Frost & Sullivan recently conducted a survey to evaluate the dynamics impacting the North American salvage parts aftermarket, such as the insurance, collision and mechanical repair, remarketed vehicle, and the scrap vehicle industries.
In its 96-page report, titled “Strategic Analysis of the North American Automotive Salvage Industry,” the business research and consulting firm offered many insights, including making the case for why the use of salvaged parts is not only advantageous to insurers but is also becoming more commonplace.
Citing the economic decline as a factor in lower used-vehicle prices, Frost & Sullivan analysts explained the corresponding dip in the actual cash value (ACV) of vehicles. Also compounding the issue is the rise in prices of raw materials. Because materials tend to be more expensive, repair costs are higher. In turn, this drives up the number of total-loss claims.
The firm concluded that exorbitant repair fees place increasing pressure on insurers to find ways to minimize the price tag associated with a given collision-related claim. In time, that could lead to greater employment of salvaged parts and, consequently, to fewer vehicles being written off as total losses. Both would obviously be advantageous to insurers.
“More insurers are advocating the use of salvage (recycled) parts, as they try to control collision repair costs, thereby driving unit shipment of salvage parts,” said a Frost & Sullivan research analyst. “Simply put, if repair costs are not controlled, then insurance premiums will amplify.”
Tax incentives have begun to play a role in the availability of salvaged parts. A growing number of Americans are donating old rides to obtain credits. This has broadened the availability of salvage parts. The lower market for retail-used and new vehicles has also led to a reduction in salvage parts pricing. Savvy used-vehicle owners are turning to the salvage industry to execute financially feasible repairs.
To remain viable, those in the salvage industry will need to continue to stave off competition from original equipment manufacturer (OEM) parts, especially in collision repair. Generally speaking, OEM parts are still considered to offer better fit, form, and function, in addition to enhanced safety, durability, and reliability. Shops therefore use a high percentage of OEM parts in crash repair — some say this is partially because doing so helps achieve a higher profit margin.
Even so, Frost & Sullivan analysts say many insurers already embrace and encourage the incorporation of salvage parts in collision repair.
“The primary objective is to reduce the cost of repair practice and maximize the value of the salvage vehicles,” noted one analyst. “Meanwhile, with more orders for late models, North American brands in developing countries have escalated the demand for salvage vehicles that are easily reconditioned to a reasonable state at an acceptable value, in order to maximize returns.”