OEMs fight back with recycled parts
News Extra
Most car makers are understandably concerned at the erosion of their parts market share by non-OEM, parallel and recycled parts. Taking its cues from its parent Ford, in the US, Volvo Australia may be about to take on the recycled parts market with its own certified used parts. Shaun Davies reports.
After buying up 31 salvage yards across the US and Canada since 1999, with the express intention of becoming "the world's biggest auto recycler", Ford has announced that it may sell off its Greenleaf LLC network of recycled parts yards. Meanwhile, Volvo in Australia is considering moving into the recycled parts market for a second time.
Greenleaf, which employs over 1200 people, was set up by Ford to provide certified recycled parts to the US repair industry. At the beginning of its salvage yard buy-up, the company was enthused about the project, believing it provided a cheap, safe option for repairers under pressure from insurers to keep costs down by using aftermarket parts.
In addition, as recycling is an environmentally sound practice, Ford undoubtedly saw a chance to improve its green credentials.
However, it's no secret that Ford has lately been consolidating and focusing on core practices in an attempt to turn around bad results, and Greenleaf is now regarded as a non-essential asset. (Ford is also considering selling European mechanical repair brand Kwik-Fit and US autobody consolidator Collision Team of America.)
"We believe Kwik-Fit, Collision Team of America and Greenleaf LLC are good companies with strong futures," Ford COO Nick Scheele stated recently. "However, we are focusing our efforts and attention on our core business -- developing great cars and trucks and providing outstanding service to our customers."
There have been conflicting reports on the actual state of the Greenleaf network. One reliable source states that Ford may be looking at keeping Greenleaf, as it is a profitable business, while getting rid of Kwik-Fit and CTA. However, other sources say Greenleaf was a failed experiment, which cost the company millions to set up, and garnered very little in the way of results.
Volvo: recycling ideas
In the face of these developments, Volvo, which as a member of the Premiere Automotive Group (PAG), is owned by Ford, is considering moving into recycled parts in Australia for the second time, in conjunction with its PAG partners Land Rover and Jaguar.
Volvo initially set up a pilot recycling project in December 1998 to assess the feasibility of operating a factory-owned recycling plant in Australia. Established under a partnership with Nathan's Quality Smash Repairs, a Volvo Approved body repairer located at Annangrove in Sydney's west, the concept was based on Volvo's European joint venture with a company called ECRIS, which has been recycling Volvo cars in Scandinavia since the late '80s.
"The concept of Volvo Recycling was to recycle as much of the car as possible, in the most environmentally friendly way available, and to offer quality used parts for resale throughout our dealer network," says Volvo Aftersales regional manager Mike Takach.
"We maintained the project until December 2000, during which time we recycled around 300 Volvo cars. The project identified a huge requirement for quality recycled parts in Australia -- more often than not supply could not keep up with demand, especially on front end panel parts.
"Volvo has recently moved office and is now part of Premier Automotive Group, along with Jaguar and Land Rover. We are currently assessing the feasibility of starting a joint recycling operation with all three brands, along with many other joint projects."
Takach believes the Australian market would be receptive to certified recycled parts, due to the comparatively old age of Australian vehicles. Australians tend to keep their cars for much longer than Americans or the Japanese, and as such recycled parts seem a more attractive prospect for consumers and of course, insurers.
Independent salvage
Ian Swan, owner and manager of Volvosaab Auto Salvage in Keysborough (an independent on-seller of recycled aftermarket parts, as well as new parts, specialising in Volvo and Saab vehicles), says he has not heard of Volvo's possible intention to re-enter recycling, but remembers the company's last venture well.
"From what I've heard, Volvo got out of [recycled parts] about a year ago, and buried all of the parts under a big pile of dirt, so that we couldn't get them," he says. "I don't know that first hand, but I heard it from a strong Volvo dealer."
(Mike Takach denies the existence of this pile of dirt, and states quite openly that remaining stock from the Annangrove venture "is stored at our National Distribution Centre at Minto".)
"They [Volvo] spent bucketloads of money getting into recycling, and created a bit of a stir in the industry," Swan says. "They were buying cars we'd normally have access to, because of their unlimited chequebook. Volvo have their own insurance company, which gives them an instant line of stock, and I'd bet they have ins with other insurance companies."
