Recycled parts making gains in body repairs

While vehicle recycling has become a favourite toThere are two types of vehicle recycling. One, being built into US and European laws, is all to do with melting down the components of older cars to make new ones. Australia is lagging behind in this movement but global pressure will eventually pull it into line.

The other type is the stripping of undamaged components from write-off vehicles and using them on vehicles which are viable to repair.

There is no doubt that a used part in good condition gives service virtually equal to a new part when correctly fitted to a vehicle and painted. But the smash repair industry, along with the general public, has been educated, largely by car companies, not to trust used parts. While the undesirable image has been augmented by the stereotype of the wrecking yard with its obligatory puddles of oil, savage dog and inventory chaos, lower repairer profits on recycled parts appear are also a major disincentive.

In their quest for a bigger share of the smash repairers? usage of parts, 300 out of the 1600 wreckers in Australia reinvented themselves in the 1980s and became ?recyclers? under the banner of the Auto Parts Recyclers Association of Australia (APRAA) Not only that, but they graded themselves, according to facilities, presentation and services offered, into one of five star levels.

At the top of the pyramid, the five star performers set up a structure six years ago to rival OEM parts outlets, They called it Parts Plus and developed it like a hybrid between a co-operative and a franchise.

There are now 23 Parts Plus operations Australia wide. Although independently owned businesses, they appear to be branches of the one company. Under their agreement they adhere to common logos, signage, uniforms, invoices, and a whole raft of service rules. They are computer linked so that stock can be offered through any member outlet. Moreover, an account opened with one Parts Plus member can be used when dealing with another.

Parts Plus operates through a board of directors. The chairman since inception is Ross Nicastri who operates ?Frank?s Commercial Parts Plus? in the Sydney suburb of Smithfield. He specilaises in parts for vans, utilities and four wheel drives. Not far away is Formaz Parts Plus, a separate business, but it deals in parts for specific cars. The group allocates territories and models so that members don?t clash.

Nicastri?s operation resembles a new parts supplier, with its air conditioned showroom and service counter. His stock is coded and stored like new parts, and each part is graded into A plus, A, B and C. Any repairs needed to the recycled parts are designated by ?units of damage?, a system recently instigated by all members. One unit equals the size of a credit card, and even that can be broken down as far as a quarter unit. The location of the damage is indicated by a numbering system on a diagram of ty?The aim of Parts Plus is to enable panel shops to order recycled parts the same way they do new parts,? Nicastri says.

The real issue behind using recycled parts
After having established a service and image comparable to new parts suppliers, the major obstacle standing in the way of more business for recyclers limited downstream profit. Because panel shops are generally allowed a percentage profit by insurers on parts, they will make a better dollar return on new parts. And so they pedal new parts as a virtue.
Allianz Australia, an insurer keen to increase the usage of recycled parts, offers its repairers a dollar amount profit on the cost of parts.

?The system is not black and white like a percentage,? national assessing manager Keith Dean says. ?What we?re trying to do is spread the advantage of using recycled parts between the supplier, the repairer and ourselves ? without comprising repair quality. We deal with parts prices on a job by job basis.?

Obviously a recycled part has to be cheaper than its new equivalent ? and therein lies another obstacle. As a group, car companies don?t allow anybody outside panel shops to know the list prices of new parts. This means that a recycler must either obtain the information by the back door or set his price by market observation. In some countries, incidentally, it is illegal for car companies to conceal prices.

Allainz goes further than simply encouraging its repairers to use recycled parts. Motor parts manager, Chris Wood, along with 13 parts specialists at Allianz, assists repairers to find recycled parts and then hammers out price deals aimed at giving all parties a share of the savings. He runs regular meetings between repairers and recyclers to air differences and build trust. In 2003, Allianz repairers used eight per cent recycled parts. That is expected to grow to 10 per cent this year, with an estimated ceiling of 15 per cent.

Making a bit extra
When panels are ordered either from a new parts supplier or a recycler, panel shops are focused on a piece of pressed metal, but then realise that some ancillary parts behind the panel are also needed. Those parts may include plastic protectors, washer bottles, antenna motors, and clips. Individually, they are lower priced than the panel, but there could be enough of them to exceed the price of the panel.

In the past, recyclers tended to throw out the smalls or give them away as an incentive for a customer buying a panel. But now, with Allianz?s encouragement, they are taken off a wreck, assessed, labelled and made ready for sale.
In effect, an additional profit source has been unearthed.

Participation by car company suppliers.
Recyclers tell stories of car makers who saw a business opportunity by recycling their own parts ? but failed. Ford tried it in the US five years ago by buying a network of recyclers. But because Ford tried to run the chain like a manufacturing business, and over-managed it, it became unprofitable and collapsed under its own weight. As with other outreaching Ford projects, the network was broken up and sold back to the trade at a considerable loss.

BMW tried something similar. The operation was too pretty to make money and was abandoned. In Australia, Volvo tried to make a business out of recycling its own parts but that too, petered out.

However, the opportunity remains for one of the major makers to adopt the thinking of a recycler and make it work. A recycled part endorsed by a car manufacturer would presumably be more acceptable to repairers and public alike.
What other insurers think about recycling

AAMI will not allow its repairers to use anything but new, genuine parts on vehicles which are still under manufacturer warranty, according to Geoff Hughes, AAMI manager, public affairs. But on older models, the part can be in keeping with the age of the vehicle ? and that often means recycled parts, as long as they are genuine. Unlike the mark-up of four per cent allowed on new parts, AAMI allows a general mark-up of 20 per cent on recycled parts (or more by negotiation) to compensate repairers for the lower purchase price.

IAG encourages the use of recycled parts when the age and condition of the vehicle warrants it. The company says it does not insist that repairers use a particular supplier but where it knows of an ?auto dismantler?(IAG?s term)that is supplying quality recycled parts, it will make repairers aware of them.

IAG allows a profit margin on recycled parts but declined to define it. Nor would it reveal the percentage of recycled parts used in repairs.

Suncorp believes its customers prefer genuine parts - which are used exclusively for damaged vehicles still within the new car warranty periods, usually three years. The use of recycled parts for older vehicles is considered on a case by case basis. It is company policy to advise customers of the use of any recycled parts in the repair of their vehicle. The company does not suggest suppliers for recycled parts although it will assist a repairer in locating parts if it is necessary.

Suncorp would not reveal markups on recycled parts at it regards this as commercially sensitive information.
The future

Ross Nicastri believes the division between old style wreckers and sophisticated recyclers will widen, cutting out those caught in the middle.

'There will always be a place for the local wrecking yard when a hobbyist can go for a cheap part,' he says. 'That is a legitimate business. At the other end of the scale, recyclers will move towards the Parts Plus model, which is still evolving incidentally, where they can offer a real low cost alternative to new parts suppliers.'