OEM vs non-OEM
Posted: Wed Oct 15, 2014 7:01 am
Car parts probe: is this just the beginning?
(Hanna Barry)
Original equipment manufacturers (OEM) in the automotive industry are anti-competitive in refusing to allow cheaper alternative parts to be used to repair vehicles where safety is not a consideration. This is according to a number of insurance companies, brokers and aftermarket parts suppliers, none of which are willing to be quoted on record.
Gari Dombo, MD of Alexander Forbes Insurance told journalists on Monday that short-term insurers were being “held to ransom”, by vehicle parts suppliers. He said insurers needed to be allowed to use certified alternative parts to contain the cost of vehicle repairs, which currently account for between 60% and 70% of claim costs.
The Competition Commission on Monday announced it was investigating 82 automotive component manufacturers for collusion and price fixing in respect of 121 fairly arbitrary automotive components supplied to OEMs. The investigation forms part of a broader international investigation and in the main appears to relate to imported components, as opposed to locally manufactured and supplied parts, according to the National Association of Automobile Manufacturers of South Africa (Naamsa).
However, a body suggesting local players need to be investigated as part of the probe has approached the Commission, according to spokesperson Mava Scott. “If in the evaluation of the evidence there is a suggestion of some contravention, abuse of dominance or prohibited practice by OEMs, there’s nothing that stops the commissioner from pursuing further investigations,” Scott said.
An anti-competitive racket?
When you buy a new car the service plan, generally around five years, is included in the upfront unit cost. However, most local OEMs will remove the warranty on your vehicle (and the service plan) if you use a cheaper alternative part to repair your vehicle during that time, even if it is not a safety critical part and a purely cosmetic repair (such as a rearview mirror).
Insurers argue that in such cases, consumers should be allowed to use certified alternative parts, bringing down the cost of repair and, ultimately, the cost of their insurance premiums. However, Naamsa director Nico Vermeulen insists that OEMs are responsible to protect the integrity of their brand and to ensure the safety of their customers. Naamsa represents the interests of motor vehicle manufacturers.
“It is normal practice throughout the world that while the vehicle is under warranty, it has to be repaired by the appointed franchise dealer… and in line with the original design requirements,” Vermeulen said.
Similarly, BMW said it did not warrant any non-approved parts on its products, in the interest of quality assurance and reliability. “This is directly related to safety and warranty issues as we cannot vouch for the quality, safety or reliability of any part which has not been validated by the BMW Group,” Edward Makana, manager of group automotive communications, told Moneyweb.
According to one industry commentator, BMW insists on the use of original parts even on vehicles that are not under warranty, threatening to remove the BMW stamp of approval from panel beaters that do not comply. Makana could not be reached for comment on this.
VW said it would not unilaterally withdraw warranties if alternative parts were fitted, but might reject a warranty claim if a subsequent problem or failure of a component was due to a non-genuine part being fitted.
Insurers to meet with OEMs
The high cost of parts has long been a concern of the short-term insurance industry’s representative body, the South African Insurance Association (SAIA). Viviene Pearson, general manager of insurance risk at SAIA, confirmed that the organisation was meeting “at the highest level” with Naamsa in December to discuss the high cost of OEM parts.
“This meeting will include CEOs from insurers as well as the president and deputy presidents from Naamsa,” Pearson said. “It still remains a very viable idea to certify alternative parts to ensure quality while addressing the affordability issue.”
It’s not clear whether the South African Bureau of Standards (SABS) is willing to certify alternative parts, with some suggesting this is because the OEMs are significant SABS customers. SABS could not be reached for comment.
However, TÜV Rheinland, a Germany-based company that accredits motor vehicle parts around the world, has set up a parts accreditation capability in South Africa. “With the growth in imported generic parts and with the focus on quality standards it is likely that we will see growing pressure from insurers to utilise generic parts,” commented Peter Todd, founding director of motor vehicle repair management company, Repair Solutions, and former CEO of Mutual & Federal.
According to a spokesperson for a leading aftermarket parts supplier who preferred not to be named, OEM parts prices can vary between being 20% to 400% more expensive than alternative parts, even where these have been certified by third-party agencies to vouch for their quality.
He says motor manufacturers make most of their money through after-sales servicing and some OEMs will refuse to sell single parts to panel beaters (like a front light for instance) if they suspect the panel beater is sourcing accompanying parts (like a bumper) elsewhere, insisting the panel beater buys a basket of parts.
