Auto Parts Patents Will Raise Repair Costs
With automakers patenting more parts to enhance dealers' service and repair revenues, the knockoff business is taking a big hit.
By Jim Ostroff, Associate Editor, The Kiplinger Letter
February 29, 2008
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The patenting of more run-of-the-mill auto part designs is roiling small body shops, many of which make their living by fixing cars with knockoffs of original equipment parts such as grilles, hoods, lights, mirrors, side panels and fenders. Such pieces are anywhere from 10% to 50% cheaper than the real McCoys, but increasingly, the law forbids their use.
Automakers have long sought patents on certain extra-stylish ornamentation to prevent other automakers from cribbing the design for their vehicles.
But the trickle of patent applications has become a torrent in recent years as automakers seek to boost their bottom lines by patenting more parts, thus bolstering their auto repair and parts replacement businesses. Ford, for example, has patented seven parts on its popular F-150 pickup truck, including lighted mirrors and the front grille. Honda has been the most aggressive, receiving about 110 design patents last year, followed by 75 for Ford and 60 for Toyota.
As the restrictions on replacement parts grow, it's a good bet that automakers will increase their share of the $16-billion parts replacement business in the U.S. Large independent repair shops that contract with car dealers or automakers and can get volume discounts on patented parts will also benefit.
However, small shops -- and consumers -- increasingly will get squeezed. Small collision repair businesses will have no choice but to pay full cost for the parts and pass along those higher prices to their customers. People paying for their own repairs out of pocket will feel the pain first.
Parts makers can't sidestep the patent protections, either, by making a hood or door panel that looks similar to the original. "The dilemma is that most states' laws dictate that repair shops use parts that look exactly the same as the original and be of the same quality and fit," says Eileen Sottile, executive director of the Quality Parts Coalition, a trade group.
Over time, the design patent avalanche is sure to dent business for small shops. Moreover, as overall repair costs rise, insurers will tag more banged-up vehicles as total losses, reducing repair work. Insurance companies also will increase auto insurance premiums to cover their added costs.
Look for the auto parts industry to step up a push to persuade Congress to pass a law letting independent parts manufacturers sell replacement parts to repair shops. Automakers would retain the right to sue competitors that copy a part design for their vehicles. The prospects for such legislation would increase with Democrats strengthening their hold on the House and the Senate, as we expect.
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Reader Comments (13)
Posted by: Herb S. at 03/01/2008 11:06:05 AM
There are all levels of quality (or lack of)in knock-off automotive parts. It started years ago with fenders and bumper covers coming from Taiwan. Body shops soon tired of the bad quality and fit of these panels. Anti-corrosion treatment was another issue, as these knock-off fenders soon rusted in the salt belt, due to the use of bad metal and primers. Today knock-off suppliers have expanded their product lines and package their products in packaging identical to the O.E.M. components. Today a consumer has no way of knowing if they are receiving the real product or a knock-off automotive component. Shall we talk about liability or warranty issues? Insurance companies never gave discounts to owners for using knock-off components, but allow the use of knock-off, or used components with verbiage buried deep in your insurance documents. Fake ladies handbags and cheap Rolex watches are one thing. A knock-off set of brake pads, brake rotors, and electrical components are something else. What's next? Knock-off airbag modules for your wife's car?
Posted by: Ted Randall at 03/02/2008 11:14:59 AM
I own and operate a "small collision repair business" and take exception to Ms. Sottile's comments. The inferior reproductions brought into this country do not provide a quality alternative to original replacement parts produced by the original manufacturer. There is much profit to be made with these items, just as there is with bootleg software and knockoff Gucci purses. Another weak argument for these items is that they will raise insurance premiums. Insurance companies base their premiums on full and proper repairs with original parts, so the better question would be, "Who has been taking the profit from these parts through the years, and where has it gone?" Certainly not back into the pockets of consumers. Thank you Ms. Sottile, but not all in my industry are looking for cheap alternative parts of questionable quality. In fact the small independent repairer stays in business selling high quality backed by reputation. Please plead your case for your importers and dealers, keep us out of it.
