take that one step further by examining where the market is today, where it’s headed and how A/M crash parts rate in each of the areas SCRS mentioned.

Competition
It’s a widely held belief that in a free-market society, competition is desirable. Everyone knows that OEM service parts aren’t perfect, but they have improved in quality during the past two decades (so have A/M parts) — and OEM service-parts warranties didn’t even exist prior to the advent of A/M crash parts. What did the advent of A/M crash parts bring? Competition.

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How many realize that car companies started widespread use of galvanized sheet metal as recent as 1994 to gain a competitive market advantage over A/M part manufacturers? These advances are the result of competition.

In August 1998, SCRS prepared a list of A/M mechanical parts that are widely accepted and used in automotive repair. It should also be noted that competition regarding mechanical automotive parts has been a fact of life for decades. So, if these A/M brakes, shocks, belts and engine parts — all clearly safety-related items — are accepted and used, why so much resistance and debate about A/M crash parts? The answer can be found by exploring quality, service, pricing, image and prevailing market forces.

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Quality
Quality is a relative term. Webster’s describes it as a "characteristic, an element or attribute." Product quality is defined by a measurement or a consistent standard by which it’s evaluated: a barometer or ruler, for example.

It’s easy to see that U.S. manufactured cars are of far better quality today then they were 15 or 20 years ago. As for foreign models, the Japanese Honda or Toyota that the masses run to buy today was the "junk" of the 1970s. Who among us growing up in the ’50s and ’60s would’ve ever dreamed that products "Made in Japan" would eventually be in such high demand — with consumers willing to pay a premium rather than a discount? These dramatic examples prove that industries can and do change and that quality measurements change with them.

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Today, car companies would have you believe the electro-deposition painting (EDP) processes they used on new-car assembly and service parts for more than 20 years are sub-standard in the area of corrosion protection. In the mid-1980s, however, while still using EDP technology, a trend toward longer new-car corrosion warranties began. Obviously, car companies knew they had little to risk in the area of corrosion protection using EDP technology. Had the risk been great, there wouldn’t have been an economic incentive to provide stronger corrosion warranties.

Another example of this: The cost to convert to galvanized sheet metal was minimal compared to the market perception that "galvanized means good." Car companies jumped on this strategy in the mid-1990s. EDP, commonly used in the manufacture of A/M parts since the 1980s, is the reason rust and corrosion haven’t been a problem among A/M parts for more than a decade — in spite of the time, effort and money car makers have spent to convince you that you should be concerned. Regardless, in response to competitive market forces, since January, all CAPA sheet metal parts are now made with galvanized sheet metal.

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As for fit, finish and packaging, there’s clearly a significant market segment that believes more should be done to meet their quality demands. On the other hand, a smaller market segment has long accepted A/M crash parts "as is." Only recently has the concept of market segmentation been introduced to A/M part manufacturers, and some of these manufacturers are responding to that newly acquired knowledge by evaluating customer communication systems so they can be sure their products are, in fact, what the end user wants. Some manufacturers also have improved packaging to prevent shipping and handling damage, while others are investigating developing brand imaging so end users can more easily distinguish between manufacturers’ products.

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Still, one unanswered question remains: Who will provide the level of service demanded by the industry’s top-tier shops?

CAPA as Qualifier
CAPA standards have evolved over time to address the market concerns of top-tier shops. Regardless of the controversies and emotion, CAPA has accomplished a great deal. One could debate the effectiveness of CAPA’s current standards or inspection process, but it provides the best set of standards available today for the manufacture of A/M crash parts. A very strong quality foundation has been built, and it would be a pity to destroy something that’s had such a strong influence on the improvement of parts over time. If tweaking the program standards, inspection processes or management is necessary, that’s where energies should be focused — not on re-inventing the wheel or using CAPA as a scapegoat for other issues.

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CAPA vs. ISO 9000
The number of ISO 9000 registrations is doubling every nine to 12 months. Approximately 90 countries have adopted the ISO 9000 series or its equivalent as national standards, and it’s become mandatory for many product manufacturers wanting to sell in Europe. (More than 20,000 firms are ISO registered in Europe.) In the United States, suppliers to the electrical, chemical and nuclear industries also are expecting certification to become mandatory.

ISO 9001 confirms the conformance of processes from the primary stage of product development through production, installation, testing and servicing. IS0 9002 deals with the procurement, production, installation and servicing areas of an organization. It usually applies to the process industries.

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To maintain certification, a company must be audited every six months by an ISO 9000 registrar. The registrar audits the registered company to ensure continued implementation of ISO standards. If the registered company doesn’t maintain the system, then the registrar withdraws its registration.

Proponents of ISO registration see the key to quality as the creation of an internal auditing system, whereby all company functions are constantly monitored. Registered companies must demonstrate proper quality systems on paper, and products made by ISO-registered companies should exhibit superior quality to those same products manufactured by non-ISO-registered companies.

