Thursday, 31 January 2002 17:00

Auto parts dealers speak up about returned parts

Written by Dick Strom

The October, 2001 issue of Autobody News front-lined an article, "Dealer Parts Managers Complain that Body Shops Return Excessive Number of Parts," voicing the opinions of parts managers interviewed. Three factors are pinpointed as contributing to an excessive number of returned parts - outright fraud, cycle time pressures that encourage ordering parts "just in case we need them," and parts orders based on estimates written by inexperienced insurance adjusters. It seems that the parts managers are sweating - and speaking out - about these issues.  

An OEM parts manager once told me of a certain collision shop that routinely demanded receipts for long lists of parts, had this OEM dealer store all the parts (including special orders) "until needed," and then would typically use only around 50% of the order. A different dealer recently told me this same shop is still carrying on the old tradition, now returning around 30% of ordered parts. This shop continues to wine and dine their way into insurer representatives' favor while defrauding insurers and consumers alike, obviously by collecting on the price of new parts when using imitation or used, or repairing them. An employee told me of a shop at which he'd worked that was always in a great rush to get repaired panels (often damaged so severely they should have been replaced) into sealer. And a parts dealer quoted in the Autobody News article told of a shop owner who recently demanded an invoice for a list of parts, then photocopied it before handing it back saying he didn't need the parts.

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Strom

Hindrances to auto parts profitability

Like other industries, collision repair includes many who shine at fraudulently taking advantage of any situation. While restrictive insurer pay-outs do encourage outright fraud through "get even" cost-shifting, to place all blame for shop-perpetuated fraud on such insurer practices would be somewhat unfair. Many shops view the insurance industry as a "cash cow" asleep on her feet, and feel no qualms about milking her dry when given the chance. Parts dealers have become, by association, an accessory to this "midnight milking" effort.
 

It would be somewhat reassuring to believe that shops cheat only when insurer demands leave them little option but to "cost shift" or lose the job and possibly a life-long customer. But what some shops see as necessity, others view as opportunity, and get quite comfortable cheating, rationalizing that everyone, especially insurers, is doing it. The sick thrill is in seeing how much money can be scammed from insurers (in reality, the consumer) before being caught. Billing for parts not used produces this end.

Insurance reps ignore fraud

Compounding the problem are insurance representatives who don't come down hard on shop fraud because it was perpetrated on their shift, under their nose (sometimes with their blessing), therefore jeopardizing their job. The adjuster might arrange an agreement with the shop to ignore the fraudulent act/acts so neither shop nor adjuster blows the whistle on the other. The result of this is a situation a friend, who performs damage-analysis investigations, terms "little DRPs"…his description of the palm-greasing give-and-take fraud between certain shops and certain insurance representatives that often escalates into big losses for the paying insurer. It's also the main reason why insurance adjusters seldom remain in one area for long. Continual rotation assures that dishonest elements won't have time to get too cushy. Interesting, is it not, that though insurers don't trust their own people, we're supposed to. Like Mom used to say, "Every thief, given enough rope, will eventually hang himself."

Buy back the fraudulently repaired car

In cases where fraud is too obvious to be concealed, the shop may be forced to buy-back certain vehicles, a practice looked upon by many crooked shops as just another cost of doing business. Typically, these are free to resell the vehicle to other unsuspecting persons, and continue business as usual with the insurer. An insurance fraud investigator speaking at our ACA meeting. When he was asked why insurers don't do more to counteract fraud, I inferred from his answer that there is no incentive for insurers to do so because enough money is built into insurance premiums to cover fraud. Why would insurers want to dig up trouble when they're paid handsomely not to? Besides, fraud is profitable to more than just crooked shops. Shops that regularly stiff insurers and consumers can afford to write lower repair sheets than honest shops, saving insurers millions.

Cycle-time pressures

Ordering parts "just in case we need them," is a relatively new bully on parts suppliers' block. With stepped-up pressure on shops to complete most repairs within a few days (to lower rental car costs and enhance insurers' image), plus with the great number of options available on every vehicle, comes increased pressure on parts dealers to maintain larger inventory, deliver faster, and absorb the expenses associated with shops ordering more parts than they will use in order to have the right ones on hand.

