"Why isn’t there a higher mark-up or other incentive for shops to use salvage parts?"
— P. Michael Riffert, pres., Engle’s Frame & Body Service, Ephrata, Pa.
Any of us are in the collision repair industry because we love it. And when you like your occupation, 99 times out of 100 you’ll produce a better product than someone who hates what he does. Still, this doesn’t negate the issue of receiving fair compensation for what we do and for how much we’ve invested in our businesses in equipment and training purchases.
The issue here is the use of recycled parts. Recycled — or used — parts have been in the industry since the first time an automobile was totaled and someone tried to make the best of a bad situation by selling the reusable parts from that wrecked car. What arose from that initial incident is an $8 to $10 billion a year auto salvage industry and 10,000 auto dismantling companies within the United States.
I’m of a vintage (circa 1945) when I can remember old hulks dotting the landscape. Most people who lived in rural areas had one or more of these hulks on their property. These days, however, you don’t see many of them. Why? One reason is that 90 percent of America’s autos are recycled when they’re totaled or outlive their use. This is good when you consider there are more than 120 million automobiles on America’s roads today. Imagine the problem we’d have if these autos weren’t recycled. It’d be a serious environmental concern.
Still, the problem remains for collision repairers: What’s the incentive to use used parts?
Dismantlers Put an Argument Together
I spoke with D.L. Fitzpatrick III, a fourth generation auto dismantler and general manager of Fitz Auto Parts, a company located in Seattle. Though Fitz Auto was recently purchased by Ford Motor Co. as part of its auto recycler consolidation plan, Ford retained the members of the Fitzpatrick family and their employees to run the large operation.
When asked why collision repairers should use recycled parts, Fitzpatrick says, "The primary driver is to save money. Also, to keep cars from totaling and to keep more cars in the repair shops." He also notes that recycling is inherently good for the environment.
Would using recycled parts increase a repair shop’s bottom line? "In some cases it would," says Fitzpatrick.
Ahh … a realist!
He explains his company offers volume purchasing rebates as incentives to use more recycled parts. For example, the purchaser (the shop) gets a rebate after he buys $1,000 of parts a month. With this rebate, plus the usual mark-up allowed by the insurance industry, the profit percentage on a used part could exceed the discount percentage of a new part.
He also explains that the use of assemblies could result in labor savings — another reason using salvage parts makes sense. But Fitzpatrick admits that certain parts of an automobile don’t lend themselves very well to recycling. Why? Because of the additional labor required to make the part readily serviceable; such costs could exceed those when using a new part.
Next, I questioned Fitzpatrick about efforts by the dismantling industry to improve interchange infomation. Will a part from an ’89 Ford Excort LX fit on an ’87 Ford Escort GLS? How accurate is the information? It seems that every shop owner has had nightmare cases of improper interchange on recycled parts. Frequently, the shop ends up eating the lost time. If the nightmare experiences continue for a shop owner, he’ll get gun-shy and only order the exact year and model. Fitzpatrick depends on customer feedback to refine the interchange system, much like the reader reply system used by the information providers to gain information on their labor times.
Would specifying only the exact year and model accomplish this task?
Fitzpatrick says his company prefers not to do that and, instead, focuses on satisfying customer problems on a case-by-case basis. He says there are thousands of parts that interchange perfectly. From a business standpoint, it wouldn’t make sense to leave those parts sitting on the shelf and to adopt an exact year and model policy.
What are recyclers doing to convince insurers to increase the profit line on recycled parts in order to improve the incentive to use them? According to Fitzpatrick, open lines of communication are the best tools. He says shops should get the same or better price discount as they do with new parts. The incentive for the insurers would be labor savings on assemblies and cost savings on parts.
Bi-Coastal (But Not Bi-Polar) Opinions
To get the repairer’s point of view on recycled parts, I contacted two shop owners from opposite coasts of the United States to find out their views on this issue. Are the problems and opinions universal, or do they vary from region to region?
Patrick Murray and his brother, Tom, own Murray’s Service First Collision Center in Kent, Wash. The Murrays have been in the collision repair industry for 20 years and have owned their own repair facility for more than 10 years. Michael Riffert has owned and operated Engle’s Frame and Body in Ephrata, Pa., for 20 years. (Riffert, coincidentally, was the inspiration for this article. His used parts question won him $50 and the opportunity to see his question answered in BodyShop Business.)
I asked both Patrick Murray and Michael Riffert if they’d ever had an interchange problem with a recycled part. It seemed like a pretty innocent question, but since we’re not writing a book here and because there shouldn’t be a lot of really nasty swear words in these articles, let’s just say that both answered with a resounding, "Yes!" (This really doesn’t do justice to their full and unedited answers.)
So are there any incentives to using recycled parts?
"None at all," says Riffert. "It’s a losing process from start to end."
Murray agrees. "We make more money on a new part, but the real issue — the killer — is clean up," he says. "We get the used door. We then wash it to examine it thoroughly. We repair miscellaneous damage, remove the door handle, lock cylinder, moldings, glass weatherstrip and door weatherstrip for painting. We then featheredge and prime the repaired areas.
