BB&T industry forum examines OE parts disruption, longer cycle times

NEW YORK - Longer cycle times and larger logistical challenges when procuring parts could be among the fallout from the financial difficulties faced by cash-squeezed automakers. A shrinking network of dealerships providing original equipment may spark heightened specification of alternative aftermarket and used parts, according to industry panelists at a recent forum hosted by BB&T Capital Markets in New York City.

ABRN was given exclusive access to the forum. Panelists included: Bill Daly, assistant vice president of auto claims for Allstate Insurance; Jay Adair, president of Copart Inc.; John Schwinn, senior vice president at Solera Holdings Inc.; Rob Wagman, aftermarket vice president for LKQ Corp.; and Dick Cross, chairman and CEO of CARSTAR.

In addition, the point was raised that discontinued vehicle brands could increase the number of totals as the various models on the road to extinction become less desirable and subsequently diminish in value.

“It is more economically feasible to total loss it than repair it,” explained Daly. “The bad news is for the repairer potentially,” he pointed out.

“People lose consumer confidence in the brand,” observed Adair. He recounts the fate of the Yugo as it developed a widespread reputation for being unreliable. “I’d sell a Yugo with a dented fender for 50 bucks – that’s all that was wrong with it – you couldn’t give them away.”

Daly said even the vehicle rebuilding marketplace may experience erosion amid a tightening regulatory atmosphere as “more states get involved in dictating when a title becomes tainted. States are getting a little more aggressive in getting into that conversation,” he reported.

Panel members also looked at dealership closings, noting that because 70 percent of current collision repairs involve original equipment parts, Chrysler’s plan to shutter almost 800 dealerships and General Motors’ anticipated axing of 1,100 sales outlets could put a crimp in the flow of OE components to body shops.

“It varies geographically,” said Schwinn, as he assesses the possibility of supply chain disruption as dealership parts providers are put out to pasture.

“It’s going to be a very messy situation for a while, particularly for the rural, country markets,” noted Schwinn, raising the specter of a repairer having to obtain a needed component from 200 miles away as parts-sourcing sources become scarcer.

Wagman described how there are currently four Chrysler dealerships in Columbus, Ohio, yet three of them are slated for closure – leaving a single outlet to cope with the storage and delivery issues inherent in taking up the region’s OE supply needs. “I don’t know how they’re going to handle the increased parts load,” he says, suggesting that repairers in the vicinity may be kept waiting for a day or two rather than taking delivery within hours of placing an order.

These factors could translate into greater demand for aftermarket parts. “There is a future for us in Taiwan,” continued Wagman, citing the potential for an accelerated acceptance of aftermarket parts.

Because of the global economic skid, “their output has been cut 50 percent,” yet capacity could be speeded up in a hurry as hardworking Taiwanese manufacturers would be on the job 24 hours a day “to get the pipeline going.”

“On a local level,” said Cross, “If you’re a body shop where you may have had a dealer/distributor six miles from your store and you had four dealer/distributors within a 20-mile radius, you may have three (suppliers) and a 12-mile delivery versus a six.”

Cross went on to ponder a couple of points: “So is it an inconvenience that may drive some cycle time? Did you get two deliveries a day and now you’re going to get one? Possibly.”

For its part, CARSTAR is keeping tabs on what may happen regarding the parts-flow equation. “We’re not overly concerned; we’re monitoring it,” Cross said.

“There appear to be plenty of parts in the marketplace,” he observed. “I’m less worried about parts capacity going forward – someone will fill the vacuum” and ramp up supply to meet collision repairers’ needs.

Increased utilization of alternative parts – used and aftermarket – is certainly an option that could unfold. “The day may come when we have to look at those,” said Cross, calling on aftermarket manufacturers to become more involved with submitting their product lines for review by the Certified Automotive Parts Association (CAPA).

He also noted that demand emitting from the collision industry is what ultimately drives certification participation and supply chain issues.

Panel members also noted they expect the number of totaled vehicles to continue to rise, especially as discontinued auto models decline in repair value.

It was the BB&T panel’s consensus that “Cash for Clunkers” legislation would have a limited impact on the collision industry because only a million older vehicles will be taken off the road, compared to the nation’s current yearly crushing rate of 12 to 13 million.

“It’s a bunch of political baloney,” concluded Cross. “It’s not significant.”

To listen to the entire forum, go to Wall Street Webcasting. Use bbt for the username and automotive as the password.

ABRN also spoke exclusively with Tony Cristello, of BB&T. You can see that exclusive footage here and here.