Again, insurers consider it "not our problem, since we're the big player here; we tell you what to do, and you find a way to do it." Parts suppliers that Neubauer interviewed stated they expect a certain amount of sheet metal parts returned for damage, and that they have no problem with these if returned 'promptly.' "But with DRP programs, and their tight turn-around times, shops are 'special ordering' parts [such as wheelhouse panels that dealers must purchase from national parts depots] 'just to be sure.' Ford [and others] are now charging OEM parts dealers a 20% restocking fee on special order parts returned to their depots." Parts dealers interviewed agreed that, though few dealers charge restocking fees for fear shops will take their business elsewhere, the parts industry, which has for years incurred return levels of 7-11%, is becoming panicky over present return rates of 15-20%, and more.

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Inexperienced insurance adjusters

Inexperienced insurance adjusters pose another problem for shops and parts houses. A Los Angeles Toyota parts dealer said he believes that increased returns are in part a result of "inexperienced estimators and adjusters trying to cover their butts," while a Chevy parts dealer placed blame on shops that "order parts off an insurer's estimate instead of looking at the car."

In the past, many insurance estimators were former collision repairers with a true hands-on technical understanding of how vehicle components were designed to work together, and of the consequences of compromise. Insurers tell us they too have problems recruiting new blood, but the "inexperience" of many insurance adjusters we deal with today is too great to be accidental. "My company doesn't allow that!" pinpoints the reason why insurers employ younger, often automotive-inexperienced adjusters that are writing sheets according to insurer dictates, rather than from a true and thorough understanding of vehicle construction. Not that every insurance adjuster just rolled off the turnip truck… I regularly deal with several (a minority) who are a credit to their profession, though hamstrung by their insurer's dictates. "We're allowed to write only what we see!" (exterior appraisals) has forced shops to routinely perform tear-downs before adjusters arrive so what they see is closer to reality.

Lowballing insureds

Insurers, hoping vehicle owners will run with the money, write sheets that are as low as one-third actual cost of repairs (I've been paid in excess of $3000 for supplemental bills to insurer-generated "estimates"). The plot is all too obvious: DRP shops are told to write bare-bones estimates, with the verbal promise they can be supplemented. Again, insurer and/or shop incompetence greatly affects part suppliers' profits.

Making parts returns more palatable

My shop eliminates much paper-shuffling by, at delivery, checking virtually every part we receive by part number, for damage. All large sheetmetal, glass, and plastic parts are removed from their containers and inspected, imperfections noted, dealers contacted for repair/exchange preference, and repair costs negotiated - then reinstalled in their boxes and safely stored, correcting many problem parts before the moment they're needed.

Any box we receive that has been previously opened gets a more critical search to determine condition and correctness of the part - Is the part mislabeled or damaged? Did another shop pull a fast one? - and if so, we mark the box as such with a black felt-pen so it doesn't continue in circulation, frustrating our parts dealer and other shops.

Return all damaged or unused parts ASAP. Though hard for understaffed shops, most dealers must have a part returned in less than one month to receive full credit, and to be able to resell it for profit. Just as we shops don't like having insurers sitting on our money, neither do parts dealers like having shops sitting on theirs (in the form of rejected parts sitting around the shop for months collecting dust and damage).

Open 'em from the bottom side

Return parts in re-saleable condition. We try to open all containers from the bottom side, making them more re-sellable if wrong or not needed. Upon delivery, have freight carriers note, in writing, damaged containers, and retain a copy for your files.

Since I have little tolerance for wrong parts (and all the wasted time, paperwork, and calls needed to get my money back), we deal with only the sharpest parts people in each dealership - those that comprehend that other dealers are begging for our business.

Pay all parts bills in full, and when due (cash-flow, cash-flow, cash-flow).

Postscript:

The article on returned parts hit a nerve with several shops. One in particular made some valid points: "We use a computerized estimating system linked to a management system, and all our parts orders are faxed to the parts supplier based on the VIN#… yet, it's amazing how many parts we receive that are incorrectly boxed or for a different model vehicle. A couple problems the parts industry needs to address: First, that our information providers and the OEM parts manufacturers need to communicate better; and second, that dealers need to employ more competent sales staffs. Returning wrong parts and waiting for correct ones is a costly nuisance. I don't have the answers to the problem, but I do know that the fault for an increased number of returned parts doesn't fall only on the shoulders of the repair industry."

Dick Strom, Modern Collision Rebuild, moderncol@aol.com.

 

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