I have spent most of the last six weeks working on various programs and discussing our positions on the electronic data providers. During this time, I found several things to be generally accepted facts.
The first is that insurance companies are looking for ways to search for more parts. The thought process is that the more parts searched for, the better the chances of finding the parts. If insurers find more parts, they can buy more used parts to install on the vehicle. It also allows them to promote a competitive environment that will help keep prices in line and provide financial savings to the insurer while helping maintain reasonable premiums. The key word in that statement is installed, but I will get to that later.
The second fact is that all of the estimating software companies and several other companies are working feverishly to provide electronic parts locating methods that are easily incorporated into the estimate while giving the opportunity to measure the availability of used parts in comparison to the number that are being installed on the vehicle. There's that installed word again.
The third fact is that this is a very difficult issue for the used part providers. On one side, you would think that having our inventory displayed to as many people as possible would increase the chances of selling parts. The recycler could gain greater exposure to potential customers that they would otherwise not necessarily have the opportunity to sell. It also stands to reason that the easier it is to put used parts on the estimate, the more they will be used.
Integrity of data.
The flip side of that issue revolves around the integrity of the data and the other recyclers. Everyone who is associated with the repair process has been bitten by these two subjects. How many of us have dealt with a part being placed on the estimate and then not been available or damaged beyond the point of use? While this is not a general practice with the progressive recyclers, it still occurs on a regular basis with a large percentage of my industry peers.
It expands further into a pricing nightmare. Recyclers that have a parts grading system and only allow the premium condition parts to be used in the estimating process tend to be perceived as the high price leaders. In reality, those recyclers who are allowing sub-standard merchandise to be placed on the estimate at discounted prices do nothing but hinder the repair process. In many cases, those parts are accurately priced for what they are but they are not close to the price of an insurance quality part.
That creates a problem for the reputable recycler who provides and services the progressive repair facility who gets asked to provide our quality part for the other guys junk part price. This in essence becomes a downward spiraling price auction.
While the financial savings to the insurance industry are desirable, they could be erased by delayed cycle time and an increase in the supplement rate. The repair facility is subject to those same two negatives that are magnified by the fact that these are some of the key performance indicators on which they are being judged. The quality recyclers will be damaged by the black eye the industry will receive from the bad apples. This is similar to what insurance companies and repair facilities battle. A small collection of individuals tend to spoil the entire industry by their lack of moral and reasonable business practices.
In any given market, there are generally six used part vendors who are capable of consistently providing parts that the repair facility will install on the vehicle. Everyone can list the best and worst performers in our markets. The repair facility feels better when a reputable recycler is listed on the estimate and the repair process tends to go more smoothly.
Downside of electronic parts locating
While this is a difficult issue, everyone must keep in mind that getting the vehicle repaired and back to the customer involves more than putting information on an estimate. It takes parts and people to complete the process. Without the parts, the process is hindered and that is the downside of electronic parts locating.
Perhaps a grading system will be installed to relay good or bad experiences to help one another avoid the problems of a non-quality vendor. The people involved may discover that a large percentage of parts are difficult to move large distances without a specific infrastructure to accomplish this.
While I am certain that this is the wave of the future, I am also certain that the issues of timeliness of the data and accountability on the recycler must be addressed before this method of parts locating can lead to an increase in the number of used parts being installed.
Mike Kunkel is the general manager for American Auto Salvage in Fort Worth, Texas, and also a member of the national steering committee for the PRP program.