However, despite the problems Volvo created for Volvosaab by reducing its supply line, Swan believes the multinational's foray into recycling was actually good for the industry (the same sentiment was expressed by many independent salvage yards in the US when Ford started up Greenleaf).
"I personally thought it was a good thing, because it gave recycling credibility," he says. "If a manufacturer is out there telling repairers these half price parts are good, packaging them in nice boxes, then that's going to be good for the industry in general.
"[Competing on recycled parts] is the same as competing with Volvo on new parts (which we've been doing every day for 10 years) -- if you do your job right, you succeed. If you don't, you fail. I probably wouldn't be particularly worried if they came back into the industry. In fact, if they want, they can buy me out."
Insurers and recycling
The Australian insurance companies contacted by Paint and Panel have generally responded very positively to news of Volvo's possible move back into recycling.
A statement issued by an NRMA Insurance spokesperson said: "NRMA Insurance welcomes this innovative operation and would encourage other manufacturers to consider doing the same. These practices are commonly used in Europe, where environmental conservation is a priority.
"Traditionally, it has been difficult for repairers to source quality recycled parts, as there were limited suppliers. These companies recognised they had an old fleet and were doing a service to their customers to encourage them to keep older makes and models.
"We recognise the advantages of repairing parts and fitting quality recycled parts where appropriate. Recycled parts not only makes good economic sense, but also help save the environment. We encourage smash repairers to fit parts that are consistent with the age and make of the vehicle to ensure cars are restored to pre-accident condition. Often a quality recycled part is the perfect solution, especially if the vehicle is more than five years old.
"This supplier [Volvo] will provide smash repairers with another source for quality recycled parts. NRMA Insurance has high standards for quality of repairs and provides a written lifetime guarantee through Associate Repairers and Preferred Smash Repairers. Therefore any part that is fitted included recycled parts must meet high quality standards."
Graham Dobson, AAMI national parts manager, echoes the sentiments expressed by NRMA, saying that recycling is a good thing for the industry, and further stating that an increase in recycling is almost inevitable, due to the push for more environmentally aware business practices.
"If you get a bumper bar off a Commodore, bury it under a pile of dirt and dig it up in 100 years, it'll still be in pretty much the same condition," he says. "So what conservationists are pushing for is that a bumper bar gets transported back to a factory, and is melted down and used in something else.
"Eventually, the costs will probably come back upon the insurance industry. The repairer is currently responsible for the cost of disposing of waste parts, and if they say you can't dump them at the tip, the repairer will have to pay the cost of having the parts taken away for recycling. They'll pass these costs on to the consumer, and the consumer will pass on the costs to the insurer."
Dobson claims Volvo's move into recycled parts is at least partially motivated by the increasing use of parallel and non-OEM parts.
"Manufacturers are doing this because they're selling less OEM parts, because of unbranded parallel parts. Volvo (and others) aren't selling so many parts these days, so what's been happening is that they are extending the warranty on their vehicles.
"The average warranty used to be 12 months, but now it's more like three years . . . and most manufacturers are now experimenting with five year warranties. If you claim on your warranty, you must have OEM parts. Secondhand but certified parts offer a cheaper alternative [to new OEM].
"Most insurance companies welcome parallel parts, but AAMI will only use OEM parts -- that is a decision we made some time ago. We welcome manufacturers getting involved in recycled parts."
Dobson also believes the introduction of a written-off vehicle register, which will ban the re-registration of badly written-off cars to prevent illegal re-birthing of stolen vehicles, will lead to an increased number of recycled parts coming on to the market.
"This should help in repairing cars more cheaply, but recycled parts first need to be accepted by the general public. Volvo and others endorsing and condoning the use of these products should ensure this happens."
Keith Dean*, national assessing manager for Allianz says customers must be made aware of the use of recycled parts: "Provided the customer is fully aware of what is happening and the repairer has the ability to enjoy greater profit on the part than they would enjoy through using OEM, it's a win/win for all."
Dean believes more recycled parts will be used in the future. "In some European countries the car manufacturers have a responsibility to recycle a very high percentage of cars they total loss. I believe the trend will follow at some stage here in Australia. If I were in the car manufacturing business I'd certainly be looking at recycling parts for sale, there is a market there which is very profitable. The opportunity to sell the same part twice in its lifetime at a profit would appeal to me."
* Keith Dean's comments are his personal views and do not necessarily represent those of Allianz.