Posted by: Paul W Frey at 03/03/2008 08:16:10 AM
Please write an article on the poor quality and fit of after market parts. Also the fact that many insurance company's are using used parts of questionable quality on new cars. Some insurance company's do not tell policy holders who is repairing their car. The repair shops are held responsible for the repairs even though the insurance company's are demanding that used, rusty,or slightly damaged parts be installed on late model cars and trucks.Only State Farm,which lost a law suit in the matter does not require the use of used parts, or after market parts.The insurance company's dictate what shop will repair the car.After market parts is just the tip of the iceberg.
Posted by: Eyecare at 03/03/2008 08:51:44 AM
The overproliferation of patents in this country result in costs that are passed down to the consumer, in one form or another. Patent laws are in dire need of revision. Still, if I end up getting charged the same price for an OEM part as a knock-off I would prefer to have the better quality part put on. I wonder if the consumer is informed about which one he is paying for?
Posted by: Wade at 03/03/2008 04:51:27 PM
Herb S. No, not knock off airbags, Salvage airbags from a Junkyard car. What is worse is - the bags, processors, seatbelt tensioners, and all of the pyrotechnics are coded to the exact vehicle they came from. The math is different for a V6 versus a 4 cylinder car. So who could be sure that the salvage bags or bags marketed by companies such as "ALPS" www.factoryairbags.com are even correct for any particular application? Or have not been previously submerged in a TX or MS flood? Worse still on the crash parts scenario is the fact that Aftermarket crash parts - hoods, fenders, bumpers/reinforcements, and even some structural parts such as radiator supports are NOT crash/performance tested. Further - besides the previously mentioned fit and quality issues, finish problems, questionable lead content of Chinese primer coatings and insufficient or improper welds, those parts are not even made of the same materials. OEM's use specially engineered - high strength (and therefore lighter) steel and aluminum components. Changing these materials over to softer, heavier Mild steel changes the Kinetic 'moment' of the vehicle and changes the effect of the math that the computer uses to determine the instant of supplemental retraint deployment. airbags, curtains and pyrotechnically chrged seatbelt tensioners. The timing in milliseconds is determined by measurements of mass and force of vehicle occupants at the time that the vehicle's processor detects the "'seismic' pulse" of impact. Our jobs as repairers is to mess with that math as little as possible, to restore the elements of the formulae as nearly as we can. Ultimately a repairer vehicle is still just that "a repaired vehicle". Restoring "Pre-loss condition" is as much a myth as the lottery is a tax on the math impaired. To "Eyecare" heck yes my customers know what they are getting. In most states it is a requirement of law that vehicle owners know exactly, on paper, what they are buying. We could go on for hours.
Posted by: Sandy Bass-Cors at 03/03/2008 05:19:24 PM
Those who are writing negative comments are most of the collision repairers who choose OEM parts because their profit margin is higher when using more expensive parts. Ironically, several years ago, an article was written that an OEM Cadillac bumper didn't withstand a five miler per hour crash. Supposedly, the OEs have always claimed that it's the aftermarket that doesn't withstand crashes. Not so. Furthermore, the car companies have always had legislation to restrict use of aftermarket parts and repairs in order to keep their profits growing. For instance, in 1991, the car companies had introduced into Congress HR 1790, The Design Innovation and Technology Act. Had this bill passed, it would have given a 10 year monopoly on all parts and eventually service. They lost that battle because it was restrictive trade. The OEs refuse to compete in a free market place, so they use scare tactics and misinformation. Let consumers choose without OE interference. This is not about knock off parts, this is about legitimate companies in the aftermarket competing and having consumers choose how they spend their money.
Posted by: Eileen Sottile at 03/04/2008 03:13:10 PM
It is important to clarify that the debate over design patents only involves those parts on the exterior of the vehicle. Those parts include: hoods, fenders, bumper covers, and the like- the cosmetic parts on the car. We are not talking about brake pads or any mechanical parts in our effort to secure a repair clause in the patent law. I think it is very important to speak to the facts of this issue and to recognize that without quality alternative parts in the marketplace - more cars will be totaled resulting in fewer cars being repaired. Thus, repairers will have less work to do and the car companies and their dealerships will take customers away from the independent collision repair shops. It is also a fact that many of the parts produced for the independent parts industry are made in factories which also make car company parts for other markets. The bottom line is that competition benefits all of us. The availability of competitive parts keeps the cost of auto repair affordable. Why should the car companies and their dealers be the only source for replacement parts? Of course they shouldn't. Just as they shouldn't be the only game in town to repair a vehicle either.