But let’s put that in perspective: ISO sets standards for systems and paperwork, not products. Opponents of ISO 9000 charge that it focuses too much on the company involved and its systems and not enough on product quality or its customers. In fact, many believe the program emphasizes product consistency at the expense of product quality. For example, one can manufacture cement life preservers and still receive ISO 9000 certification.

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A number of world-class companies, such as Hewlett-Packard, Motorola, Novell and Microsoft, aren’t satisfied with the ISO option and are leading a self-certification movement. Also, because of the absence of industry- or product-specific standards, programs like CAPA for A/M parts and QS 9000 for auto-parts suppliers have merit. Both programs use an ISO-9000-type baseline, but they add components of continuous improvement and a parts approval process.

Today, at least half of CAPA-approved sheet-metal manufacturers are, in fact, both ISO and QS approved, and most of those remaining have ISO certification. But the lack of product-specific quality standards inherent to ISO makes adherence to some product standard very important. This justifies an outside qualifier; CAPA is the rational answer, even if institutional changes are necessary.

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Service
As cost containment and cycle time become today’s buzz words, the level of service provided by all suppliers must increase. A/M parts distributors have depended on insurance company policies to "push" their wares for too long. Distributors and manufacturers of A/M crash parts that want to provide products to top-tier, high-volume shops need to find out what these shops want and implement procedures to deliver that level of service. Open lines of customer communication, a mechanism to respond to that communication and a way to collect product and service customer-satisfaction data are mandatory in today’s marketplace. The desires and demands of the end user have been overlooked for too long. Manufacturers and distributors need to pay attention.

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Market Dysfunction
The A/M crash-parts industry suffers from two types of market-dysfunction:

1. Pushing vs. pulling through the market.

2. Pricing dysfunction.

Initial demand for generic crash parts was great. During their first two years of sales, A/M crash parts captured approximately 10 percent market share. In the early years, these parts were "pulled" through the market by a minority of body shops using generic crash parts as a profit center for their businesses. Shops operating in this manner were committing insurance fraud because insurance companies, not yet aware of this alternative product, continued to pay monopolistic car-company prices. An interesting perspective raised in a recent article suggested that car-company greed set the stage for A/M crash parts.

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Whatever their origin, A/M crash parts are clearly here to stay.

Insurance company awareness of the fraudulent practice of using inexpensive generic parts while charging monopolistic car-company prices coincided with their efforts to cap insurance costs. Some insurance companies changed their policies, recommending the use of A/M crash parts. The introduction of these new policies caused an uproar among collision repair shops for many reasons. One of the most ironic situations is that, while "pushing" the use of A/M crash parts, insurance-company parts-reimbursement policies for them (then and now) created an economic dis-incentive for their use.

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Another marketplace irony is that while some A/M manufacturers invested hundreds of thousands of dollars to improve product quality, the market hasn’t responded by allowing higher prices. How can a manufacturer be expected to increase its investment in quality when the market demands a low priced product? True, A/M manufacturers entered the market competing on cost, but now a large segment is demanding that they compete on quality, too. And the current system doesn’t allow for equitable profit margins, which would encourage healthy growth of quality products in spite of the obvious segmentation of the market.

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What the Future Holds …
Bitter inter-industry attitudes have played a significant role in the evolution of the A/M crash-parts industry image. Real and perceived product quality and service issues continue to plague the industry, and these situations haven’t resolved themselves because of insurance company insistence on "pushing" the products through the market — rather than taking a laissez-faire approach and allowing the free market to establish acceptable quality and pricing levels.

To thrive in the future, salvage-parts and A/M-parts manufacturers and distributors must use customer communication and brand imaging so their products are "pulled" through the market by the end user. They can no longer rely on the "push" of the insurance industry. It’s time to deregulate this industry.

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Additionally, if quality competition is to exist, the system must ensure equitable profits for quality products throughout the channel of distribution.

Complicating the situation even further is that since most A/M crash-parts manufacturers have relied on distributors, CAPA or insurers to market their products and provide customer feedback, they have virtually no control over the channel of distribution, their product image or the ability to capture the response of the end user. Add to that a fundamental lack of understanding about the rapidly changing collision repair industry. This lack of market intelligence severely hampers the ability of A/M crash-parts manufacturers to strategically plan for the future and the development and delivery of world-class product service and quality. On a good note, some of these manufacturers have recently begun exploring strategic options to improve their market positions.

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In my opinion, it is, without a doubt, in the best interest of collision repairers to participate in the maturation phase of the A/M crash-parts industry to prevent car makers from reverting back to their practice of price gouging. A return to this old approach will create more vehicle totals and less work for collision repairers. Another way of looking at this is that more totals will create more salvage parts and profits for insurers. Regardless, the bottom line is that there will be fewer cars to fix — and fewer profits for your shop — if crash-parts competition is eliminated and OEMs are given total control over the market.

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Writer Karen Fierst is president of KerenOr Consultants, a firm providing a variety of services to the collision repair industry. She’s consulted with A/M parts manufacturers and distributors, as well as collision repair shops. Prior to the establishment of KerenOr, Fierst served as CAPA’s deputy executive director for eight years.

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