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Thursday, 26 January 2012 21:02

Mitchell Parts Index Sheds Light on Parts Trends Post Japan’s Tsunami

by Greg Horn, Vice President
Industry Relations Mitchell International

When we created the Mitchell Collision Parts Price Index (or MCPPI) a few years back, it was to serve as a barometer to measure parts inflation both in aggregate and split out by part type and vehicle country of origin. The MCPPI was created with the Consumer Price Index as its model as the Consumer Price Index (CPI) is best known to most Americans as the general rate of inflation.

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The CPI is one of the most closely watched economic indicators because it tracks the rate of inflation for a wide sampling of goods we routinely buy. Just in the way the CPI measures a “basket” of goods and services and compares the prices month to month. This basket contains hundreds of different types of goods and services ranging from the inexpensive to very expensive.

In creating the Mitchell Collision Parts Price index, we used a similar approach of taking a collision ‘market basket. We selected the top 20 most replaced collision parts for the following categories: Hood, fenders, headlamps, turn signals and side marker lamps. We pulled data from 2003 through the third quarter of 2011. We then created weighted average prices for these parts in aggregate, setting the base year at 2003 and equal to 100. This allows us to compare inflationary trends by part type. All part types are retail prices, in the case of LKQ/used parts, are calculated with the mark up included in the pricing.”

In the most recent edition of the Industry Trends Report, this useful tool also allowed us to evaluate the impact of the Japanese Tsunami on collision parts prices. What we found was that despite some industry experts predicting parts shortages, repair delays and hoarding of used parts, there was virtually no impact on collision parts prices.

What always intrigues me as I evaluate the data from this index, is that there are several other factors in play. When I looked at the overall index over time, what is interesting is the rapid increase in recycled parts prices for all vehicle types, and that salvage parts and aftermarket parts, drove the inflation index for 2011.  OEM parts pricing, by contrast; decreased in the aggregate.

How did the OEM parts index decrease? It was in large part a result of the expansion by auto makers ‘match the competition’ programs, wherein they will match or adjust their pricing to compete with top selling aftermarket parts. The primary aim of the OEM’s to match the competition is to maintain parts sales and stem the tide of aftermarket parts use in collision repairs.

Have they been effective? As evidenced by chart 3, showing the number of collision parts used by part type, the increase in matching programs has not stemmed the decline in OEM parts use, but interestingly; aftermarket parts use also declined during the same period. By looking at the repair labor hours for the same period, we see an increase in the number of average repair hours, indicating a shift to repairing panels rather than replacing them. An increase of repair hours is good news for collision repairers, and it remains to be seen if this increase is sustainable.

Let’s examine recycled parts as well. The MCPPI shows an increase in pricing of recycled parts, starting in 2009 and accelerating rapidly in 2010, but still below the base year of 2003. What is behind this phenomenon?

If we look back, the recycled parts distribution channel experienced the most advances of any parts channel. Large internet vendors began online and ‘near real time’ inventory displays in the estimating platforms as well as standalone applications. Large acquisitions happened in this arena as well, all allowing for more rapid market feedback of demand and pricing. I believe this lead to a market correction of pricing in the years leading up to 2009, and what we are now experiencing is an acceleration of prices because of the increase in overseas and rebuilder sales, and decreasing the population of parts harvested vehicles.

What will the future hold? I believe we will continue to see a restriction of supply for recycled parts, as the impact of slumping new car sales and high used car prices that began in 2008 (and continues today) begins to ripple through the salvage parts supply world. Aftermarket parts producers hold an advantage here, as they can custom tailor output to demand, a luxury that recyclers do not have.

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