Posted by: Jim Ostroff at 03/04/2008 06:57:22 PM
Kiplinger never takes sides on any issues or controversies. Shorn of emotional considerations, the issue comes down to regs--specifically, states' regulation of business and insurance practices. Consumer protection regs. vary, but the bottom line is that citizens are assured that repairs are done properly and that there is no diminishment of the product's performance, useful lifespan or appearance. Insurance regs essentially require that when repair the work is done under the aegis of an insurance company, the repair parts must provide the same fit, finish and performance as original parts. A repair company that flagrantly ignores the law and uses substandard replacement parts runs afoul of consumer protection laws. Same for the use of substandard parts where an insurance claim is involved. If there's widespread disregard for by law the issue is lax regulators, or worse. There is a certified parts program for various automobile components, including those used to restore auto bodies. Fact is, as design patents are granted to automakers, auto repair shops are prohibited from using a certified replacement part even if it's the performance-and-appearance twin of the OEM part, based on the shop's experience.
Posted by: Tommy Hufnagel at 03/05/2008 02:31:28 PM
You obviously have not looked at both sides of this issue. I own a body shop and I make MORE money on an aftermarket part than on an OEM part. I don't like these parts because they don't fit and any extra money I make on the aftermarket part, I lose on production time. Large body shops already get volume discounts on both aftermarket parts and OEM parts. That advantage has always been there. "The dilemma is that most states' laws dictate that repair shops use parts that look exactly the same as the original and be of the same quality and fit," DUH! Your aftermarket parts ARE NOT THE SAME FIT OR FINISH. Instead of listening to Quality Parts Coalition, a trade group THAT SELLS aftermarket parts, be a reporter and go to body shops that have to put these parts on cars, see what they think. Money saved with these parts is often eliminated with the cost of rental to cover the delays that bad fitting parts create. Consumer Reports did an article on these parts in 1999, and ripped them. They have only gotten marginally better since.
Posted by: Stan Rodman at 03/06/2008 10:22:49 AM
Lost on all of the verbosity on this parts issue are the real facts. The OEs (car-makers) have found a new way to try and restrict competition in parts replacement through design patent law, the intent of which we feel was to protect the design of the entire car and not individual parts. Australia, New Zealand and more than 20 countries in the European Union have already addressed this deficiency in their laws to allow for “spare parts” competition. They judged it would best benefit the consumer. Taken to the Nth degree, carmakers are now in a position where they can even design patent hard parts (parts used for the mechanical repair of a vehicle) and not just the cosmetic sheet metal and exterior components. It’s a serious issue which has ramifications over a number of industries and not just automotive repair and service. As for the parts themselves, this Association has been in existence for more than 27 years representing the interests of those companies which manufacturer and distribute these independently produced parts to the nation’s body shops. Our largest distributor did not grow to more than 140 locations doing nearly $1 billion annually by selling cheap knock-offs, as you term them. Our industry did not grow to supplying more than 12 percent of the replacement market because these parts are cheap and/or inferior. Most of our members offer a warranty on their products which far exceeds the OEs’ parts warranty. In fact, before the advent of this type of parts competition in the late 1970s, the OEs didn’t even bother to warranty their parts except for the first 30 days after installation. Now their longer term parts warranties are a direct result of the competition we brought to the marketplace. Among those parts which are CAPA certified, our members offer quality product lines which can stand the test against any OE produced replacement product. Over a course of several years in which the Collision Industry Conference (CIC) conducted blind field tests for fit and finish during the late ’90s, independently produced aftermarket parts more than held their own against the OE products. When the OEs went to stronger paint and primers, so too did our manufacturers, setting up electro-deposition paint and primer lines costing millions of dollars. When the OEs changed to galvanized steel for less weight but more strength, so too did our manufacturers. Most of our key overseas sheet metal manufacturers produce for the OEs and have extensive divisions under the same manufacturing roof dedicated to that aspect of the business. After nearly three decades, those