I am sure you've invested time looking at all the commentaries about the PartsTrader procurement program, and you probably have as many concerns now as when the news first hit the publications.
There seems to be a continuous comparison of the program being rolled out here in the United States to the original program implemented in New Zealand eight years ago, and a great deal of effort to convince U.S. repairers and suppliers as to how different they are.
In many ways, this reminds me of the movie scene near the end of the Wizard of Oz when the curtain was accidently rolled back on the "Great Wizard." The famous phrase, "Don't pay attention to that man behind the curtain," certainly seems to fit today.
Reviewing a letter to our Industry from PartsTrader CEO Rob Cooper, it's becoming obvious that those involved in PartsTrader have little knowledge (outside what they were probably told) about our industry and the U.S. supply chain. Both State Farm and PartsTrader continue to refer to the inefficiencies of the parts procurement process as the key reason for this product, but take a look at what is actually behind the large curtain.
There is no doubt that North America has the best OE parts distribution model in the world.
Nowhere else can you order a part at 8:30 a.m. and in many areas have it before 11 a.m. You can place another order later in the morning and get it in the afternoon. If all else fails, you can just drop by and pick it up.
I don't see this in any other country. So how does this improve our inefficiencies? It does nothing for OEM parts procurement in this country, and has reduced other countries like New Zealand to a "cost plus markup" model, or even a "no margin" model.
In a letter to our Industry dated June 18, 2012, Cooper says, "Similarly, PartsTrader believes that all suppliers, small and large, no matter the type of part, should have a fair chance to win a repairer's business."
What leaves me shaking my head is that he may really believe this. However, we as a business have established our relationships long before this program was conceived, and we already determine who wins our business every day. We do not need another program to assist us in doing so. Nor do we need State Farm (or other insurers) believing they have a right to do so.
This also has been promoted as a benefit to policyholders. Will this make a better or faster repair? Will it lower premiums?
Let's call a duck, a duck. The real purpose of this program is to reduce parts costs to insurers, which has not translated historically to lower premiums to consumers, just larger budgets for advertising (now up to $5.7 billion in 2011), or great bonuses and CEO office remodeling, such as the recent $4.3-million Liberty Mutual CEO office remodeling.
What was interesting about this program in New Zealand is that the repairers never saw the long-range strategy of this program, or the consequences it had on profits. Everyone just believed it was designed to improve the inefficiencies for parts sourcing that really existed in that country. What came into that industry appearing to be a small sheep actually was a wolf.
I'm also sure that this opportunity must have seemed like a pot of gold at the end of a rainbow to PartsTrader, when some executive at State Farm made their case. I'm sure their venture capitalists were told this program was a slam dunk.
So why would we dare to look at other examples where a parts procurement or tendering program was implemented? Why don't we just believe everything that this program is going to do for us, and rely on all the "square dealings" we have been blessed with over the years?
Maybe because if it looks like a duck, walks like a duck, and quacks like a duck – it's not a chicken. In this case, when the curtain is rolled back we see a wolf in sheep's clothing.
Tony Passwater, president of AEII, has been in the collision industry since 1972.