The car parts Battleground

Insurers and motor manufacturers should make natural bedfellows. One produces risk the other protects from it. Both benefit from the public's absolute dependence on their products.

But over the years there has been little or no co-operation between the two. Mutual respect for each other's profit margins and caution over the damage a conflict could cause have created a no man's land between the parties' interests.

All that could be about to change. As revealed in Insurance Times (2 October) recent changes in the law have exposed motor manufacturers' most profitable revenue channel, the sale of spare parts, to an insurance market desperate to cut costs.

'Block exemption' legislation introduced by the EU will give insurers greater access to original motor parts and hand third party manufacturers the right to access the technology behind those parts.

Historically, a Lucas headlight fitted to a Ford car could only be sold as a manufacturers' part under the Ford name.

Now Lucas, or any other manufacturer making parts fitted to an original car, will be able to sell that product as an original part. Control of price and distribution for a market worth an estimated £2bn annually is being taken away from the motor manufacturers.

Norwich Union head of motor and legal supply chain Tom Spink said: "Freeing up of the market will be crucial to motor insurers. The interpretation that the industry is putting on this is that it will give greater access to the parts and the technology behind the vehicles."

But the spare parts market, where insurers are looking to cut costs, is the major profit provider for car manufacturers, so do not expect them to surrender control easily.

Manufacturers' woes
It is a sensitive area for all involved. When approached by Insurance Times, Ford refused a request to put someone up for interview.

An industry insider explained the problem: "Motor manufacturers lose money when they sell cars and make it by selling spare parts. This new legislation could hurt them badly."

One battleground likely to develop over the next few months is in new technology development. As block exemption legislation frees up access to parts technology, independent repair networks will be able to get hold of high specification parts at much reduced prices.

This alternative supply route can carry a saving of up to 40% to 50% and quality is on the up.

The motor insurance research centre, Thatcham, has developed an accreditation scheme that aims to guarantee the quality of non-manufacturers parts.

Jason Moseley, head of quality and accreditation at Thatcham said: "Our aim is to offer a range of parts of unquestioned quality. We have put in place a rigorous checking procedure. Of 100 parts checked only 42 have been approved."

Again do not expect the motor industry to give in without a fight. Industry commentators expect quickfire changes in the technology around spare parts. The more manufacturers can update and put new variety in the marketplace, the more difficult it will be for others to copy those parts.

As the battlelines are drawn, one of the biggest surprises is the apparent lack of initiative by motor insurers to take control of the situation.

Taking initiative

With Norwich Union as the exception, insurers appear to be standing back to see how the situation develops instead of defining that change.

Royal & SunAlliance motor engineers manager Trevor Davies said: "It is not yet clear what strategy motor vehicle manufacturers and dealers will take in order to maintain their market influence and advantage."

Norwich Union on the other hand has put together a plan that should see some real benefit to its policyholders. The UK's biggest car insurer is working in partnership with Lex Auto Logistics to set up a supply chain exploiting the reduced prices.

Spink said: "Spare parts is a very, very big proportion of the repair bill. Traditionally this is an area that has not had much focus because it has been dominated by the vehicle manufacturers.

"As the changes under the new block exemption legislation come through it is entirely possible we will see a change in the balance. We are looking at improvements in cost and service levels."

As Spink pointed out, this could be done in partnership with the motor industry: "Our stance is to work with people not against them and changes could help all parties.

"One of the problems facing the industry is the increasing number of total losses. A vehicle ends up being uneconomical to repair because of the high cost of parts replacement. Now if we can work together to reduce the cost of spare parts we can move the balance point on total losses and offer increased business all round."

As yet the struggle to wrench savings from motor manufacturers has been a phoney war.

Like all such situations the outcome will be decided on two things - whether the protagonists have the will power or firepower to enter into battle. Or whether common sense prevails and the various parties start to work together.