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Sealed Off

Charlie Grahn
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Charlie Grahn: How ICBC’s haphazard use of aftermarket parts shows its problems aren’t over.

Last year I wrote how ICBC’s woes are not transitory. From its viewpoint, ICBC is omnipotent, but in reality it doesn’t know what it doesn’t know.

It sees its problems caused by the costliness of modern repairs, misguided judges, underperforming investments, fraud, distracted driving, and most excitedly, those greedy personal injury lawyers. But these are just everyday struggles other auto insurers manage without fanfare.

This temperament is important. Today, ICBC transitions to its new no-fault system, what it calls “Enhanced Care.” This system will severely limit access to legal remedies in exchange for the promise of robust benefits earned regardless of fault. ICBC can be entrusted to protect motorists under this new system, says the NDP government, but claims practices related to material damage cast doubt on this.

For more than 30 years, ICBC has instructed repairers to use less-costly non-original parts whenever possible. While it maintains the quality matches that of the original manufacturer, 20-plus years of documentation and tens-of-thousands of part defects support the conclusion that they often do not, and that many past repairs made were suspect. Furthermore, when it receives notice of such shortcomings, it does nothing to alert past claimants or correct past use.

Replacement Parts Business

When any auto manufacturer designs and assembles a new car, it has to plan the availability of spare parts for its expected lifecycle, plus a reasonable period thereafter. Some parts are frequently needed; others less so. Yet all must be held for every model, trim package, and colour. This commitment is crucial to brand reputation and future sales. It is also expensive, which is reflected in the costliness of replacement parts.

In the 1970s, some folks in Taiwan seized on this reality, and began stamping out replacement parts independently. These “aftermarket” parts were eagerly adopted by normally circumspect insurers – including ICBC – as less costly alternatives. Not all parts were made, just the most commonly needed. These included bumper covers, lamps, mirrors, fenders and hoods. The most important factor in determining what to make was the total number of each model sold.

Ford has sold greater than 750,000 F-Series trucks in the United States every year for the past 25 years. Same with GM and its Silverado. It’s just bankable business. Other vehicles are less predictable. Why did production of the Pontiac Aztek stop? Because it was ugly, and in its best year (2002) it sold just 27,793.

The opportunity cost of making a hood for the Ford F-150 is much greater than one for the Aztek, and therefore you make the former, right? It’s not that simple, because the same thought occurs to every manufacturer.

The peril is in making a part a competitor already made and flooded the supply chain. Once that’s done, there’ll be no takers. Each therefore tries to discover what the other is making; the shenanigans employed make the best John le Carre novel pale. To be successful, aftermarket manufacturers have to be stealthy and fast. This is the defining characteristic of the business – and yes, it yields foreseeable consequences.

Costs of Quality and CAPA

Manufacturing anything usually involves removing a piece at regular intervals and putting it on a jig or test stand, then measuring and recalibrating. Doing this for aftermarket parts takes a lot of time, while defects – if any—may otherwise remain undiscovered for years. It’s a classic case of the cost of a quality regime exceeding the cost of noncompliance.

This is why early aftermarket parts earned such a bad reputation, which auto manufacturers seized on. Insurers responded in 1987 by propelling the creation of the Certified Automotive Parts Association, or CAPA.

This Washington DC-based non-profit is charged with managing a quality program for aftermarket parts. Quality has improved, but issues persist.

When a new aftermarket part is first created the manufacturer applies to CAPA for certification, which appoints a third party inspector to test it. If it passes, the manufacturer can affix a serialized yellow CAPA sticker on the part. CAPA calls these two-part tamper-proof stickers seals. Parts with seals are said to be certified, and the seal is a purchaser’s reassurance of quality. CAPA sells the seals to the manufactures, which is how the program is partly financed.

 

From time to time, CAPA revisits previously certified parts. If a defect is observed, it issues a de-certification notice. By then, the suspect parts are likely scattered all over the world. It doesn’t decertify the part altogether, just the production sequence or “lot” the defective piece was included in. Finally, decertified parts are not recalled. That’s the prerogative of the original manufacturer.

Notice of de-certifications occurs through PDF documents on the CAPA website, but in recent years there’s been a searchable database.

Decertification most affects the distributors who hold the parts and supply repairers. Such parts are supposed to have one part of the two-part CAPA seal removed, which they can use to seek a refund, credit, or exchange from the manufacturer.