(Hanna Barry)
Original equipment manufacturers (OEM) in the automotive industry are anti-competitive in refusing to allow cheaper alternative parts to be used to repair vehicles where safety is not a consideration. This is according to a number of insurance companies, brokers and aftermarket parts suppliers, none of which are willing to be quoted on record.
Gari Dombo, MD of Alexander Forbes Insurance told journalists on Monday that short-term insurers were being “held to ransom”, by vehicle parts suppliers. He said insurers needed to be allowed to use certified alternative parts to contain the cost of vehicle repairs, which currently account for between 60% and 70% of claim costs.
The Competition Commission on Monday announced it was investigating 82 automotive component manufacturers for collusion and price fixing in respect of 121 fairly arbitrary automotive components supplied to OEMs. The investigation forms part of a broader international investigation and in the main appears to relate to imported components, as opposed to locally manufactured and supplied parts, according to the National Association of Automobile Manufacturers of South Africa (Naamsa).
However, a body suggesting local players need to be investigated as part of the probe has approached the Commission, according to spokesperson Mava Scott. “If in the evaluation of the evidence there is a suggestion of some contravention, abuse of dominance or prohibited practice by OEMs, there’s nothing that stops the commissioner from pursuing further investigations,” Scott said.
An anti-competitive racket?
When you buy a new car the service plan, generally around five years, is included in the upfront unit cost. However, most local OEMs will remove the warranty on your vehicle (and the service plan) if you use a cheaper alternative part to repair your vehicle during that time, even if it is not a safety critical part and a purely cosmetic repair (such as a rearview mirror).
Insurers argue that in such cases, consumers should be allowed to use certified alternative parts, bringing down the cost of repair and, ultimately, the cost of their insurance premiums. However, Naamsa director Nico Vermeulen insists that OEMs are responsible to protect the integrity of their brand and to ensure the safety of their customers. Naamsa represents the interests of motor vehicle manufacturers.
“It is normal practice throughout the world that while the vehicle is under warranty, it has to be repaired by the appointed franchise dealer… and in line with the original design requirements,” Vermeulen said.
Similarly, BMW said it did not warrant any non-approved parts on its products, in the interest of quality assurance and reliability. “This is directly related to safety and warranty issues as we cannot vouch for the quality, safety or reliability of any part which has not been validated by the BMW Group,” Edward Makana, manager of group automotive communications, told Moneyweb.
According to one industry commentator, BMW insists on the use of original parts even on vehicles that are not under warranty, threatening to remove the BMW stamp of approval from panel beaters that do not comply. Makana could not be reached for comment on this.
VW said it would not unilaterally withdraw warranties if alternative parts were fitted, but might reject a warranty claim if a subsequent problem or failure of a component was due to a non-genuine part being fitted.
Insurers to meet with OEMs
The high cost of parts has long been a concern of the short-term insurance industry’s representative body, the South African Insurance Association (SAIA). Viviene Pearson, general manager of insurance risk at SAIA, confirmed that the organisation was meeting “at the highest level” with Naamsa in December to discuss the high cost of OEM parts.
“This meeting will include CEOs from insurers as well as the president and deputy presidents from Naamsa,” Pearson said. “It still remains a very viable idea to certify alternative parts to ensure quality while addressing the affordability issue.”
It’s not clear whether the South African Bureau of Standards (SABS) is willing to certify alternative parts, with some suggesting this is because the OEMs are significant SABS customers. SABS could not be reached for comment.
However, TÜV Rheinland, a Germany-based company that accredits motor vehicle parts around the world, has set up a parts accreditation capability in South Africa. “With the growth in imported generic parts and with the focus on quality standards it is likely that we will see growing pressure from insurers to utilise generic parts,” commented Peter Todd, founding director of motor vehicle repair management company, Repair Solutions, and former CEO of Mutual & Federal.
According to a spokesperson for a leading aftermarket parts supplier who preferred not to be named, OEM parts prices can vary between being 20% to 400% more expensive than alternative parts, even where these have been certified by third-party agencies to vouch for their quality.
He says motor manufacturers make most of their money through after-sales servicing and some OEMs will refuse to sell single parts to panel beaters (like a front light for instance) if they suspect the panel beater is sourcing accompanying parts (like a bumper) elsewhere, insisting the panel beater buys a basket of parts.