initial manufacturers who thought they could come into North America with inexpensive products, cheaply made, have long since disappeared. Today, there are good alternative parts and better alternative parts. We don’t call them knock-offs as this is a disparaging word used by the OEs to demean in the field competition. Years ago, the bias against our parts was based on the perception among body shops that they were sacrificing profitability by carrying a less expensive parts line, no matter the quality. That’s because the insurance industry absorbs the cost of the parts but the shops make a percentage of everything they buy. It does not take a rocket scientist to understand that if the shop sources a $400.00 OE fender, his profitability at 25 percent is far greater than if the same type of aftermarket fender were to cost only $225.00. What didn’t fit was the profitability, not the product. This emotional issue was further acerbated by the insurance underwriters who desired this type of parts competition because our products, for the first time ever, provided them leverage against the outrageous OE parts pricing, which for many years, enjoyed an unparalleled monopoly. In the adversarial realm in which shops and insurance companies exist -- each tugging on the same wallet -- whatever the insurers want, the shops resist. Now the carmakers want to bring back those good old days. And the irony is that they are, in part, being abetted by the very body shops which have the most to lose in this battle. If only OE parts are in the marketplace, can OE-sanctioned (read factory) labor be far behind? Believe it, the parts issue is only the tip of the iceberg. The OEs want it all and if current design law helps them get to that hallowed ground, so much the better. We feel strongly that the design laws need changing to allow for a repair parts provision. Without this protection, not only does our industry -- in time -- cease to exist -- but the cost to the economy will be enormous as the OEs cannot even begin to fulfill the parts requirements for cars which are five, six and seven years old and which, down the line, will extract from the repair trade a prohibitive parts and availability price. It boils down to this: Does competition in the marketplace benefit the motoring public? We overwhelmingly believe it does, especially because it’s the same marketplace which selectively ferrets out those parts and product lines without merit! Stan Rodman, Executive Director, Automotive Body Parts Association, Houston, Tx.
Posted by: Jim Ostroff at 03/06/2008 01:27:16 PM
Collision repair shop people with whom we spoke said that the price differential between OEM parts and those made by another company often is very substantial. These people noted that the quality may vary, but this is typical of parts sourced from third-party vendors of many industrial and consumer products. These people stressed that they have the experience and expertise to weed out sub-par replacement auto parts. The bottom line is that design patents deny collision repair shops, insurance companies and consumers the right to decide what part can be used. We do not take sides on issues, but highlight the consequences. Kiplinger would do the same if HP or Apple could mandate that only they could supply replacement keyboards, mouses or standalone monitors because they were granted design patents on these parts; that GE, Maytag or Whirlpool could do the same with knobs on their washing machines.
Posted by: Tommy at 04/08/2008 09:55:33 AM
Stan stated, "Our industry did not grow to supplying more than 12 percent of the replacement market because these parts are cheap and/or inferior." Body shops or vehicle owners do not CHOOSE these parts, they are PUSHED upon them by the insurance industry, TO SAVE MONEY, REGARDLESS OF QUALITY. State Farm lost a 1.3 Billion dollar lawsuit over the quality of these parts. The differences in quality were never needed in court. State Farm's internal documents about the quality of these parts lost the case for them. Maybe Kiplinger's is so pro-business that they believe that the end justifies the means. These parts are not comparable to OEM and should not be forced upon vehicle owners. Ask any car salesman about a/m parts. The first thing they look for when you trade in your car is the a/m stamping in the parts. Once they find that an a/m fender has been installed they knock down the buy price. a/m parts devalue the vehicle at the same time unjustly enriching the multi-billion dollar insurance industry.
Posted by: Buck Turner at 04/14/2008 11:59:23 AM
No vehicle owner would ever pick untested chinese parts over the real parts made by the company that made his car. The decision to use knockoffs is made by the insurance company, and they do not pass the savings on to the owner of the car with the junk tin hanging off of it. No consumers benefit from chinese knockoffs unless they are paying for the repair directly, themselves - about 3% of all collision repairs.