So does this happen each month? The reasons are many, but suffice it to say, I have doubts.

ICBC and Collision Parts

ICBC requires the use of CAPA and like parts in its repairs. Its Procedures Manual is publicly available online. It’s impressively prescriptive – and out of date. It’s replete with references to an estimating tool it replaced over five years ago. But nowhere does it decree aftermarket distributors ensure decertified parts are removed from inventory.

All collision parts are advertised and made available to repairers through an insurer-mandated parts database and estimating tool. ICBC is no different. The availability of CAPA listed parts (along with the affixed seal) is the repairer’s de facto assurance of quality. However nowhere does the Procedures Manual enjoin repairers to ensure parts received from distributors remain certified using CAPA’s online tool.

Even if it did, it wouldn’t matter. In October 2018, for example, CAPA decertified 2007-2013 Silverado hoods from two manufacturers – but these parts had likely been used in repairs for 10 years. Similar examples happen every month, and ICBC has no process to alert claimants when parts used in past repairs have been decertified.

It does, however, acknowledge problems with the reliability of aftermarket parts. “When a failure occurs to an aftermarket part…,” the Procures Manual explains, “the aftermarket parts source will replace the part or refund the purchase price of that part [to the repairer], including freight and all reasonable labour charges.”

But what’s a “failure”? Is that when an aftermarket radiator support made with substitute materials doesn’t properly sense an impact, and the airbag doesn’t deploy? If so, too late.

Besides, failure isn’t the only concern.

If the parts are of dubious quality, then vehicles repaired with them are less desirable in the resale market. This especially the case since the ICBC repair guarantee ends on the transfer of ownership. How do buyers know if aftermarket parts are used in repairs? Simple: ICBC requires repairers to keep the CAPA seals in place. Yet claimants are not compensated for this diminished resale value. It was on this basis that State Farm claimants got together in 2003 and won a $1.4 billion judgement.

The issue is not just repair quality, but the insurer’s integrity and good faith. Insurance is intended to restore the claimant to a pre-loss condition. The way ICBC uses aftermarket parts proves that is not being done – and it is the sole beneficiary from this practice. Is it a diabolical plan, or just straightforward ham-fistedness? I’m willing to bet the latter.

Not Rocket Science

The nature of aftermarket parts competition, monthly CAPA decertifications, and managing quality in the supply chain — this is esoteric knowledge, but it’s not rocket science. ICBC’s languorous apparatchiks could figure this out if any had attended trade conferences, met with manufacturers, and studied how claims were settled by insurers in non-public jurisdictions.

If ICBC peered beyond the splendor of its snow globe, it would see how other insurers sidestep the issue. First, by creating an obligation for repairers to ensure the quality of replacement parts. Next, by extracting a broad indemnity.

ICBC does the opposite: it indemnifies the repairer. This is only right for a public insurer. But is it logical, given persistent quality issues with aftermarket parts, the dubious validity of the parts certification system, and the lingering liability of thousands of past claimants with suspect repairs? No.

ICBC is simply too self-absorbed to fully consider the ramifications. Witness the latest opaque act of divination: another as-yet unannounced rate increase for repairers. When effective, British Columbia will be the second most costly repair jurisdiction in North America (behind Saskatchewan, of course). And since party favours were being handed out, senior managers and vice-presidents quietly received an additional two weeks of vacation too.

These are not the high-quality decisions one would expect at the apex of a public health crisis, where many have lost their livelihoods, some their businesses, and nearly 1,600 have lost everything.

The no-fault or “Enhanced Care” regime will stabilize rates. And new collision avoidance technologies, exotic materials, and auto manufacturers’ safeguarding of repair information will conspire to shrink repairable claims, inflate costs, and hasten repairers’ demands for still-greater offsetting rate increases.

That’s an over-the-horizon problem to ICBC where executive leaders are turned out at about the same rate as new iPhones.

More concerning for British Columbians is how ICBC can be entrusted to fairly assess the subtleties of personal injury claims, especially after claimants’ access to the courts has been done away with, when it’s already befuddled by the comparative ease of collision repairs.

Charlie Grahn is a past member of the Society of Collision Repair Specialists and Auto Body Parts Association. From 2003 until 2010 he advised insurers and manufacturers how to how to improve the distribution of collision parts. He continues to work in purchasing/supply chain in Vancouver, and teaches the same subjects part-time at Langara College.

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