Co-Existence – How Vehicle Manufacturers and Auto Recyclers MUST work together

Chris Daglis, advisor to the collision, alternative parts and insurance industries discusses the reasons why unity between vehicle manufacturers and auto recyclers within the Industry is so important to enable all parties to move forward.

In 2010 I presented at an auto recyclers conference and the headline was “We are not the competition”.

Basically, I was doing two things: 

1. Trying to get the auto recyclers to work closer together and share inventory to satisfy the needs of the consumer better.

2. Make a point that the competitor was the Vehicle Manufacturer (VM) and that the auto recyclers should work closely to create a better competitor to the VM.

Although I remain a strong advocate for the first point above, I have to say that my view has changed when it comes to the second point. Things have changed in this area, and notwithstanding that many in the recycling industry still hold a strong position that VMs are ‘evil’ and trying to stop the auto recycler from selling their parts, I’d like to propose that we consider a different approach to this conundrum. 

If my proposition holds water, in fact, we all may need to pivot our thinking and actions and just find a way forward for the good of all stakeholders. Yes, that means that we may all need to eat a little ‘humble pie’, forego the position we have traditionally taken, and get on with it.

 So, what has changed to make me reassess my position and where are we at, some ten years on?

1. The environment – whether you are a global warming believer or not is not relevant here. This IS NOT a political argument. The fact though is that all around the world, governments and their regulatory functions are actively embracing environmentally responsible vehicle recycling policies. End of Life Vehicle (ELV) policies are now commonplace in many of the largest markets in the world and if not in place today, will certainly be in the coming years. Targets around vehicle recyclability are measured and enforced, ensuring materials used in the production of the modern-day vehicle are recyclable at a minimum so they do not end up in landfill. VMs now have an obligation to think carefully not only about the product they produce, but also their responsibilities around the product at the end of its life. This has led to some manufacturers investing heavily in auto recycling facilities in an effort to meet their product stewardship and environmental responsibilities head on.

2. Vehicle technology – a lot is said about vehicle technology. I have written about it a number of times as I feel that there is just SO much opportunity that comes with it. In my last article I called it a Disproportionate Opportunity. It is also an area which the auto recycling industry and VMs have a common interest. We need only look at the cradle to grave manufacturing methodologies VMs must adopt today and their responsibilities to product stewardship. VMs are great at manufacturing vehicles and they are focussed on staying on top of that challenge. This is their core competency, and the speed of change in this world is mind-blowingly complex. Along with this comes the opportunity to work together and find inclusive solutions to the recyclability of electric vehicles and the myriad of computers, batteries and other valuable bi-products.

3. The consumer – with 17 and 19 year old children, I have the opportunity to see how the next generation consumer thinks and acts. In short, their decisions to buy are generally based on a number of factors including: 

1. If the product is responsibly sourced and manufactured?
2. What are the environmental impacts of making the purchase?
3. Is it cost competitive – does it fit their budget and if so, how does it compare to alternatives without compromising their commitment to both point a and b?
4. Is it easy to buy?
5. Will it be delivered quickly, or if buying from bricks and mortar operations, can I get it now?

So, in the context of the above decision making process of a young adult, soon to be the major customer of all goods and services the auto recycler and VM produce, it seems to me that it goes without argument that not only is there a place for both, but more importantly an opportunity to work hand in glove to meet the needs of this consumer. 

Let me put it like this. Do you think that there is a place for a Reclaimed Original Equipment (ROE) vehicle insurance policy? That is:

• an insurance product that offers the consumer the opportunity to buy cost effective insurance for their vehicle based on the use of as many ROE parts as possible in the event of a claim
• a repair that will come with a lifetime warranty
• a repair that uses parts sourced from an independently certified ROE provider, harvested off a donor vehicle, prepared, painted and fitted onto the recipient vehicle, reinstating it to its pre-accident condition, delivering the ultimate environmental benefit through re-use
• a repair that is completed in spec, on time and safely
• an insurance policy that is as easy to buy as any other, just much cheaper.

Seems to me that this is a pretty compelling proposition.

4. The vehicle repair economics – one of the very important stakeholders in this repair ecosystem is the collision repairer. I mean it’s all great us talking about using more ROE parts, but they need to use them, keep their cycle time as low as possible and keep the customer happy with their cost, quality and customer service. There is some great news here and I am very happy to say that I am currently working with a number of insurers in the UK to help them achieve the following:

• Increased use of ROE parts
• Increased parts margin to the collision repairer (THIS IS NOT A TYPO!)
• Decreased total loss ratio resulting in more vehicles in collision repair facilities being repaired
• Decreased total loss payouts for insurers
• More policyholders retaining their cherished vehicle which is often their second largest investment after their home. This results in greater customer retention for the insurer as a policyholder that has their vehicle repaired and returned is most likely to re-insure rather than go shopping around.
• Decreased average repair costs due to the increased use of ROE parts which enable all of the above.

5. The parts supply economics – ok so all that makes sense, but it seems like there is a loser in this deal. After all, if the use of ROE parts has increased, and as a result, the environmental benefits, cost benefits, margin benefits, consumer benefits… outlined above are all realised, does that not mean that the VM and its supply chain are losing out of this deal? Is it not true that their part is substituted by the ROE part and as a result they have missed that sale?

The short answer is yes, that is true. BUT let’s think through this in more detail rather than take the lazy approach of the back of the envelope analysis. As a VM, let’s pivot our thinking and position we have taken over the years and look a little beyond the surface.

I’ve done a considerable amount of work with insurers over the years and continue to do so. Two key findings have become 100% clear when I run the data, and this is a consistent finding over and over again. In my view, it is the missing number in the code, the missing ingredient for that secret sauce. 

1. By increasing the use of ROE parts, the repair economics change significantly. That is, currently, many vehicles are totalled because it is not economically viable to repair the vehicle and once the vehicle repair dollars meet a particular threshold, the insurer will total loss the vehicle. Through my analysis and work with insurers, their total loss ratio could be changed by up to 5% points.
2. What does this actually mean? Insurers currently may total loss circa 20% of all their claims. In real terms, if an insurer has 200,000 claims a year, they may total loss 40,000 vehicles a year.
3. The evidence I have seen with some of the insurer clients I have worked with has shown that they could reduce this number by up to 10,000 vehicles a year. That is 10,000 more vehicles being repaired every year!
4. No matter what we do, the vast majority of parts used in the repair of vehicles will always come from the VM and its dealer parts distribution network.

Now, I’m not going to get into the impact on the insurer’s total claims cost, which is significant but for another day, but I must stress that a successful ROE strategy is in the interest of all stakeholders, including the VM.

The VM will in fact, by the mere fact that they will always supply the majority of parts required in the repair of vehicles, be the biggest winner in this new era of vehicle repair, an era that will see the use of a greater proportion of ROE parts. 

It is not only in our interests collectively to find the path forward, but it is critical that we find a way to work closely and coexist, not as foes, but as partners looking to deliver better outcomes for all involved. Our collective footprint on the environment cannot be ignored or passed on to someone else, and I hope that by reading this short piece, whichever side of the competitive landscape you stand on, you will begin to pivot your thinking and actions. I urge you to take affirmative action and begin to socialise this approach for the future of the automotive parts supply chain and a great circular economy within which, through co-existence and partnership, we will all prosper.

Together, and only together can we achieve a: 

WIN for the environment

WIN for the consumer

WIN for the repairer

WIN for the auto recyclers

WIN for the insurer

WIN for the VM and their dealer networks.

Visit www.cdps.com.au