Salvage Parts Get Boost in Down Economy

Sep 23, 2009
With the average price of used vehicles dropping due to the current economic decline, the actual cash value of vehicles has dipped.  The price of raw materials, however, has gotten higher, which has caused a spike in repair costs that can lead to more total loss claims due to collisions.

The most efficient way to handle the problem of higher repair costs is simple: salvage parts. The use of salvaged parts lowers the cost of repairs, creating a lower number of total loss claims across the board.  A recent research report by Frost & Sullivan entitled “A Strategic Analysis of the North American Automotive Salvage Industry” examined the real impact that higher repair costs can have on business.

“More insurance companies are advocating the use of salvage (recycled) parts, as they try to control collision repair costs, thereby driving unit shipment of salvage parts,” says Frost & Sullivan industry manager Avijit Ghosh. “If repair costs are not controlled, the insurance premiums will amplify.”

The salvage industry faces some tough competition from original equipment manufacturer (OEM) parts, which are generally considered to have better fit, form and function and provide enhanced safety and reliability.  Most collision repair shops use OEM parts because they fit more easily and have a much higher profit margin than aftermarket parts.

“However, some insurance companies fully support and encourage repair shops’ usage of salvage parts for collision repair,” Ghosh says. “The primary objective is to reduce the cost of repair practice and maximize the value of the salvage vehicles.”

In addition to fighting the high cost of repairs, salvage is an effective and convenient way of disposing of used vehicles.  With tax credits acting as incentives for consumers who turn in their old cars, the availability of salvage parts has risen significantly.

The salvage industry is also helping to get vehicles where they are needed most: North American auto brands in developing countries have raised their demand for salvage vehicles that can be reconditioned at a reasonable cost for use in those regions in order to maximize returns and get the most out of their vehicles.

Photo courtesy of kodiax2 under the Creative Commons License.