BEYOND 2020 - RECYCLED PARTS (PART 2)
Ok, so we’ve established that things are changing!
Technology in vehicles and changes to the drive train will have flow-on effects for all the automotive industry...
The recycling industry won’t have engines and gear boxes to sell
Mechanics will need to service different types of products
Collision repairers and insurers will need to replace high value tech components on smaller severity accidents but at a higher severity cost.
By strange coincidence, as I was writing this, a friend of mine sent the pictured article from The Age (Thursday, 24 August 2017) titled “High-tech parts push up repair bills – Motor claims costs dent IAG margins” which illustrates my point perfectly.
Through the extensive work I do with insurers, I know that approximately 45% of a repair cost is made up of parts. As IAG’s chief executive Peter Harmer states in the aforementioned article – “the parts of some vehicles, especially grilles and bumper bars, have actually skyrocketed…”
Where do many of the sensors and collision avoidance technology components sit in the modern-day vehicle? In the grilles and bumper bars!
Now comes the opportunity -
What if we provided a viable solution to this problem of increasing average claims costs?
What if recyclers could harvest sensors, test them, certify them and make them a viable alternative?
What if we found a way to make them an option to insurers to use in collision repair claims?
In the current context it is a scary thought, but for those in the insurance industry reading, a thought that could provide a safe alternative and save them millions of dollars a year if it materialised.
Just think, most of these components are smaller, lighter and more transportable than the traditional engine and gearbox. They are often exorbitantly expensive from the dealer and they are in high demand so there is certainly a market for the product. There is the opportunity!
So how do we turn the opportunity into a reality?
Independent Certification
I have had the good fortune to be involved with the certification of after market parts over the past few years and have therefore been exposed to the importance and role of independent certification.
Independent certification ensures that parts meet a certain set of agreed criteria to give confidence to the end user. It ensures the part has gone through an agreed process to make sure that it will function and perform exactly as it was designed to. This exact type of certification has driven the use of certified aftermarket parts in the USA up from 13.72% in Q2 2014, to 20.66% in Q4 2016 according to Mitchell. [1]
In the example of a collision avoidance sensor, this process would give the insurer, repairer and most importantly, the owner of the vehicle being repaired, 100% confidence that it is in sound working order and will work exactly as it was designed to - no different to the new one who's price is causing claims costs, and therefore policy costs, to skyrocket!
Independent certification will enable the automotive recycling industry to make these high value, hi-tech part types saleable. It will also establish a sound set of criteria that will give insurers and their policy-holders confidence in the parts.
In this way – via the certification process, the automotive recycling industry can help insurers keep the cost of their policies at sustainable and affordable levels for the consumer, while increasing their sales.
A no-brainer!
Alternative parts, parts other than those provided by the vehicle manufacturer dealership network, have always had and will continue to have a significant impact on an insurer’s average repair costs. The automotive recycling industry already sells OE pre-owned parts and, through a well thought out independent certification program, this could also extend to high-tech parts.
This concept is not new - we’ve seen vehicle manufacturers do this repeatedly over the years. For example, what about the Ford ‘Certified Pre-owned’ used car model http://www.ford.com/certified-used/inspection/ ? Are these vehicles not second hand or pre-owned, like the parts recyclers sell? How do they know that the safety components on these vehicles will function as they were manufactured to function? Answer - by meeting a set of criteria, checks, diagnostics that give the consumer the comfort that all is working as designed.
Why could automotive recyclers not perform such module system tests via the independent certification process? Sure, arguments will be made by the OEM’s to influence everyone that this is not a good idea. Why wouldn’t they want to protect such a lucrative market? Why would they want any competition?
The automotive recycler needs to look into the future and think more strategically. The traditional product range available for harvest has changed somewhat, but will change from this point on at lightning speed. The industry must embrace this change and the opportunities it presents.
So, what do we do? How do we, individually and collectively, begin to build these product and service solutions of the future? In my next blog post, let’s discuss how we could execute on some of these strategies. Thanks for reading.
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[1] Industry Trends Report, APD Edition, Vol.17 no.1, Q1 2017, Published by Mitchell International
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