Monday, 12 November 2012 18:42

SEMA Panel Discussion Offers Look at Insurer Parts Ordering Systems in Other Countries

The Society of Collision Repair Specialists (SCRS) held a variety of training sessions and panel discussions aimed at collision repairers during the SEMA show in Las Vegas in November.

Among the best-attended was one entitled, “Bidding Wars,” in which collision industry representatives from Australia, New Zealand and Canada discussed what they have seen in their countries after an insurer mandated use of a particular electronic parts procurement system.

“We’re not going to tell you what’s going to happen here in the United States,” David Newton-Ross, editor of a trade publication in Australia, said as he opened the session. “We’re going to tell you what’s happening in other countries. What happens here is up to you.”

Rex Crowther, who sold his two New Zealand shops in 2008 and is now editor and publisher of a collision repair trade magazine in that country, said PartsTrader launched there in 2005, and use of it was mandated initially by one large insurer.

With no domestic automakers and a vehicle population that averages 13.5 years in age (compared to 11 years in the U.S.), used parts dominate the New Zealand market, accounting for between 55% and 65% of all parts used, Crowther said. Mark-up on those parts dropped from 25% to 20% under PartsTrader, Crowther said, and shops found themselves having to buy from many more different suppliers (Newton-Ross said he spoke with one New Zealand shop that now has 300 suppliers rather the 30 the shop bought from previously). Some suppliers were dumping low-quality parts through the system, Crowther said.

The insurer offered a $3 increase in labor rates, but Crowther said that had been the first increase in three years and did not offset the loss of parts profit. In his own $4 million business in 2006, he estimated that use of the PartsTrader system accounted for a decline in margins equal to about 4% of his sales.

He cautioned that the PartsTrader system used in New Zealand is different than the one being mandated by State Farm in some U.S. markets. Insurers in New Zealand (almost all of which have now adopted the use of PartsTrader), for example, can see all prices quoted in the system there.

And much to Crowther’s surprise, an online survey that his magazine conducted in late 2011 found that 53% of shops (and 48%of suppliers) felt that PartsTrader had had a positive effect on their business.

“I tried to find these people, but I can’t find them,” Crowther said.

Canadian shops face challenges
John Norris, executive director of Collision Industry Information Assistance, a trade association in Ontario, Canada, said a major insurer in that market now requires use of an electronic parts procurement system. The insurer has about 22%  market share overall (for comparison, State Farm has about 18% market share in the United States, and Allstate has about 10%), but as much as 50% market share in Northwestern Ontario.

Norris said the parts system is forcing some participating shops to endure delays in delivery of parts from sometimes distant suppliers because only suppliers willing to pay the insurer a fee (generally 3% of the part price) on every part sold may participate.

The insurer contends the system has reduced parts returns from 15% of all parts ordered to just 10%.

“The program supports our (direct repair) shops in reducing cycle time and improving the overall cost of repair,” the insurer told a Canadian trade magazine.

Norris is unconvinced, however. He cited a shop in Sault Ste Marie, Ontario, that used to walk across the street to pick up parts from a Honda dealer but now must wait three to five days for parts to be trucked from a Honda dealer nearly 400 miles away.

“He cannot go across the road and buy a part even if at the same price,” Norris said. “If the other supplier that is working with the insurer has that part, he must buy it from that dealer.”

Norris said a shop in Thunder Bay, Ontario, has had to buy used parts from a supplier in Welland, Ontario, 933 miles away. Hamilton, Ontario, has a population of about half a million people, but shops there, Norris said, must order General Motors parts out of Niagara Falls, Ontario, which is 43 miles away; the delivery trucks pass 11 other GM dealers while bringing the parts to Hamilton shops.

Attendees share their views
A brief question-and-answer session following the panel discussion included a variety of comments from attendees. Charles Lukens, co-founder of APU Solutions, a web-based parts procurement system company recently acquired by Solera (parent company of Audatex), said he felt the panelists lumped all parts systems together, unfairly indicating they all have a negative impact on shops.

“Not in any scenario are we increasing cycle time and decreasing margins, so I think it’s an unfair statement to say all parts procurement solutions are doing that,” Lukens said.

Bobby Price of Prices Collision Centers, which operates five shops in Tennessee, said he is currently on State Farm’s “Select Service” program but “expects not to be” if the PartsTrader mandate comes to his market.

“I don’t need State Farm telling me how to run my business,”  Price said. “I believe that that’s what this is about.”

Price said he is working to build his company’s brand directly to consumers through increased marketing and advertising.

Newton-Ross cautioned that shops in the United States should view the issue as something larger than just State Farm and PartsTrader.

“It’s every insurer,” he said. “Because if State Farm is successful with what they do, do you think the other insurers are going to sit there and let them have an edge in the marketplace? No, they’re going to have their own deal with PartsTrader or someone else.”

SEMA organizers acknowledged that attendance at this year’s event was curtailed somewhat by Hurricane Sandy-related impacts on the East Coast. Still, SEMA CEO Chris Kersting said as the event was ending that close to 60,000 “buyers” attended SEMA, with about an equal number of others at the event, including exhibitors representing more than 2,250 companies, returning the show to about pre-recession levels.

The “collision repair and refinishing” section of the show, now in its third year, featured about 160 companies, with many of the paint manufacturers and equipment vendors that sell to the industry located elsewhere on the massive show floor.

SEMA will return to Las Vegas next year on November 5-8.

John Yoswick, a freelance writer based in Portland, Oregon, who has been writing about the automotive industry since 1988, is also the editor of the weekly CRASH Network (for a free 4-week trial subscription, visit www.CrashNetwork.com). He can be contacted by email at jyoswick@SpiritOne.com.

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