"Then we take off the existing undamaged handles, locks, weatherstrips and trim from our damaged door because it matches the quality and wear of what’s on our customer’s car. We’ll want to put these items back onto the recycled door after we paint it.
"Good news! We’re now just about at the point we’d be at two minutes after we received a new part. Except with a new part, I don’t have to deal with previously refinished parts the insurance industry wants me to warranty for life. All of this, so I can make less money? What an honor."
Riffert said nearly the same thing except he called it, "R & R & R. Remove, remove and replace."
Both men also agree that many insurers are now specifying used parts in lieu of imitation crash parts as a result of the State Farm verdict in the Snider case.
So what would induce shop owners to more readily use recycled parts?
"Labor time to cover real actual time, plus a realistic mark-up that would match or exceed O.E. discount," says Riffert.
Murray has similar ideas. "Realistic labor and realistic markup," he says. "However, claims handlers should really look at cycle time when they specify used parts. If they did, they probably wouldn’t use them as much as they do now. It adds a lot of time onto the job."
A Study from ASA
An issue the Automotive Service Association (ASA) Collision Division Operations Committee has been studying is the comparison of labor times for new parts vs. used. The information providers –– ADP, CCC and Mitchell –– have incorporated into their electronic estimating databases the used assembly time guides, which was formerly a stand-alone manual of its own. The name Replacement Assemblies Estimating Guide, while not universal among the information providers, infers that used parts are installed in an assembly, and therefore less labor is required. Sounds like a bit of a contradiction in regard to what our two repairers told us, doesn’t it?
ASA’s study involved the replacement of the hood, right front fender and right front door using ADP, CCC and Mitchell estimating systems. The study involved four vehicles: a ’97 Cadillac Deville, a ’95 Jeep Grand Cherokee, a ’98 Honda Accord and a ’93 Ford Mustang. All the vehicles used the options for A/C and all power. One estimate was written for each vehicle specifying new parts in each of the information providers’ estimating systems; the same was done specifying used parts. The comparison identifies some astonishing differences.
It’s amazing, isn’t it? The majority of these used parts are faster to install and take less time to paint. So why haven’t I had that experience yet?
Many at a recent ASA meeting wondered the same thing. When this estimating comparison was presented at the meeting, the group took notice of the fact that the numbers didn’t seem to match up with real-life experiences.
Insurer Parts Ways
The last component of the repair rectangle, if you will, is the insurance industry. (Yes, I realize I didn’t include the customers in our scenario, but for the purposes of this specific article, I assumed their consent to the use of recycled parts.) To get an insurer’s perspective, I contacted an acquaintance at State Farm, who referred me to a public affairs specialist. This kind of referral is company policy in light of recent legal considerations, which is understandable. The public affairs specialist, Candace Thomley, works at the regional offices in Dupont, Wash.
She requested my questions in writing and supplied the answers within a day, also in writing. She also indicated that she needed to check with the corporate offices in Bloomington, Ill., regarding some of the questions. For the purposes of clarity and accuracy, the questions and their answers appear exactly as they were returned to me.
Q: Does State Farm have a policy regarding recycled parts?
A: Yes. We recommend the use of recycled (used) parts if they’re readily available. Using recycled parts helps hold down repair costs, an obligation we have to our entire policyholder group. If we include recycled (used) parts, they’re clearly identified as such on the estimate.
Q: Has the company advocated the use of more recycled parts in light of the State Farm verdict?
A: No. The Snider case hasn’t changed our advocacy of recycled parts.
Q: Is the company being more proactive regarding improving incentives to the repairers for using recycled parts?
A: No.
Q: With aftermarket (A/M) crash parts being present on vehicles when they’re recycled, what position has State Farm taken on this issue?
A: Our concern is that any recycled part be of good quality. If it comes to our attention that a recycled part is anything other than a recycled part, we ask the body shop owner to let us know so we can address it.
Q: Do you know of any efforts by the insurance industry to convince the auto manufacturers to produce an easier-to-recycle vehicle? For example, plastics, mid-year changes, wiring harness, etc. Is there any dialogue going on that you know of?
A: For many years, State Farm has worked with the automakers on issues related to safety, damage resistance, repairability and theft resistance of vehicles. At present, we’re evaluating plastic materials used in cars and suggesting to the manufacturers ways they could be improved from a damage resistance and repairability standpoint. However, we haven’t been involved in activities focusing specifically on recycling.
Recycled Time
It seems to all boil down to money. Repairers have contributed to protecting the environment, saving totals and reducing claims costs for years. Let’s get realistic, though. You can only flog one horse for so long before problems occur. These cost-saving measures should be more equally shared by the other entities in our industry to provide the repairers with more incentive to use recycled parts.
It’s only right!
Writer Mike West, a contributing editor to BodyShop Business, has been a shop owner for the past 25 years and a technician for 34 years. His shop in Seattle, Wash., has attained the I-CAR Gold Class distinction and the ASE Blue Seal of Excellence
